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Sustainability Accounting, Management and Policy Journal

Does family status impact US firms' sustainability reporting?


Venkataraman Iyer Ayalew Lulseged
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Venkataraman Iyer Ayalew Lulseged, (2013),"Does family status impact US firms' sustainability reporting?",
Sustainability Accounting, Management and Policy Journal, Vol. 4 Iss 2 pp. 163 - 189
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Family status
Does family status impact US
firms sustainability reporting?
Venkataraman Iyer and Ayalew Lulseged
Department of Accounting and Finance, 163
The University of North Carolina at Greensboro,
Greensboro, North Carolina, USA

Abstract
Purpose The primary purpose of this study is to investigate the association between the family
status and corporate social responsibility disclosure (sustainability reporting) of large US companies.
Design/methodology/approach The authors gathered data from GRI database as well as from
Compustat. They use both univariate and multivariate statistical analyses.
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Findings The authors find that there is no statistically significant difference in the likelihood of
sustainability reporting between family and non-family firms of the S&P 500. They document
important associations among the propensity to issue sustainability reports, the level of details of
sustainability reports and certain firm-specific and industry characteristic variables.
Research limitations/implications This study is focused on S&P 500 firms and may not be
generalizable to smaller firms. Differences among family firms such as stock ownership and
management control may affect sustainability reporting and are important topics for future research.
Practical implications Society should be aware of the motivations and incentives that govern
sustainability reporting decisions by both family and non-family firms. The authors show that both
family and non-family companies use voluntary disclosure in general and sustainability reporting in
particular as a way of mitigating regulatory, political and litigation costs.
Originality/value No prior study, to the authors knowledge, has examined the association
between sustainability reporting and the family status of firms. The authors include suggestions for
future research in this area and hope that their study will provide motivation and guidance to
researchers to study this topic further.
Keywords CSR, Sustainability reporting, Disclosure, Family status, Social responsibility, Family firms,
United States of America
Paper type Research paper

Introduction
Family firms are companies that are either managed or controlled by founding families by
way of substantial equity ownership and board memberships. About one-third of S&P 500
or Fortune 500 firms are comprised of family firms (Lee, 2006; Anderson and Reeb, 2003a).
Ali et al. (2007) report that families control about 11 percent of the cash flow rights and
18 percent of the voting rights in family firms. Researchers have examined family firms
financial reporting quality (Chen et al., 2008), earnings management (Yang, 2010),
voluntary disclosure (Ali et al., 2007), and choice of accounting methods (Niehaus, 1989).
Prior research has predominantly used the agency theory (Jensen and Meckling, 1976) to
test these issues because of the unique setting provided by family firms where there is a Sustainability Accounting,
higher risk of minority expropriation by the controlling family on the one hand and the Management and Policy Journal
Vol. 4 No. 2, 2013
familys concern with the survival and reputation of the company on the other. pp. 163-189
Corporate social responsibility (CSR) performance of family firms is a topic that has q Emerald Group Publishing Limited
2040-8021
attracted considerable attention of researchers. CSR refers to a companys voluntary DOI 10.1108/SAMPJ-Nov-2011-0032
SAMPJ contribution to sustainable development beyond what is required by law or regulation.
4,2 Whether businesses have social responsibility has been a subject of heated debate.
Some argue that the only social responsibility of business is profit maximization or
maximization of the long term shareholder value (Friedman, 1970, 2005; Rodgers,
2005). Others contend that businesses should create value to all of their constituencies
because it is good business and works for the long-term-benefit of investors and/or
164 because companies have responsibility to their community and environment (Donaldson
and Preston, 1995; Mackey, 2005). Slowly but surely the balance in the debate seems to be
shifting in favor of the latter view as evidenced by the rapid increase in the number of
companies engaged in and are disclosing their CSR activities.
No prior study, to our knowledge, has looked at the association between family firms
and sustainability reporting. Thus, we rely heavily on results from prior research that
investigates:
.
the association between disclosure, in contexts other than sustainability, and
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family firms; and


.
the sustainability performance of family firms to establish the link between
sustainability reporting and the family status of firms.

Most prior accounting research on the association between disclosure and family firms
relies on agency theory and market-based incentives. In this paper, we also draw from
legitimacy and stakeholder theories in developing the two research questions we address.
Studies that investigate the association between the family status of firms and
disclosure in other contexts have mixed predictions and findings. Some argue that there
is less demand for and thus less voluntary disclosure in family than in non-family firms
because:
.
family firms generally have longer investment horizons and are less fixated on
short-term performance (Anderson and Reeb, 2003a; Villalonga and Amit, 2006);
.
there is lower information asymmetry between the family owners and
management due to the formers active involvement in management (Chen et al.,
2008); and
.
direct monitoring of management by the family owners acts as a substitute for
public disclosure (Bushman et al., 2004).

Others argue that family firms are more likely to and disclose more because family
owners, with concentrated and undiversified ownership, benefit the most from the
reduction in:
.
cost of capital (Dhaliwal et al., 2011); and
.
the costs of litigation and reputation loss that result from enhanced disclosure
(Welker, 1995; Botosan, 1997).

In a study of S&P 1500 firms (family and non-family), Chen et al. (2008) find results
that support both the above views. On one hand, Chen et al. (2008) find that family
firms provide fewer forecasts and conference calls consistent with the view that family
firms are less likely to disclose. On the other hand, Chen et al. (2008) find that family firms
provide more earnings warnings consistent with the view that family owners that have
heightened litigation and reputation cost concerns are more likely to disclose.
Prior studies that examine the association between the family status of companies Family status
and their (CSR) performances also find mixed results. On one hand, Morck and Yeung
(2004) hypothesize and find that family firms are less socially responsible than
non-family firms because they are focused on protecting their own narrow self-interests.
On the other hand, Dyer and Whetten (2006) infer and provide evidence consistent with
their inference that family firms have higher CSR performance than non-family firms
because they are keen on protecting the image and reputation of the family and since a 165
positive reputation in the minds of key stakeholders may serve as a form of social
insurance, protecting the familys assets in times of crisis.
In summary, results from the extant research on the relation among disclosure,
sustainability performance, and the family status of firms are mixed and heavily driven
by agency theory and market-based incentives of companies, with few exceptions (Dyer
and Whetten, 2006). However, legitimacy theory and stakeholder theory have also been
proposed to explain the incentives of organizations to disclose their sustainability
practices. Legitimacy theory relies upon the:
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[. . .] notion of a social contract and on the maintained assumption that managers will adopt
strategies, inclusive of disclosure strategies, that show society that the organisation is
attempting to comply with societys expectations (as incorporated within the social contract)
(Deegan et al., 2002, p. 319).
While the focus of legitimacy theory is society in general, the interests of particular
stakeholder groups are the focal point in stakeholder theory (Deegan and Blomquist,
2006). Legitimacy theory posits that organizations try to ensure that there is congruence
between their value systems and the value system which is generally shared by the
wider community (Mathews, 1993). Organizations try to project an image which has a
strong base of social legitimacy. In this vein, companies try to gain legitimacy by social
and environmental disclosures (Deegan, 2007). Corporate sustainability disclosures can
be used by companies as a strategy to respond to their stakeholders expectations
(Gray et al., 1995).
Given the close alignment of firms reputation with the familys reputation, it is
reasonable to expect that the family firms are much more sensitive to the expectations of
their stakeholders than are non-family firms. Family firms are very much concerned
about the reputation of the firm due to greater visibility of the family in the firm and the
long-term orientation of the family in the business (Zellweger et al., 2011; Dyer and
Whetten, 2006; Niehm et al., 2008). Carney (2005) observes that family firms may enjoy
long-term relationships with internal and external stakeholders and through them
develop and accumulate social capital. Taken together these studies suggest that family
firms are more likely to issue sustainability reports.
In this study, we investigate the association between CSR disclosure (widely known
as sustainability reporting) and the family status of S&P 500 firms[1]. Specifically, we
address two broad research questions. First, do family firms have a higher propensity to
issue sustainability reports than non-family firms? Second, do family firms issue
sustainability reports with higher level of details? Our study extends three areas of prior
research. First we complement studies that examine the association between CSR
activities and the family status of companies. While prior research in this area has been
focused on the actual CSR activities of companies, in this paper we focus on CSR
disclosure, which is related to but distinct from CSR activities. Although only companies
engaged in CSR activities can disclose their CSR activities, not all firms engaged in CSR
SAMPJ activities may choose to disclose their CSR activities since disclosure decisions involve
4,2 tradeoffs between costs and benefits, not necessarily reflected in the decision to engage
in CSR activities or not. Second, we extend the disclosure literature that examines the
association between disclosure and the family status of firms to the new and upcoming
important area of sustainability reporting. Third, we extend prior studies that examine
the characteristics of companies that voluntarily report their sustainability practices by
166 investigating the incremental impact of the family status of firms, after controlling for
variables that prior research finds to be related to sustainability reporting.
Using the company listing available in the sustainability disclosure database of the
Global Reporting Initiative (GRI) (2006) and the classification of family firms by
BusinessWeek (2003), we investigate the association between sustainability reporting
and the family status of S&P 500 firms. Business Week defines family firm as firms in
which founders or descendants continue to hold positions in top management, on the
board, or among the companys largest stockholders. This classification yields
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177 family companies in the S&P 500-stock index as of July, 2003. According to the GRI
database, 32 of the family and 79 of the non-family companies in the S&P 500 voluntarily
disclosed their sustainability information using the GRI framework in 2010[2].
In a univariate mean difference (t-test) and non-parametric median tests, we do not find
a statistically significant difference between the likelihood of sustainability reporting by
family and non-family firms in our sample. We also do not find any significant difference
in the level of details of sustainability reports issued by family and non-family firms.
Moreover, the coefficient of the family status indicator variable, in a logistic regression
model that estimates the likelihood of firms voluntarily filing their sustainability reports
with GRI as a function of their family status and other control variables, such as size and
leverage, is statistically insignificant. Likewise, the family status indicator variable is
insignificantly different from zero, in an ordinal probit regression model that relates the
level of sustainability reports (A, B, C, Below C, or Not reporting) to the family status of
firms and other firm-specific and industry control variables, such as size, profitability,
leverage, etc. We cannot reject the null hypothesis that there is no difference between
family and non-family companies in their likelihood of issuing sustainability reports and
in the level of details of the sustainability reports they issue.
Although not the primary focus of our study, we also find results that corroborate
findings in prior research regarding the characteristics of companies (both family and
non-family) that choose to voluntarily provide sustainability reports. More specifically,
we find that:
.
larger firms, firms with larger proportion of assets in place (i.e. low growth),
firms with high operating performance (ROA) and high capital intensity firms
are more likely to voluntarily issue sustainability reports;
.
firms in the oil and chemical, utilities, manufacturing, regulated and high
litigation industries are more likely to voluntarily issue sustainability reports,
consistent with the view that higher litigation and reputation loss concerns drive
firms to engage in more voluntary disclosure; and
.
larger firms, low growth firms, better performing firms (those with higher ROA),
firms with higher capital intensity, firms in the oil and gas, chemical, utilities and
manufacturing industries and firms in the regulated and high litigations
industries tend to issue higher level sustainability reports.
By empirically documenting the significant influence of firm level characteristics Family status
(size, growth, performance, capital intensity, etc.), industry, regulatory and litigation
environments on companies decisions to voluntarily issue sustainability reports and the
levels of their sustainability reports, our study provides valuable information to public
policy makers, investors, employees, customers, other stakeholders and society at large.
First, public policy makers deciding what to regulate will benefit greatly from
understanding the differences in companies incentives and motivations to voluntarily 167
issue sustainability reports. A one size fits all approach to regulating sustainability
reporting that ignores these differences in companies incentives and motivations is
likely to be ineffective and costly. Second, understanding the different incentives and
motivations companies have to voluntarily issue sustainability reports is of paramount
importance to sustainability focused investors in deciding where to invest their money,
sustainability concerned employees in deciding which company to commit their services
to, to environmental and social performance-oriented customers in deciding which
products or services to buy, and to society at large in deciding what policies and
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regulations directed at sustainability reporting to support.


