Corporate reporting practices including corporate social and environmental disclosure (CSED) are different between countries. The literature has provided little systematic empirical examination of the patterns of CSED in a newly industrialized country. It would be dangerous to generalize the results of studies on developed nations to newly developed countries as the stage of economic development is likely to be an important factor affecting CSED practices. Although anecdotal evidence suggests a low level of CSED by HK companies compared to companies in many developed economies, little evidence is available concerning current CSED in HK. Lynn (1992) provides a study of CSED in HK, however, Lynn’s study, based on an analysis of the annual reports prepared for 1989, needs to be updated, as in the 1990s substantial changes took place in HK’s economy (including the 1997 handling over of HK sovereignty back to China) which have influenced HK’s corporate behaviour and disclosure practice.

This study aims to investigate the patterns and determinants of current CSED in HK by examining the amount, content themes and location of CSED through content analysis of 154 annual reports prepared by HK companies from 1993 to 1997. The findings of this study, which can be compared with the earlier ones by Lynn (1992), provide an insight into the changes and current practice of CSED in HK.

HK companies have traditionally faced little external pressures for disclosing social and environmental information. Although Friends of the Earth established its offices in HK in 1983, it has made little fundamental difference on the way HK businesses operate. Pollution, safety and many other social problems have accompanied economic achievements causing the HK government to introduce some environmental and social related regulations. Enforcement of social and environmental legislation has been lax. Ng (2000, p. 65) observes: “As yet, Hong Kong does not stipulate regulations on how to account for environmental factors and include such into financial data”. Jaggi and Zhao (1996) thus call for making CSED mandatory in HK.

CSED has attracted considerable academic research since the 1980s. Research on voluntary disclosure has attempted to examine the nature and patterns of CSED and investigate the determinants, such as size, profit and industry affiliation, of CSED. The literature recognizes that CSED practices are different across countries and inter alia, between developed and developing countries, and the nature and patterns of CSED vary between different sectors. Surveys of CSED practices in the western developed countries reveal that companies place the greatest emphasis on the disclosure of human resources, including employee numbers and remuneration, equal opportunities, employee share ownership, disability policy and employee training. Little disclosure exists in sensitive areas such as trade union activities, pay awards and redundancy schemes and costs. The vast majority of disclosures are qualitative in nature.

Although determinants have been identified, mixed findings are presented in prior studies for some commonly examined variables such as size, industry classification and ownership structure. For example, Gray et al. (2001) suggest that large and high-profile companies disclosed more CSED than other companies, while Cowen, Ferri, and Parker (1987) find that size is related only for certain areas of disclosure. Lynn (1992) finds no relationship between company size and the level of CSED. Hackston and Milne (1996) report no relationship between profit measures and CSED.

Four dedicated studies of CSED in HK have been published, but of these, only Lynn’s (1992) research covers both social and environmental reporting. Based on 264 HK public companies’ annual reports for 1989, he finds that HK had the lowest rate of CSED of any jurisdiction; only 17 companies made disclosures with an average history of disclosure of 2.5 years. HK’s reporting was not under pressure from consumers and other interest groups. The political arrangement at the time made social issues a less important topic. The market and the whole economy “were traditionally considered a casino” (p. 109), which paid little attention to public interests. HK society was family-centred; family responsibility overwhelmed corporate responsibility. Lynn finds that industry membership had a significant relationship with CSED. While the property and construction companies disclosed least, two-thirds of utility companies account for more than a third of all those making disclosures. Lynn also finds that size had no impact on CSED in HK.

Ho, Ng, and Ng (1994) finds a low level of environmental disclosure made by HK companies, and comment: “… it is very disappointing to find that very few companies indeed disclose such information to the public through their annual reports. Also the disclosures are crude and limited to non-financial narrative statements expressing the firm’s support on environmental protection and reporting on progress of environmental project” (p. 62). Jaggi and Zhao (1996) reports that, among 100 sampled HK companies, only 13 had been consistently disclosing environmental information from 1992 to 1994, only 3 provided quantitative information, and most companies did not disclose any financial information on their environmental activities. All disclosures were located in the directors’ report, the annual review, or the chairman’s statement. Their study indicates the existence of an expectation gap between what the managers believe should be disclosed and what was actually being disclosed.

Ng (2000) finds that 9% of the 200 HK listed companies reported environmental information in the published accounts and no company disclosed financial data concerning environmental performance. Disclosures were contained in either the directors’ report or the chairman’s statement. The disclosures were found to be general statements indicating company support for environmental protection and describing projects undertaken to reduce pollution and save energy and resources.

Williams and Pei (1999) compare Web-based CSED in Australia, Singapore, HK, and Malaysia and find that the level of disclosure is higher in the first two countries. They suggest that CSED is heavily influenced by national rather than global factors and concerns. Their study also finds that HK companies disclose more social information than environmental information.

Prior studies have found a positive relationship between company size and the overall level of disclosure in a number of countries. However, the size effect has not been studied recently in the context of HK’s CSED. Hence the following hypothesis follows.

There is a positive association between company size and the level of CSED.

Industry memberships have been identified by many theoretical and empirical researchers as a factor that affects CSED. Different industries have different characteristics, which may relate to risks to society, potential growth, employment opportunities, competition and government interference. These may provide scope for differential CSED policy between sectors. There is much evidence to suggest that the level and type of CSED are industry-specific. For instance, corporations in high profile industries are expected to have higher levels of social responsibility disclosures. Harte and Owen (1991) suggest that industry sensitivity towards the environment influences the level of CSED. For example, environment-sensitive companies are more likely to provide information about their environmental performance than less environment-sensitive companies. Hence the following hypothesis follows.