Choice of companies

Our empirical examination includes 150 large listed multinational companies from five different countries (USA, UK, Germany, France and Finland) and from 11 different industries. This enables us to examine the current state of reporting about tax issues between countries as well as across industries. We had originally chosen 30 companies per country, based on 2012 equity market indices.1

However, due to mergers, the number of companies had fallen slightly by 2017, the last year of examination. Altogether, the data comprises analysis of 878 reports or 878 firm-year observations for the time period 2012-2017.

The impact of accounting, legal and finance systems on CSR reporting

The countries chosen represent different accounting, legal and finance systems. Accounting practices and financial disclosure have been found to differ across countries. Explanations for this include the nature of business ownership and financing system, colonial inheritance and invasions; taxation, inflation, level of education, age and size of the accountancy profession; stage of economic development; legal systems; culture; histoiy; geography; language; influence of theory; political systems/social climate; religion; and pure accidents (Nobes, 1998, p. 163). However, the impact of only a minority of these has been tested empirically. The most compelling theories explaining the international differences have addressed the impact of institutional factors, including legal, financing and taxation systems (e.g. Zysman, 1983; Nobes, 1998; Lamb, Nobes & Roberts, 1998; Gee, Haller & Nobes, 2010; Kvaal & Nobes, 2010, 2013). Out of our chosen countries, the USA and UK represent equity-based financing systems, while Germany and France represent credit-based systems. Consequently, the legal systems are based on Anglo-Saxon common law vs. continental European code law. During the past few decades, Finland has transitioned from a credit-based system towards an equity-based system. The countries examined fall into either liberal market-based economies (USA and UK) or coordinated market economies (Germany, France and Finland). However, these divisions are not clear-cut, and significant differences may exist within these groupings.

Given the cross-national variation in financial reporting, similar research examining the determinants of non-fmancial CSR reporting has been conducted. Chen and Bouvain (2009. p. 302) summarise, “A key factor that has been shown to be influential in determining both the nature and extent of nonfinancial disclosure by corporations is the country in which the business is headquartered”. However, the authors find that institutional differences between liberal market economies (coinciding with equity-based, common law Anglo-Saxon accounting system) and coordinated market economies (coinciding with the credit-based, code-law continental European accounting system) do not adequately explain the cross-national variation in non-fmancial reporting. Kolk, Walhain and van der Wateringen (2001. p. 15) have found that in relation to variation in environmental disclosures, “national societal pressure seems to play a large role (especially in the UK, The Netherlands and Germany)”. Furthermore, reporting is more widespread in industry sectors that have a substantial direct environmental impact (including chemicals, pharmaceuticals, oil and motor vehicles and parts). Financial companies report less often than average. However, the high reporting rate of UK companies as a whole despite the high number of financial companies shows that other factors than industry are influential. Kolk, Walhain and van der Wateringen (2001) suggest that societal attention/pressures, the higher importance of reporting to shareholders (given the equity-based system) or the influence of ethical investment community can explain the national variation in this case.

Similarly, Meek, Roberts and Gray (1995) found an industry effect concerning voluntary non-financial information in general: the oil, chemicals and mining group tends to provide more voluntary non-financial information. They suppose that this industry group is politically more sensitive than others and relate the finding with the political cost arguments. However, they also find a country effect: “The voluntary disclosure of nonfmancial information appears to be a particularly European phenomenon: both British and Continental European MNCs [multinational corporations] provide more of it than American MNCs do” (Meek, Roberts & Gray, 1995, p. 567). This is not in line with what might be expected from a coordinated market economies (continental European) vs. liberal market economies (Anglo-Saxon) split.

Surveys on the determinants of CSR disclosure compare different countries and various types of disclosures, so it is difficult to draw conclusions on the crossnational variation based on then conflicting findings. Only the size phenomenon, whereby large companies report CSR information more often than smaller ones, is found consistently across studies (Meek. Roberts & Gray, 1995, p. 567). Given these earlier findings, we do not develop hypotheses on the cross-national variation based on the legal, financing or accounting systems. In the light of the previous research presented, as well as the CSR theories discussed in Chapter 3, factors related to reputation, legitimacy and stakeholder pressures offer more convincing explanations for variation in CSR reporting in general and similarly in tax reporting in particular. However, we believe that it is appropriate to include countries representing the different characteristics in terms of legal, financial and accounting systems and to consider the possible impact on the reputation, legitimacy and stakeholder factors.

We choose to focus on the largest listed companies hi each country that, according to prior research, are most likely to report most extensively. Hence our results should not be influenced by the size factor, as all the companies can be seen to fall into the same categoiy in then countries (despite large differences in absolute revenue/market capitalisation).

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