The rest of the paper is organized as follows: next section presents background
information on the sustainability reporting guidelines of the GRI and the third section
provides a summary of prior research and develops the research questions; the fourth
section discusses the research methods including sample selection, statistical model and
control variables. The fifth section presents the results and we conclude with a
discussion of our results, limitations, and avenues for future research.

Sustainability reporting guidelines


Many companies spend considerable effort and resources on voluntarily disclosing
information about their CSR sustainability reports in order to meet the perceived
information demand of:
.
investors and other stakeholders interested in assessing their social and
environmental performance; and
.
those that rely on this type of non-financial data to understand the risks and
likely future financial performance of companies.

Sustainability reporting guidelines of the GRI (2006) provide a common framework


for sustainability reporting. According to the KPMG International Survey of Corporate
Responsibility Reporting (KPMG, 2011), 95 percent of the 250 largest global companies
now report on their CR activities compared to 45 percent in 2002. Among the 250 largest
global companies, about 80 percent currently use the GRI reporting standards.
In addition to providing the guidelines, GRI also offers a service whereby companies can
have their sustainability reports checked for the level of disclosure.
According to GRI:
Sustainability reporting is a process for publicly disclosing an organizations economic,
environmental, and social performance. Many organizations find that financial reporting alone
no longer satisfies the needs of shareholders, customers, communities, and other stakeholders
for information about overall organizational performance.
The new G3 version of the GRI or the Third Generation of the GRIs sustainability
reporting guidelines, released in 2006 provides universal guidance for reporting on
SAMPJ sustainability performance. The guidelines are composed of reporting principles,
4,2 guidance and standard disclosures. The reporting principles and guidance help define
report content, ensure report quality and set report boundary. The standard
disclosures consist of strategy and profile, management approach and performance
indicators. The performance indicators are further broken down into nine economic
(EC), 30 environmental (EN), 14 labor practice and decent work (LA), nine human
168 rights (HR), eight social (SO), and nine product responsibility performance (PR) a
total of 79 indicators.
The reporting companies identify the level of assurance through one of four
application level checks: undeclared, self-declared, GRI checked, or third-party checked.
First, companies decide whether to self-declare the level of the reports they issue
(self-declared) or not (undeclared). If they opt to self-declare, they then choose among the
three levels, A, B, or C, depending on their assessments of the contents of their reports
against the application level criteria set by GRI. A report is leveled GRI checked if GRI
confirms the companys self-declared application level and indicates the extent to which
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the GRI reporting framework was utilized. Finally, a report is leveled as third-party
checked, if the reporting company has obtained external assurance from a third party,
such as an auditor.
Application levels (A, B, or C) are intended to show incrementally expanding
approaches to reporting using the GRI reporting framework. According to GRI, to
qualify for level C, a report should include some elements of the GRI required profile
disclosures and report fully on a minimum of ten performance indicators, including at
least one from each of social, economic and environment. A level C report is not required
to include any disclosures on management approach. To quality for level B, a report
should include all the GRI required profile disclosures (all those required for a level C
report plus some more), disclosures on management approach and report fully on a
minimum of any 20 performance indicators, at least one from each of economic,
environment, human rights, labor, society, product responsibility. Lastly, to qualify for
level A, a report should meet all the requirements for a level B report and respond on
each core and sector supplement indicator with due regard to the materiality principle by
either: (a) reporting on the indicator or (b) explaining the reason for its omission.
In summary, level A reports are the most complete (i.e. the company has either reported
or explained the omission of all of GRIs 79 performance indicators) and Level C reports
are the least complete. Level B reports are less complete than level A reports but more
complete than level C reports.
Corporate sustainability reporting requires organizations to measure their
performance on various indicators related to sustainable development outcomes.
When reports are made publicly available, investors and other stakeholders will use
them to assess, for themselves, the level of efforts undertaken by the companies to
promote sustainability. The benefits of voluntarily reporting on sustainability include:
.
the enhancement of corporate image and brand;
.
the inclusion in the socially responsible investment portfolio;
.
better compliance with government rules and regulations and avoidance of
litigation;
.
improved employee morale and customer satisfaction; and
.
greater sales increases and cost reductions (Bras, 2009).
Prior research Family status
Disclosure practices of family firms
Ali et al. (2007) examined both the earnings quality and the disclosure practices of family
firms in the USA. They posit that family firms are less affected by Type 1 agency
problems (the type that results from the separation of ownership from management)
because of the close involvement and monitoring of operations by family members. This
prevents, to a large extent, earnings manipulation in family firms compared to 169
non-family firms. Active family owners have better knowledge of the firms business
and therefore are in a position to detect manipulation of accounting numbers. Family
firms, however, suffer more from Type 2 agency problems (that result from controlling
vs non-controlling owner conflicts). The family owners, as controlling shareholders,
have the opportunity to expropriate wealth from the non-controlling shareholders
because the boards tend to be less independent and dominated by family members. In
this context there may be incentives not to disclose-related party transactions and family
members hold on top management positions.
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Based on the BusinessWeek (2003) classification of S&Ps 500 firms into family and
non-family firms, Ali et al. (2007) find that reported earnings are of better quality for
family firms as compared to non-family firms. With respect to disclosure practices, they
find that family firms are more likely to warn for a given magnitude of bad news than
non-family firms. This, they contend, is due to family firms being subject to less
opportunistic behavior as a result of difference in agency costs across family and
non-family firms because of Type 1 agency problems. They also find that family firms
tend to disclose less information about their corporate governance practices in their
proxy statements consistent with Type 2 agency argument.
In a related study, Chen et al. (2008) examine if family firms provide more or less
voluntary disclosure compared to non-family firms. They argue that family owners have
longer investment horizons than other shareholders and there is less information
asymmetry between family members and management. This is because of the family
members concentrated ownership and active involvement in the business. Because of
this, they posit that family owners may prefer less public voluntary disclosure. On the
other hand, voluntary disclosure can reduce the cost of capital (Botosan, 1997) and
reduce potential litigation risk and reputation costs (Field et al., 2005).
Using the sample of S&P 1500 firms, Chen et al. (2008) find that relative to non-family
firms, family firms are more likely to provide bad news earnings warnings due to litigation
and reputation costs but are less likely to provide earnings forecasts because of the lower
information asymmetry between owners and managers in family firms. These findings
are consistent with the view that family owners play more active role in influencing firms
voluntary disclosure practices than other investors with concentrated ownership.
In summary, given the potentially greater conflict between owners (principals) and
managers (agents) in companies with widely-disbursed ownership (Fama and Jensen,
1983) and the lower information asymmetry in closely-held companies, voluntary
disclosures are likely to be greater in companies with widely-disbursed ownership.
Family firms and companies with few big shareholders have little motivation to
voluntarily disclose information. Greater public accountability demand provides
another reason why disclosure may be greater in non-family companies.
While agency theory has been the most prominent theory used in this area of
research, legitimacy theory and stakeholder theory have also been proposed to explain
SAMPJ the incentives of organizations to disclose their sustainability practices. According to
4,2 Deegan and Blomquist (2006, pp. 349-350), the main difference between the two theories
is that whilst legitimacy theory discusses the expectations of society in general,
stakeholder theory provides a more refined resolution by referring to particular groups
within society. Legitimacy theory posits that organizations try to ensure that there is
congruence between their value systems and the value system which is generally shared
170 by the wider community (Mathews, 1993). Organizations try to project an image which
has a strong base of social legitimacy. In this vein, companies try to gain legitimacy by
social and environmental disclosures (Deegan, 2007).
Disclosures are meant to signal that companies are cognizant of the expectations of the
stakeholders and are trying their best to meet them. Thus, one of the goals of corporate
disclosures is to legitimize the companys activities to stakeholders. Corporate
sustainability disclosures can be used by companies as a strategy to respond to their
stakeholders expectations (Gray et al., 1995). According to Suchman (1995), management
faces the challenge of maintaining legitimacy by constantly changing their actions in
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consonance with changes in publics needs and at the same time protecting their past
accomplishments. Thus, the concept of legitimacy is relative to value system of the
audience or the stakeholder group which is interested in the companys actions and
accomplishments. According to Dowling and Pfeffer (1975, p. 125), legitimacy is:
[. . .] the outcome of, on the one hand, the process of legitimation enacted by the focal
organization, and on the other, the actions affecting relevant norms and values taken by other
groups and organizations.
To our knowledge, no study has examined the implications of legitimacy on disclosure
practices in the context of family firms. The close alignment between the firms and the
familys reputation in family firms suggests that family firms are likely to be more
sensitive to the expectations of their stakeholders than are non-family firms. Carney
(2005) observes that family firms tend to enjoy long-term relationships with internal and
external stakeholders and through them develop and accumulate social capital.

