Corporate Governance and Environmental Disclosure in the Indonesian Mining Industry

By Trireksani, Terri; Djajadikerta, Hadrian Geri | Australasian Accounting Business & Finance Journal, January 1, 2016 | Go to article overview

Corporate Governance and Environmental Disclosure in the Indonesian Mining Industry


Trireksani, Terri, Djajadikerta, Hadrian Geri, Australasian Accounting Business & Finance Journal


1. Introduction

There has been a growing interest in the issue of corporate governance and its integration within the concept of sustainability in recent years (see e.g., Cuesta and Valor 2013; Galbreath 2013; Kolk and Pinkse 2009). Environmental, social and corporate governance issues are now considered to be important and integral aspects of company performance. However, the body of literature on the impact of corporate governance aspects on sustainability disclosure is still relatively small and has so far focused largely on developed countries (Jo and Harjoto 2012; Michelon and Parbonetti 2012; Rao, Tilt and Lester 2012).

It has been suggested that emerging markets have a tendency to show weaker measures of corporate governance and sustainability (Peters, Miller and Kusyk 2011). However, it is difficult to evaluate the interaction between corporate governance characteristics and the extent of sustainability disclosure in emerging economies since little has been published on this issue. In response to this state, this study focuses on the corporate governance and sustainability disclosure practices in one of the emerging economies, Indonesia. Indonesia is the biggest country in the South East Asia region. Indonesia, together with the BRIC countries (Brazil, Russia, India and China), Mexico, South Korea and Turkey, are currently considered the largest eight emerging economies. It is a highly pluralistic multireligion emerging country with dozens of present ethnicities and hundreds of different local dialects (Djanali, n.d.). It also has quite high disparity in social, economic, technological infrastructure and natural resources.

Gunawan, Djajadikerta and Smith (2009) examined corporate sustainability disclosures in the annual reports of listed companies in Indonesia during the period of 20032006 and found that companies in the environmentally sensitive industries, such as mining, tended to disclose more environmental information compared to companies in the other industries. The current data shows that listed Indonesian mining industry's market capitalization at the end of 2012 was 321,167 billion rupiah (approximately 32.8 billion US dollars), which represented 7.8% of the total market capitalization of all listed Indonesian companies (Indonesia Stock Exchange, 2013). PwC Indonesia (2013) in its annual review of trends in the Indonesian mining industry reported that the mining sector in 2012 accounted for approximately 6% of Indonesian GDP, and more than 17% of export revenues.

Taking the above discussion on board, this study focuses on corporate governance characteristics and disclosures of environmental activities of the mining companies listed in the Indonesia Stock Exchange (IDX), and aims to assess the relationships between corporate governance variables and the extent of environmental disclosures made by these companies in their 2012 annual reports.

The remainder of this paper is organised as follows. The second section provides a discussion on corporate environmental disclosure and corporate governance, and develops three research propositions. The third section describes the research methods. This is followed by discussion of the findings. The paper ends with conclusions and suggestions for future research.

2. Conceptual discussion and research propositions

The area of sustainability reporting, which includes the issue of environmental disclosure, has established itself as a well-studied topic in accounting and accountability areas (see e.g., Clarkson et al. 2008; Clarkson, Overell and Chapple 2011; van Staden and Hooks 2007). Similarly, the area of corporate governance has attracted much attention since three decades ago and it has become one of the most studied areas in the organisational field (see e.g., Walls, Berrone and Phan 2012). While there has been a growing interest to study the link between the areas of corporate governance and sustainability reporting (see e.g. …

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