Sustainability or CSR practices in family firms


Findings on sustainability practices in family firms are mixed. This may be due to the
fact that family firms are heterogeneous and their orientation is likely to be affected or
driven by their unique characteristics (Deniz and Suarez, 2005).
According to the first school of thought, family businesses are more oriented towards
sustainability practices. Dyer and Whetten (2006) studied the social responsibility
practices of family firms. By comparing the social performance of family and non-family
firms in the S&P 500 over a ten-year period, they find that family firms are more likely to
be socially responsible than non-family firms. They argue that family firms are more
concerned about their image due to the fact that the reputation of the family is linked to
the firms reputation. Though they find no difference between family and non-family
firms with respect to engaging in positive social initiatives, they show that family firms
tend to avoid actions that could create negative publicity and damage their reputation.
Niehm et al. (2008) report similar findings, based on their study of 221 firms operating in
rural markets in the USA. In a study of 42 family businesses in The Netherlands,
Uhlaner et al. (2004) found that family businesses are more likely to have good
relationship with their employees, customers, and suppliers.
Zellweger et al. (2011) develop an organizational identity-based rationale for why Family status
family firms strive for nonfinancial goals. They show that the family firms are very
much concerned about the reputation of the firm due to greater visibility of the family in
the firm and the long-term orientation of the family in the business. They argue that this
concern for corporate reputation leads the family to pursue nonfinancial goals to the
benefit of non-family stakeholders. Moreover, socially responsible acts by the firm likely
results in favorable treatment of the firm by the stakeholders such as employees, 171
customers, investors and suppliers (Niehm et al., 2008).
There is an alternate view which contends that family businesses have very little
concern for sustainability or socially responsible business practices. This stems from the
argument that family businesses are motivated by self-interest with very little regard for
the society at large. Focused on protecting their self-interests, family business may be
more likely to engage in socially irresponsible activities (Morck and Yeung, 2004).
In sum, findings in the extant research on the association between sustainability
practice and the family status of firms as well as those related to voluntary disclosure
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practices in family firms are mixed. Corporate sustainability report is a tool companies
use to communicate performance to stakeholders and shareholders alike. Companies
deal with different types of stakeholders and face different levels of political and societal
costs. Voluntary disclosure of sustainability practices can help preempt potential
governmental regulations and/or reduce regulatory and compliance costs. In addition, in
family firms, sustainability disclosure may help protect the reputation of the family and
the family business. Hence, voluntary disclosure of sustainability practices is
determined by firm-specific characteristics including whether the company is a
family or a non-family organization. However, ex ante, it is unclear, whether family firms
will voluntarily report on their sustainability practices more (or less) than non-family
firms. Thus, we have the following research questions:
RQ1. Is the propensity to voluntarily issue sustainability reports systematically
different between family and non-family firms?
RQ2. Are there systematic differences in the levels of sustainability reports issued
by family and non-family firms?

Empirical analysis
Data sources and sample selection
Since our principal objective is to empirically investigate if the propensity to voluntarily
disclose sustainability performance (sustainability reporting) is significantly different
between family and non-family firms, we had to initially identify an otherwise homogenous
sample of family and non-family firms. BusinessWeek (2003) offers such a sample: a list
of 177 family firms from among the firms on the S&P 500 (large public US companies) index
as of July, 2003. As in Anderson and Reeb (2003a), Business Week classified a firm as a
family firm if the founder and/or her/his descendants hold top management positions or are
on the board, or are among the companies largest shareholders. There are significant
advantages to using this sample. First, the firms are somewhat homogenous in size (Ali et al.,
2007). Second, as the same sample has been used in many studies before us (Wang, 2006;
Dyer and Whetten, 2006; Ali et al., 2007), it allows comparison of the results from our study
to those found in prior research. Third, as argued by Ali et al. (2007), it is free of any
subjective assessment of family influence, thus making the results more reliable.
SAMPJ However, there are some disadvantages too. First, to the extent that family ownership
4,2 and control in companies evolves over time, the BusinessWeek (2003) family and
non-family classification may not hold in 2010 thus introducing error in the
measurement of the variable of interest, FAMILY. This concern is, however, mitigated
by the fact that:
.
family ownership and control is sticky over time (Ali et al., 2007; Hutton, 2007);
172 and
.
any slight changes in family ownership and control that do not move a company
beyond the family-nonfamily classification threshold do not cause measurement
error in the family indicator variable we use in this study.

Second, the small number of firms in the S&P 500 and the limited influence of families
in such large firms weaken the power of our tests. Moreover, our findings in the S&P
500 may not readily generalize to smaller firms that may be characterized with higher
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family influence.
We identify companies that issue 2010 sustainability reports from the GRI
disclosure database, the most comprehensive online global database of sustainability
reports. According to GRI, the Database catalogues all GRI-based reports that GRI is
aware of (emphasis ours). As long as reports follow GRI reporting guidelines, have
been published online and are available to the public, they will be included in the GRI
database whether the company requested for its report to be included in the GRI
Sustainability Disclosure Database by filling in the Report Registration form or not.
A well-constructed index, GRI argues, enables readers to access, understand and
communicate about GRI reports more readily.
Table I presents the sample selection process. After eliminating companies
with missing data for one or more of the control variables on Compustat, we have
397 companies, 261 non-family and 136 family, in our final sample. Of these, 95 companies
(65, non-family and 30, family) have issued 2010 sustainability reports and are
included the GRI Sustainability Disclosure Database.

Statistical analyses
We use both univariate and multivariate statistical analyses to examine if the
propensity to voluntarily issue sustainability reports and the level of the sustainability
reports (A, B, C as per the GRI guidelines) is different between family and non-family
firms. We use t-tests (the Wilcoxon sign and sign rank tests) of differences in the means

Total Non-family Family

S&P 500 companies ( July 2003) obtained from Compustat


(using SPIM 10 code in WRDS) with valid CIKs 498 325 173a
Less companies with missing Compustat data on one or more
control variables (101) (64) (37)
Final sample 397 261 136
Firms that issued sustainability report in 2010 and early 2011 95 65 30
Table I. Note: aWe were unable to find four of the 177 family companies identified in the Business Week, 2003
Sample selection article in the list of July 2003 S&P 500 companies we obtained from Compustat
(medians) of the dependent and all the independent variables between family and Family status
non-family companies in our univariate analysis. In the multivariate analysis, we
estimate a logistic regression model of the propensity of companies to issue
sustainability reports and an ordered probit model of the level of sustainability reports
on the variable of interest, FAMILY and control variables, capturing firm-specific and
industry characteristics, used in prior research.
173
Models
The propensity to issue sustainability reports and family firms
We use the following logistic regression model to test the first research question:
X
7 X
11
SUS_REPORT b0 b1 FAMILY bi CONTROL bj INDUSTRY 1;
i2 j8
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SUS_REPORT is an indicator variable set to 1, if the company has issued a 2010


sustainability report and 0, otherwise. FAMILY is an indicator variable set to 1, if the
company is family owned and/or controlled, as defined by BusinessWeek (2003) and 0,
otherwise. The control variables are similar to those used in prior disclosure research
including those on family firms (Ali et al., 2007; Wang, 2006; Deegan and Gordon, 1996;
Holder-Webb et al., 2008) and prior research on the sustainability performance of family
firms (Dyer and Whetten, 2006; Niehm et al., 2008; Uhlaner et al., 2004). The control
variables include:
.
firm-specific variables such as size, profitability, leverage, growth, return
(market performance), capital intensity;
.
industry indicator variables; and
.
indicator variables for litigation and regulation and are discussed below.

Control variables
1. Size of the company
According to the political costs hypothesis (Watts and Zimmermann, 1978),
corporations engage in sustainability efforts or social responsibility activities to
reduce the risk of governmental regulation that may adversely affect firm value. Hence,
companies must be cognizant of the interest of government as a stakeholder in the
corporation. Prior research shows that large firms are more sensitive to their image and
reputation and are also more prone to political pressures due to their greater visibility
(Roberts, 1992; Watts and Zimmermann, 1986). Company size has been used as a proxy
for the impact of political costs on corporate strategy. Hence large corporations are more
likely to report on their sustainability efforts to boost their image and to ward off any
political interference (Brammer and Pavelin, 2006). Firm size has also been shown to be
related to the level of disclosures of sustainability efforts (Holder-Webb et al., 2008;
Roberts, 1992) and corporate social performance (Dyer and Whetten, 2006). In a study
involving family firms, Niehm et al. (2008) find that there is a significant positive
relationship between firm size and the sustainability orientation of a company. We use
log of sales at the beginning of the period as our size proxy. As a sensitivity check,
we also use the log of total assets and the log of market value of equity as alternative
proxies for size.
SAMPJ 2. Profitability
4,2 Accounting performance differs between family and non-family firms (Anderson and
Reeb, 2003a, b; BusinessWeek, 2003) and can affect voluntary disclosure (Roberts, 1992;
MIiller, 2002). Research shows that highly profitable firms could face higher public
scrutiny and exposure compared to less profitable firms (Watts and Zimmermann, 1978,
1990) and are more affected by potential political costs (Fields et al., 2001). Hence,
174 profitable companies have greater incentive to voluntarily engage in sustainability
practices and to disclose their efforts by means of sustainability reports (Bewley and Li,
2000). Therefore, we use profitability as a control variable in our analyses.

3. Other firm-specific variables


As in prior research, we also control for leverage, growth, return (market performance)
and capital intensity. On average, family firms have lower leverage (Wang, 2006),
higher growth (Wang, 2006; Chrisman et al., 2004) and higher market performance
(Wang, 2006). CSR disclosure is positively related to debt to equity ratio (Roberts, 1992)
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and capital intensity (Gray et al., 1995). Capital intensive firms are more likely to have
higher carbon emission and may want to initiate disclosures of sustainability efforts in
order to avoid excessive scrutiny (Stanny and Ely, 2008). Growth is related to family
ownership and control (Chrisman et al., 2004; Gallo et al., 2000) and CSR disclosures
(Chen et al., 2008).

4. Industry
Family firms may have more (or less) competitive advantages than non-family firms in
some industries compared to others (Chrisman et al., 2012). Companies operating in
industrial sectors with significant reputation exposures are typically more willing to
provide information on environmental issues (KPMG International, 2005). A companys
impact on the environment, society, and other stakeholders and the resulting political
costs depend on the industry to which a company belongs (Brammer and Millington, 2006;
Verrecchia, 1983). For example, companies in industries such as the oil and gas industry
have high environmental impact and attract greater attention from environmental lobby
groups and politicians. Therefore, companies in such industries have more incentives to
report on sustainability efforts in order to preempt regulation or litigation (Deegan and
Gordon, 1996). In general, industry membership has been shown to be associated with
corporate disclosures (Deegan and Gordon, 1996; Holder-Webb et al., 2008). Consequently,
we use industry membership as a control variable.
In summary, the control variables in the model are SIZE (log of sales), LEVERAGE
(total debt over total assets), GROWTH (percentage change in sales), RETURN (annual
buy and hold stock return from the beginning to the end of the fiscal period), ROA (return
on assets), and CAP_INTENS (capital intensity), defined as total assets divided by
number of employees.
Thus, our empirical model is:
SUS_REPORT b0 b1 FAMILY b2 SIZE b3 LEVERAGE b4 GROWTH
b5 RETURN b6 ROA b7 CAP_INTENS
X
11
bj INDUSTRY 1;
j8
INDUSTRY is proxied by four industry indicator variables: OILCHEM, UTILITIES, MFG Family status
and FIN. OILCHEM is set to 1 for companies in the oil and gas and chemical industries, and
0, otherwise; UTILITIES is set to 1 for companies in the utilities industry, and 0, otherwise;
MFG is set to 1 for companies in the manufacturing industry, and 0, otherwise; and FIN
is set to 1 for companies in the banking and insurance industries, and 0, otherwise. In an
alternative estimation, we replace the four industry dummy variables by two indicator
variables that broadly capture the regulatory state (REG) and the litigation environment 175
(LITIGATION) of the industries the companies are engaged in.

Levels of sustainability reports


Companies issue sustainability reports with different level of details and can choose
between self-declaring the levels of the reports they issue as level A, B, or C and not
declaring the levels at all (undeclared). According to GRI, level A reports are the most
detailed and Level C reports are the least detailed. Level B reports are less detailed than
Level A reports but more detailed than Level C reports. Some companies also opt to get
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their sustainability reports checked by GRI or other third-parties. Although we do not


find any differences between family and non-family firms in terms of their likelihood of
issuing sustainability reports, it is possible that the level of details of the sustainability
reports firms issue and whether these reports are GRI checked vary with the family
status of firms (i.e. whether they are family or non-family firms).
In the univariate analysis on the level of details of sustainability reports, we limit the
sample to only those companies that issued sustainability reports and are on the GRI
database: 65 non-family and 30 family firms. Thus, the 302 companies that did not issue
sustainability reports were excluded from the analysis, somewhat limiting the power of
our tests. Moreover, the univariate analysis does not account for the impacts other
firm-specific and industry characteristic variables may have on the levels of sustainability
reports companies issue. Not controlling for these firm-specific and industry variables
may cause a correlated omitted variable problem since, as discussed above, some of these
firm-specific and industry indicator variables are also highly correlated with the family
status of companies. In order to address these power and correlated omitted variables
issues, we estimate the following ordinal probit multivariate model:

SUS_REP_QUL b0 b1 FAMILY b2 SIZE b3 LEVERAGE b4 GROWTH


b5 RETURN b6 ROA b7 CAP_INTENS
X
11
bj INDUSTRY 1;
j8
Sus_Rep_Qul is an ordinal variable indicating the level of details of sustainability reports.
Following GRI guidelines, companies categorize their sustainability reports either as A, B,
C, or undeclared. 57 of the 95 S&P 500 companies that have issued their sustainability
reports in 2010 and have complete data on all control variables have declared their reports
levels as A, B, or C. Of these 57 companies, 17 have got their self-declared report levels
checked by GRI or other third parties. The self-declared report levels for the remaining
40 companies have not been checked by GRI or other external third parties. 38 of the
95 companies, however, did not declare the level of their sustainability reports.
We read through these 38 reports with undeclared levels and classified them into A, B,
or C, in accordance with the GRI G3 guidelines application levels criteria, we discussed in
SAMPJ the background section. Of these 38 reports, 14 that do not meet the requirements for the
4,2 minimum GRI level of C are put in a below C category. Consequently, Sus_Rep_Qul is set
to 4, 3, 2, 1 when a company has issued its 2010 sustainability (GRI) report, and the report
level is A, B, C and below C, respectively; or 0 when the company has not issued a
2010 sustainability report. All the other variables are as defined before.

176 Results: propensity to issue sustainability reports


Univariate analysis
In Table II we report the descriptive statistics for the dependent and all the independent
variables, using all the companies in the sample. To mitigate the influence of extreme
values, all continuous variables are winsorized at 1 and 99 percent. The mean (median)
size, leverage, return and ROA for the companies in our sample are closely comparable to
those reported in prior research (Ali et al., 2007; Wang, 2006). 34 percent of the S&P 500
companies in our sample are family owned and/or controlled[3]. Consistent with the fact
that sustainability reporting is gaining momentum, despite its late start in the USA,
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Variable Quartile 1 Mean Median Quartile 3 SD

SUS_REPORT 0.00 0.24 0.00 0.00 0.43


FAMILY 0.00 0.34 0.00 1.00 0.48
SIZE 8.25 9.06 9.02 9.76 1.20
LEVERAGE 0.13 0.25 0.23 0.34 0.16
GROWTH 2 18.07 28.80 27.90 20.02 19.29
RETURN 2 0.11 0.23 0.13 0.43 0.63
ROA 0.03 0.08 0.07 0.12 0.07
CAP_INTENS 5.59 6.48 6.36 7.44 1.39
OILCHEM 0.00 0.12 0.00 0.00 0.32
UTILITIES 0.00 0.09 0.00 0.00 0.28
MFG 0.00 0.37 0.00 1.00 0.48
FIN 0.00 0.15 0.00 0.00 0.36
REG 0.00 0.11 0.00 0.00 0.31
LITIGATION 0.00 0.18 0.00 0.00 0.38
Notes: n 397; SUS_REPORT is set to 1 when a company has issued sustainability report in 2010
and early 2011, or 0, otherwise; FAMILY is an indicator variable set to 1 if the company is a family
company (i.e. owned or controlled by a family) as reported in BusinessWeek, 2003, or 0, otherwise;
SIZE is log of sales at the beginning of the fiscal period; LEVERAGE is total debt (the sum of long term
debt and short-term debt in current liabilities) divided by total assets; GROWTH is the rate of change
in sales (change in sales during the fiscal period divided by beginning sales); RETURN is the annual
holding return for the fiscal period; ROA is income before interest and taxes divided by total assets at
the beginning of the fiscal period; CAP_INTENS is a measure of capital intensity and is computed as
log of total assets per employee; OILCHEM is an indicator variable set to 1 for companies in the oil and
gas and chemical industries (two-digit SIC codes 13, 28 and 29), and 0, otherwise; UTILITIES is an
indicator variable set to 1 for companies in the utilities industry (two-digit SIC code 49) and 0,
otherwise. MFG is an indicator variable set to 1 for companies in the manufacturing industries (two-
Table II. digit SIC codes 20-27 and 30-39) and 0, otherwise; FIN is an indicator variable set to 1 for companies in
Descriptive statistics for the banking and insurance industries (two-digit SIC codes 60-64 and 67) and 0, otherwise; REG is an
the dependent and indicator variable set to 1 for companies in two regulated industries (two-digit SIC codes 48 and 49)
independent variables for and 0, otherwise; LITIGATION is a dummy variable set to 1 for companies in industries characterized
all companies: non-family with high litigation (four-digit SIC codes 2833-2836; 3570-3577; 3600-3674; 5700-5961 and 7370); to
and family owned mitigate the influence of extreme values, all continuous variables are winsorized at 1 and 99 percent
24 percent of the S&P 500 companies in our sample have issued their 2010 sustainability Family status
reports. The mean (median) rate of increase in sales (GROWTH) is negative and
statistically significant. The negative sales growth we find is not surprising in light of
the weak state of the US economy in fiscal years 2009 and 2010.
Table III presents the results of the t-tests (the Wilcoxon sign and sign rank tests) of
differences in the means (medians) of the dependent and all the independent variables
between family and non-family companies. 25 percent of the non-family and 22 percent 177
the family companies in our sample have issued sustainability reports and neither the
t-test nor the non-parametric tests of difference in the mean and median is statistically
significant at conventional levels. Thus, we cannot reject the null hypothesis that there is
no difference in the likelihood of issuing sustainability reports between family and
non-family companies.
On average, the family companies in our sample are smaller, less levered and less
capital intensive (i.e. have lower total assets per employee) than the non-family
companies. Moreover, family companies are less likely to be involved in the utilities,
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financial and regulated industries and more likely to operate in the high litigation
industries than are non-family companies. As discussed in a prior section of the paper,
disclosure in general and sustainability reporting in particular is correlated with
firm level characteristics such as size, leverage and capital intensity. Disclosure
(or sustainability reporting) practices also vary across industries. It is thus important to
control for firm level characteristics and industry in analyzing the association between
sustainability reporting and the family status of companies.

Multivariate analysis
In this section we present the results from the logistic regression model that relates the
likelihood of issuing a sustainability report to the variable of interest, FAMILY, and
firm-specific and industry characteristics control variables.
In Table IV, we report the Pearson product-moment correlations and Spearman
sign-rank correlations among the dependent and independent variables. The likelihood
of issuing a sustainability report is significantly positively correlated with size,
operating performance (ROA), and membership in the oil and gas and chemical, utilities,
and regulated industries; it is also negatively associated with membership in the
financial industry. Of the correlations among the control variables, the significant
positive association between size and growth, growth and operating performance
(ROA), and the negative association between capital intensity and operating
performance (ROA) are noteworthy. Most of the correlations among the control
variables are less than 0.1. The highest correlation among the firm level control variables
is 0.4 (Spearman), between growth and ROA and 2 0.36 (Pearson), between capital
intensity and ROA. Over all, the correlation results suggest that multicollinearity will
not be a major problem in our multivariate model. A variance inflation factor (VIF) test of
multicollinearity (discussed below) also confirms that multicollinearity is not a problem
in our models.
Table V reports the results of the logistic regression model that relates the likelihood
of issuing sustainability reports to the family status of companies and firm level and
industry indicator control variables. We present the results in four panels. First, we
present, in column 2, the results from a base model that includes only the firm level
control variables but not the variable of interest, FAMILY, and the industry indicator
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4,2

178

Table III.
SAMPJ

family firms
dependent and
independent variable
Univariate analysis
difference of mean and
medians tests of all the

between non-family and


Mean Median
Non-family Family Difference Non-Family Family Difference Difference
Variable (n 261) (n 136) (t-test p-value) (n 261) (n 136) (Wilcoxon sign test p-value) (Wilcoxon sign rank test p-value)

SUS_REPORT 0.25 0.22 0.03 (0.53) 0.00 0.00 0.00 (0.53) 0.00 (0.53)
SIZE 9.14 8.92 0.22 (0.09) 9.14 8.88 0.26 (0.02) 0.26 (0.05)
LEVERAGE 0.27 0.21 0.06 (, 0.01) 0.25 0.20 0.05 (,0.01) 0.05 (,0.01)
GROWTH 28.99 2 8.43 20.56 (0.79) 2 8.69 26.41 2 2.28 (0.08) 22.28 (0.18)
RETURN 0.26 0.18 0.08 (0.25) 0.13 0.14 2 0.01 (0.80) 20.01 (0.40)
ROA 0.07 0.09 20.02 (0.09) 0.07 0.08 2 0.01 (0.27) 20.01 (0.14)
CAP_INTENS 6.67 6.13 0.54 (, 0.01) 6.46 6.19 0.27 (0.01) 0.27 (,0.01)
OILCHEM 0.13 0.10 0.03 (0.77) 0.00 0.00 0.00 (0.36) 0.00 (0.36)
UTILITIES 0.11 0.03 0.08 (, 0.01) 0.00 0.00 0.00 (,0.01) 0.00 (,0.01)
MFG 0.35 0.41 20.06 (0.22) 0.00 0.00 0.00 (0.22) 0.00 (0.22)
FIN 0.18 0.11 0.07 (0.08) 0.00 0.00 0.00 (0.08) 0.00 (0.09)
REG 0.14 0.04 0.10 (, 0.01) 0.00 0.00 0.00 (,0.01) 0.00 (,0.01)
LITIGATION 0.13 0.26 20.13 (, 0.01) 0.00 0.00 0.00 (,0.01) 0.00 (,0.01)
Notes: Coefficients and two tail p-values ( p-values are in parenthesis); SUS_REPORT is set to 1 when a company has issued sustainability report in 2010
and early 2011, or 0, otherwise; SIZE is log of sales at the beginning of the fiscal period; LEVERAGE is total debt (the sum of long term debt and short-
term debt in current liabilities) divided by total assets; GROWTH is the rate of change in sales (change in sales during the fiscal period divided by
beginning sales); RETURN is the annual holding return for the fiscal period; ROA is income before interest and taxes divided by total assets at the
beginning of the fiscal period; CAP_INTENS is a measure of capital intensity and is computed as log of total assets per employee; OILCHEM is an
indicator variable set to 1 for companies in the oil and gas and chemical industries (two-digit SIC codes 13, 28 and 29), and 0, otherwise; UTILITIES is an
indicator variable set to 1 for companies in the utilities industry (two-digit SIC code 49) and 0, otherwise; MFG is an indicator variable set to 1 for
companies in the manufacturing industries (two-digit SIC codes 20-27 and 30-39) and 0, otherwise; FIN is an indicator variable set to 1 for companies in the
banking and insurance industries (two-digit SIC codes 60-64 and 67) and 0, otherwise; REG is an indicator variable set to 1 for companies in two-regulated
industries (two-digit SIC codes 48 and 49) and 0, otherwise; LITIGATION is a dummy variable set to 1 for companies in industries characterized with high
litigation (four-digit SIC codes 2833-2836; 3570-3577; 3600-3674; 5700-5961 and 7370)
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SUS_ CAP_
Variables REPORT FAMILY SIZE LEVERAGE GROWTH RETURN ROA INTENS OILCHEM UTILITIES MFG FIN REG LITIGATION

SUS_REPORT 1.00 2 0.03 0.30 0.06 20.04 0.00 0.11 0.09 0.17 0.17 0.00 20.11 0.13 0.0
(0.53) (,0.01) (0.25) (0.41) (0.99) (0.03) (0.08) (,0.01) (,0.01) (0.97) (0.03) (0.01) (0.19)
FAMILY 20.03 1.00 20.10 20.18 0.07 20.04 0.07 20.16 20.05 20.15 0.06 20.09 2 0.15 0.17
(0.53) (0.05) (,0.01) (0.18) (0.40) (0.14) (,0.01) (0.36) (,0.01) (0.22) (0.08) (, 0.01) (, 0.01)
SIZE 0.28 20.09 1.00 20.01 0.27 20.11 0.10 0.04 0.08 0.02 20.19 0.06 0.07 2 0.05
(,0.01) (0.09) (0.88) (,0.01) (0.02) (0.05) (0.47) (0.12) (0.75) (,0.01) (0.25) (0.16) (0.29)
LEVERAGE 0.02 20.16 20.03 1.00 20.15 0.08 20.04 20.01 20.05 0.27 0.01 20.18 0.28 2 0.19
(0.71) (,0.01) (0.54) (,0.01) (0.11) (0.49) (0.78) (0.33) (,0.01) (0.87) (,0.01) (, 0.01) (, 0.01)
GROWTH 20.06 0.01 0.26 20.12 1.00 20.24 0.40 20.12 20.08 20.09 20.15 0.09 2 0.05 0.08
(0.21) (0.79) (,0.01) (0.01) (,0.01) (,0.01) (0.02) (0.10) (0.07) (,0.01) (0.09) (0.35) (0.10)
RETURN 20.05 20.06 20.12 0.09 20.09 1.00 20.10 0.05 0.07 20.03 0.16 20.01 2 0.01 2 0.01
(0.32) (0.25) (0.02) (0.08) (0.07) (0.05) (0.28) (0.17) (0.58) (,0.01) (0.81) (0.81) (0.91)
ROA 0.11 0.09 0.10 20.07 0.28 20.11 1.00 20.38 0.15 20.08 0.06 20.35 2 0.08 0.11
(0.03) (0.09) (0.04) (0.16) (,0.01) (0.02) (,0.01) (,0.01) (0.13) (0.26) (,0.01) (0.12) (0.03)
CAP_INTENS 0.07 20.18 0.05 0.03 20.08 0.01 20.36 1.00 0.15 0.29 20.33 0.51 0.31 2 0.15
(0.15) (,0.01) (0.33) (0.55) (0.10) (0.86) (,0.01) (,0.01) (,0.01) (,0.01) (,0.01) (, 0.01) (, 0.01)
OILCHEM 0.17 20.05 0.09 20.07 20.11 0.00 0.14 0.13 1.00 20.11 20.28 20.15 2 0.13 0.12
(,0.01) (0.36) (0.08) (0.15) (0.03) (0.97) (0.01) (0.01) (0.03) (,0.01) (,0.01) (0.01) (0.02)
UTILITIES 0.17 20.15 20.01 0.23 20.07 20.07 20.06 0.26 20.11 1.00 20.23 20.13 0.88 2 0.14
(,0.01) (,0.01) (0.90) (,0.01) (0.17) (0.18) (0.21) (,0.01) (0.03) (,0.01) (0.01) (, 0.01) (, 0.01)
MFG 0.00 0.06 20.21 0.00 20.14 0.16 0.02 20.31 20.28 20.23 1.00 20.33 2 0.27 0.17
(0.97) (0.22) (,0.01) (0.95) (0.01) (,0.01) (0.62) (,0.01) (,0.01) (,0.01) (,0.01) (, 0.01) (, 0.01)
FIN 20.11 20.09 0.06 20.12 0.17 20.01 20.28 0.56 20.15 20.13 20.33 1.00 2 0.15 2 0.20
(0.03) (0.08) (0.21) (0.01) (,0.01) (0.87) (,0.01) (,0.01) (,0.01) (0.01) (,0.01) (, 0.01) (, 0.01)
REG 0.13 20.15 0.05 0.24 20.01 20.04 20.07 0.26 20.13 0.88 20.27 20.15 1.00 2 0.16
(0.01) (,0.01) (0.28) (,0.01) (0.77) (0.43) (0.17) (,0.01) (0.01) (,0.01) (,0.01) (,0.01) (, 0.01)
LITIGATION 0.07 0.17 20.07 20.18 0.06 20.03 0.09 20.18 0.12 20.14 0.17 20.20 2 0.16 1.00
(0.19) (,0.01) (0.18) (,0.01) (0.26) (0.58) (0.07) (,0.01) (0.02) (,0.01) (,0.01) (,0.01) (, 0.01)

Notes: Spearman correlation coefficients are above and Pearson Correlations are below the diagonal; p-values are in parenthesis; n 397; SUS_REPORT is set to 1 when a company has
issued sustainability report in 2010 and early 2011, or 0, otherwise; FAMILY is an indicator variable set to 1 if the company is a family company (i.e. owned or controlled by a family) as
reported in BusinessWeek, 2003, or 0, otherwise; SIZE is log of sales at the beginning of the fiscal period; LEVERAGE is total debt (the sum of long term debt and short-term debt in
current liabilities) divided by total assets; GROWTH is the rate of change in sales (change in sales during the fiscal period divided by beginning sales); RETURN is the annual holding
return for the fiscal period; ROA is income before interest and taxes divided by total assets at the beginning of the fiscal period; CAP_INTENS is a measure of capital intensity and is
computed as log of total assets per employee; OILCHEM is an indicator variable set to 1 for companies in the oil and gas and chemical industries (two-digit SIC codes 13, 28 and 29), and 0,
otherwise; UTILITIES is an indicator variable set to 1 for companies in the utilities industry (two-digit SIC code 49) and 0, otherwise; MFG is an indicator variable set to 1 for companies in
the manufacturing industries (two-digit SIC codes 20-27 and 30-39) and 0, otherwise; FIN is an indicator variable set to 1 for companies in the banking and insurance industries (two-digit
SIC codes 60-64 and 67) and 0, otherwise; REG is an indicator variable set to 1 for companies in two-regulated industries (two-digit SIC codes 48 and 49) and 0, otherwise; LITIGATION is a
dummy variable set to 1 for companies in industries characterized with high litigation (four-digit SIC codes 2833-2836; 3570-3577; 3600-3674; 5700-5961 and 7370)

Correlation analysis
Family status

179

Table IV.
SAMPJ
With regulation and
4,2 Base model with no litigation indicator
family ownership With no industry With industry variable in lieu of
Variables indicator variable dummies dummies industry dummies

INTERCEPT 2 9.76 (,0.001) 2 9.85 (,0.001) 2 10.78 (,0.001) 2 10.02 (,0.001)


180 FAMILY 0.07 (0.802) 0.23 (0.439) 0.04 (0.903)
SIZE 0.67 (,0.001) 0.68 (,0.001) 0.78 (,0.001) 0.69 (,0.001)
LEVERAGE 0.43 (0.606) 0.46 (0.581) 2 0.05 (0.960) 0.32 (0.722)
GROWTH 2 0.03 (0.001) 2 0.03 (0.001) 2 0.02 (0.027) 2 0.03 (0.001)
RETURN 2 0.09 (0.715) 2 0.09 (0.719) 2 0.08 (0.759) 2 0.07 (0.771)
ROA 7.21 (0.001) 7.21 (0.001) 5.81 (0.012) 7.08 (0.001)
CAP_INTENS 0.21 (0.037) 0.22 (0.036) 0.12 (0.441) 0.19 (0.085)
OILCHEM 1.39 (0.005)
UTILITIES 2.04 (0.001)
MFG 1.08 (0.005)
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FIN 0.19 (0.768)


REG 0.84 (0.033)
LITIGATION 0.79 (0.022)
P-SEUDO R 2 18.97% (,0.001) 18.99% (,0.001) 26.37% (,0.001) 21.86% (,0.001)
Notes: Dependent variable 1 if a company issues a sustainability report in 2010 or early 2011 and
0 otherwise; n 397; coefficients and two tail p-values ( p-values are in parenthesis); SUS_REPORT is
set to 1 when a company has issued sustainability (GRI) report in 2010 and early 2011, or 0, otherwise;
FAMILY is an indicator variable set to 1 if the company is a family company (i.e. owned or controlled
by a family) as reported in BusinessWeek, 2003, or 0, otherwise; SIZE is log of sales at the beginning of
the fiscal period; LEVERAGE is total debt (the sum of long term debt and short-term debt in current
liabilities) divided by total assets; GROWTH is the rate of change in sales (change in sales during the
fiscal period divided by beginning sales); RETURN is the annual holding return for the fiscal period;
ROA is income before interest and taxes divided by total assets at the beginning of the fiscal period;
CAP_INTENS is a measure of capital intensity and is computed as log of total assets per employee;
OILCHEM is an indicator variable set to 1 for companies in the oil and gas and chemical industries
(two-digit SIC codes 13, 28 and 29), and 0, otherwise; UTILITIES is an indicator variable set to 1 for
companies in the utilities industry (two-digit SIC code 49) and 0, otherwise; MFG is an indicator
variable set to 1 for companies in the manufacturing industries (two-digit SIC codes 20-27 and 30-39)
Table V. and 0, otherwise; FIN is an indicator variable set to 1 for companies in the banking and insurance
Cross-sectional logistic industries (two-digit SIC codes 60-64 and 67) and 0, otherwise; REG is an indicator variable set to 1 for
regression model of the companies in two-regulated industries (two-digit SIC codes 48 and 49) and 0, otherwise; LITIGATION
likelihood of issuing is a dummy variable set to 1 for companies in industries characterized with high litigation (four-digit
sustainability report SIC codes 2833-2836; 3570-3577; 3600-3674; 5700-5961 and 7370)

variables as explanatory variables. Next we present, in column 3, the results from a


model that includes the firm level control variables and the variable of interest,
FAMILY, but not any of the industry indicator variables as independent variables.
Results from a model that include the variable of interest, FAMILY, all the firm level
control and the four industry indicator variables are reported in column 4. Finally, in
column 5, we present results from a model that substitutes the four industry indicator
variables by the regulation and litigation indicator variables.
All the models are well specified and statistically significant, with P-seudo R 2
ranging from 18.97 to 26.37 percent and p-values less than 0.001. No variance inflation
factor (VIF) is greater than 2.5. In fact, the VIFs of only two variables, capital intensity
and the Finance industry indicator variable are greater than 2. Most of the VIFs are very Family status
close to 1, indicating that multicollinearity is not a problem in our models. In the base
model, size, ROA, and capital intensity are significantly positive and growth is
significantly negative. Larger firms, firms with higher operating performance (ROA)
and high capital intensity appear to be more likely to issue sustainability reports. High
growth firms, on the other hand, are less likely to issue sustainability reports. Perhaps
high growth firms have more proprietary information to protect and thus a higher cost of 181
disclosure. Overall, our findings are consistent with findings in prior disclosure
literature, in general, and sustainability reporting, in particular.
When we add the variable of interest, FAMILY, to the base model, the signs and
significances of all the control variables remain unchanged. More importantly, the
variable of interest, FAMILY, is positive but statistically insignificant. We cannot
reject the null hypothesis that there is no association between the likelihood of
issuing a sustainability report and the family status of the S&P 500 companies, in
our sample.
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When we add the four industry control variables to the model, the signs and
significances of FAMILY and all the control variables except capital intensity stay the
same; capital intensity is no more statistically significant. The high (low) concentration of
capital intensive firms in the financial (manufacturing) industries, as reflected in the
0.51 (20.31) Pearson correlation coefficient between capital intensity and membership in
the financial sector (manufacturing sector), may partially explain this loss of significance
in capital intensity. Of the four industry indicator variables, OILCHEM, UTILITIES and
MFG are significantly positive, indicating that firms in the oil and gas, chemical, utilities
and manufacturing industries are more likely to issue sustainability reports.
Finally, when we substitute the four industry indicator variables by the regulation
and litigation dummy variables, the sign and significances of FAMILY and all the
control variables remain unchanged. Interestingly, both the regulation and litigation
indicator variables are significantly positively associated with the likelihood of issuing
sustainability reports by the S&P 500 firms. As predicted, the regulatory and litigation
environments of the industry in which firms operate significantly affect the likelihood of
firms issuing sustainability reports. Our finding that companies in the regulated and
high litigation industries are more likely to issue sustainability reports is consistent
with the view that companies use voluntary disclosure in general and sustainability
reporting in particular as a way of mitigating regulatory, political and litigation costs.

Results: levels of sustainability reports


Univaraite analysis
In Table VI, we report results from univariate t-tests of differences in means and
non-parametric tests of differences (Wilcoxon sign and Wilcoxon sign rank) in the
medians of SUS_REP_QUL, reports levels A, B, C, and Below C as well as the reports
being GRI checked or Self-declared. We also report test of differences in the mean and
median of a level (level_AB) that combines reports levels A and B together. We do not
find any statistically significant difference between family and non-family firms (both in
means and medians) across all the above report level classifications. Neither the t-test
nor the non-parametric tests reject the null hypothesis that the level of details of the
sustainability reports firms issue and whether they are GRI checked is not associated
with the family status of firms.
SAMPJ
Mean Median
4,2 Difference Difference
Non- Difference Non- (Wilcoxon (Wilcoxon
family Family (t-test family Family sign test sign rank test
Variable (n 65) (n 30) p-value) (n 65) (n 30) p-value) p-value)

182 SUS_REP_QUL 2.69 2.53 0.16 (0.45) 3 3 0.00 (0.89) 0.00 (0.89)
Level A 0.22 0.10 0.12 (0.13) 0.00 0.00 0.00 (0.17) 0.00 (0.18)
Level B 0.40 0.50 20.10 (0.37) 0.00 0.00 0.00 (0.36) 0.00 (0.37)
Level C 0.25 0.23 0.02 (0.89) 0.00 0.00 0.00 (0.89) 0.00 (0.90)
Below C 0.14 0.17 20.03 (0.72) 0 0 0 (0.72) 0 (0.72)
Level_AB 0.62 0.60 0.02 (0.89) 1 1 0 (0.64) 0 (064)
Table VI. Self-declared 0.37 0.53 20.16 (0.13) 0.00 1.00 21.00 (0.13) 21.00 (0.14)
Univariate analysis GRI checked 0.14 0.07 0.07 (0.26) 0.00 0.00 0.00 (0.31) 0.00 (0.32)
univariate tests of
differences of means and Notes: Coefficients and two tail p-values ( p-values are in parenthesis); based on GRI guidelines on the
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medians in the levels of level of reports, companies opt not declare the level of their reports or declare their sustainability
details of the reports as level A, B or C; Type A reports are the most detailed and complete type C reports are the
sustainability reports and least detailed and complete; we examine the sustainability reports of 38 companies that did not declare
whether they are checked their sustainability report levels and classify them as level A, B, or C; we classify 12 companies that
by GRI or are did not meet the minimum requirement to for a level C report as Below C; Sus_Rep_Qul is set to 4, 3, 2,
self-declared between 1 when a company has issued its 2010 sustainability (GRI) and the report is rated A, B, C and
non-family and family Below C, respectively; Level_AB is set to 1, when the report level is A or B and 0, otherwise; companies
firms for companies that may get their sustainability reports checked (verified) by GRI or other third-parties; reports checked
issued sustainability (verified) by GRI are reported as GRI checked; self-declared reports are not verified by GRI or other
reports third-parties

Multivariate analysis
In Table VII, we report the results, in two columns, from the ordinal probit regression
model. The results from a model that relates the level of sustainability reports,
SUS_REP_QUL to the variable of interest, FAMILY, and firm-specific characteristics
and industry indicator variables as control variables are in column 2 and the results
from a model that substitutes regulation (REG) and litigation (LITIGATION) indicator
variables in lieu of the industry indicator variables are in column 3. Both models are
well specified with log likelihood ratios of 2 303.27 and 2 309.066.
In both models, the variable of interest, FAMILY, is insignificant. We do not find
any statistically discernible association between the level of sustainability reports and
the family status of companies. Most of the control variables in the model have their
expected signs and are statistically significant. Larger firms, low growth firms, better
performing firms (those with higher ROA), firms with higher capital intensity, firms
in the oil and gas, chemical, utilities, and manufacturing industries and firms in
the regulated and high litigations industries tend to issue higher level sustainability
reports.

Discussion
In this paper, we examine if there are any differences between family and non-family
firms with respect to their voluntary reporting of sustainability practices and the level
of details of the sustainability reports they issue. Prior research on voluntary disclosure
by family firms provide mixed results. Family firms, presumably less affected by Type 1
agency problems, have longer investment horizons and the family owners have better
Family status
GRI data updated
With regulation and litigation
indicator variable in lieu of industry
Variables With industry dummies dummies

INTERCEPT 6.16 (,0.001) 5.87 (,0.001)


INTERCEPT2 0.14 (,0.001) 0.14 (,0.001) 183
INTERCEPT3 0.41 (,0.001) 0.40 (,0.001)
INTERCEPT4 1.18 (,0.001) 1.16 (,0.001)
FAMILY 20.08 (0.599) 0.003 (0.987)
SIZE 2 0.43 (, 0.001) 20.40 (, 0.001)
LEVERAGE 20.15 (0.773) 20.39 (0.428)
GROWTH 0.01 (0.040) 0.02 (0.001)
RETURN 20.01 (0.962) 20.01 (0.951)
ROA 23.11 (0.013) 23.83 (0.001)
CAP_INTENS 20.10 (0.210) 20.12 (0.047)
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OILCHEM 20.58 (0.029)


UTILITIES 20.99 (0.002)
MFG 20.53 (0.008)
FIN 0.01 (0.969)
REG 20.43 (0.047)
LITIGATION 20.43 (0.025)
Log Likelihood 2303.27 2309.066
Notes: The dependent variable is Sus_Rep_Qul, a five-level ordered nominal indicator of the quality
level of the sustainability reports; n 397; coefficients and two tail p-values ( p-values are in
parenthesis); PROC PROBIT is modeling the probabilities of levels of Sus_rep_Qul having LOWER
Ordered Values in the response profile table; Sus_Rep_Qul is set to 4, 3, 2, 1 when a company has
issued its 2010 sustainability (GRI) and the report is rated A, B, C and Below C, respectively; or 0
when the company has not issued a sustainability report during the same period; FAMILY is an
indicator variable set to 1 if the company is a family company (i.e. owned or controlled by a family) as
reported in Business Week, 2003, or 0, otherwise; SIZE is log of sales at the beginning of the fiscal
period; LEVERAGE is total debt (the sum of long term debt and short-term debt in current liabilities)
divided by total assets; GROWTH is the rate of change in sales (change in sales during the fiscal
period divided by beginning sales); RETURN is the annual holding return for the fiscal period; ROA is
income before interest and taxes divided by total assets at the beginning of the fiscal period; CAP_
INTENS is a measure of capital intensity and is computed as log of total assets per employee;
OILCHEM is an indicator variable set to 1 for companies in the oil and gas and chemical industries
(two-digit SIC codes 13, 28 and 29), and 0, otherwise; UTILITIES is an indicator variable set to 1 for
companies in the utilities industry (two-digit SIC code 49) and 0, otherwise; MFG is an indicator
variable set to 1 for companies in the manufacturing industries (two-digit SIC codes 20-27 and 30-39)
and 0, otherwise; FIN is an indicator variable set to 1 for companies in the banking and insurance Table VII.
industries (two-digit SIC codes 60-64 and 67) and 0, otherwise; REG is an indicator variable set to 1 for Cross-sectional ordered
companies in two-regulated industries (two-digit SIC codes 48 and 49) and 0, otherwise; LITIGATION probit regression model
is a dummy variable set to 1 for companies in industries characterized with high litigation (four-digit of sustainability report
SIC codes 2833-2836; 3570-3577; 3600-3674; 5700-5961 and 7370) quality

access to information and monitor management better. This suggests that there is less
demand for voluntary disclosure in family firms. On the other hand, the substantial
benefits of voluntary disclosure, including reduction in the cost of capital and prevention
of regulation or litigation, give family firms as much incentive to voluntary disclose as
non-family firms. In fact, family firms may have more incentives to disclose than
non-family firms because:
SAMPJ .
a lions share of the benefits of voluntary disclosure accrues to the family
4,2 members; and
.
they tend to be more sensitive to the expectations of their stakeholders than are
non-family firms due to the close tie between the firms and the familys reputation.

Thus, ex ante, it is unclear, whether family firms will voluntarily report on their
184 sustainability practices more or less than non-family firms.
We use the classification of family firms by BusinessWeek (2003) to analyze the 2010
sustainability reports that are included in the GRI Sustainability Disclosure Database.
177 of the companies in S&Ps 500-stock index as of July, 2003 are classified as family
firms by BusinessWeek (2003). The final sample includes 397 companies that have the
necessary Compustat data for all the variables of interest. 95 of these companies
(30, family and 65, non-family) have issued their 2010 sustainability reports and appear
in the GRI Sustainability Disclosure Database. In both the univariate and multivariate
analysis, we do not find any significant association between:
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.
the propensity to issue sustainability reports and the family status of firms; and
.
the level of details of sustainability reports and the family status of firms.

There is no evidence to support the presence of a significant difference in the extent


and level of sustainability reporting between family and non-family firms. Thus, we
conclude that the family status of firms (family or non-family) does not seem to play
any significant role in the sustainability reporting decisions of the S&P 500 firms in
our sample and the level of details of the sustainability reports they issue.
Although it is not the focus of our study, we document important associations among
the propensity to issue sustainability reports, the level of details of sustainability reports
and certain firm-specific and industry characteristic variables that corroborate and
extend findings in recent studies that investigate the association between firms
ownership structure and voluntary disclosure. We find that, at least in the case of S&P
500 companies, voluntary reporting of sustainability practices and the level of details of
such reports are related to firm level characteristics such as size, operating performance
(ROA) and memberships in the oil and gas and chemical, utilities, and manufacturing
industries. We also find that both the regulation and litigation indicator variables are
significantly positively associated with the likelihood of issuing a sustainability report
and the level of details of sustainability reports.
We empirically document the significant influence of firm level characteristics
(size, growth, performance, capital intensity, etc.), and industry, regulatory and litigation
environments on companies decisions to voluntarily issue sustainability reports and
the levels of their sustainability reports. This, we believe, provides valuable information
to public policy makers, investors, employees, customers, other stakeholders and
society at large. First, public policy makers can tailor regulations based on their
understanding of the differences in companies incentives and motivations to voluntarily
issue sustainability reports. A one size fits all approach to regulating sustainability
reporting that ignores these differences in companies incentives and motivations is likely
to be ineffective and costly. Second, by understanding the different incentives and
motivations companies have to voluntarily issue sustainability reports, sustainability
focused investors can decide where to invest their money, sustainability concerned
employees can decide which company to commit their services to, environmental and
social performance-oriented customers can decide which products or services to Family status
buy, and society at large can decide what policies and regulations directed at
sustainability reporting to support. Overall, our findings are consistent with findings
in prior disclosure literature, in general and sustainability reporting, in particular.
The insignificant association between sustainability reporting and the variable of interest,
FAMILY, suggests that the heightened regulatory, political and litigation concerns of
family firms that motivate them to be more likely to issue sustainability reports may have 185
fully offset the lower incentives that family firms may have for engaging in the disclosure
of their sustainability practices.
As with all empirical studies, this study is subject to limitations. While using the S&P
500 list makes the sample somewhat homogeneous, our findings may not be
generalizable to small and mid-size companies. Future research should examine if family
control plays a role in sustainability reporting decisions of smaller public companies and
private companies. Our sample is also restricted to companies that appear in the GRI
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Sustainability Reporting Disclosure Database. Although the GRI Disclosure Database is


the most comprehensive global sustainability reporting database, it is possible that
some companies that issue their sustainability reports do not appear in the GRI database
because they did not follow the GRI reporting index or because GRI was not aware of the
existence of their sustainability reports or both. To the extent that happens, our study
suffers from an error in the measurement of the dependent variable.
We treat family firms as homogenous, as in most other prior research in the area, due
principally to the small number of sustainability reporting family firms in our sample.
However, family firms are not really homogenous. The extent of family stock ownership
and/or degree of management control varies across family firms. Some family firm are
controlled and run by founders while others are controlled and run by descendants of the
founding family member. Some family firms have hired CEOs, while others have a
member of the controlling family as CEOs. Future research should examine if these
difference among family firms have any bearing to their sustainability reporting
decisions.
As discussed earlier, we read through and classified, in accordance with the GRI G3
application level criteria, the reports of the 38 companies which did not declare the level
of their sustainability reports. For the remaining 57 companies which declared their
application levels, we use the self-declared report levels as stated in the reports, whether
they were GRI or other third party checked, or not. The self-declared levels by 40 of the
57 companies were not GRI or third-party checked. To the extent that these companies
misrepresent their report levels, intentionally because they have the incentives and
opportunities to do so or unintentionally, by mistake, our report levels dependent
variable (SUS_REP_QUL) will suffer from a measurement error. We believe the
likelihood of such intentional or unintentional misrepresentation of the self-declared
report levels is, however, minimal because:
.
GRI has clearly and precisely laid out the application level criteria that
companies should follow; and
.
the reporting companies know users can easily verify the accuracy of their report
levels, using these same clear and precise GRI application level criteria.
SAMPJ Future research may explore if companies do misrepresent their report levels and
4,2 if they do what firm level characteristics, industry, regulatory and/or litigation
environments may drive their propensities to misrepresent.
Lastly, our study focuses on the association among the propensity of companies to
issue sustainability reports and the level of details of such sustainability reports on one
hand and the family status of firms, on the other. Admittedly, sustainability reports
186 could vary in dimensions other than details. For example, the quality of the information
provided in sustainability reports may vary across companies. Future research should
examine other differences, such as quality, in the sustainability reports of family and
non-family firms. Despite these limitations, we believe that our results provide
interesting insights into the determinants of voluntary sustainability disclosure and the
level of details of sustainability reports.

Notes
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1. We refer to family owned and/or managed firms as family firms throughout the paper.
2. Only 30 of the family and 65 of the non-family firms with no missing data on the control
variables are used in the empirical analysis.
3. As indicated in the sample selection section, family owned or controlled companies are those
that are identified as such by BusinessWeek(2003). BusinessWeek(2003) classified 35 percent
(177) of the companies in the S&P 500 index in July, 2003 as family companies. Thus, the
percentage of family firms (34 percent) in our final sample (397 S&P 500 companies) is very
similar to that in the population of S&P 500 companies.

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Further reading
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About the authors


Venkataraman Iyer is a Professor. His research has appeared in several journals including
Accounting, Organizations, and Society, Auditing: A Journal of Practice & Theory, and
Managerial Auditing Journal. Venkataraman Iyer is the corresponding author and can be
contacted at: vmiyer@uncg.edu
Ayalew Lulseged is an Assistant Professor. He has published in a number of journals
including Contemporary Accounting Research and Advances in Accounting.

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