Are There Non-Linear Relationships Between Ownership Structure and Corporate Social Responsibility? Malaysian Perspective

Purpose: The study aims to examine the extent of sustainability reporting in Bursa Malaysia listed companies for the years 2018 and 2019, to determine whether ownership structures (namely institutional ownership, managerial ownership and family ownership) affect sustainability reporting, and to examine if the relationship between ownership structures are non-linear with sustainability reporting. Methodology: The study utilizes secondary data collection through content analysis of annual reports and sustainability reports. The population is the listed companies on Bursa Malaysia in 2018 and 2019 with a total of 783 active companies and the final sample of 261 Malaysian public listed companies (PLCs) examined. Findings: Even though sustainability disclosure of Malaysian public listed companies shows encouraging improvement in the year 2019 than 2018, the quality of the disclosure is still far from reaching the maximum score where companies only disclosed approximately 18% for Economic Theme, 31.5% for Environmental Theme and 47% for Social Theme from the maximum total score for each theme, showing a possibility of emphasis in the extent of disclosure rather than the quality. The study also found there is a significant and positive association between institutional ownership and sustainability reporting, where companies with a high percentage of shares owned by institutional investors have greater reporting disclosure quality. However, the analysis reported an insignificant association between sustainability reporting and managerial ownership, as well as family ownership. The results suggest that companies with their executive directors holding a high proportion of shares and family-owned businesses are unable to influence sustainability disclosure quality. Further exploration of the association between institutional ownership and the quality of disclosure shows there is a non-linear or curvilinear relationship between the two variables. However, the effect declines when institutional ownership reaches a certain threshold. The results suggest that the interest of institutional investors may not be aligned with the rest of the shareholders as a whole regarding sustainability reporting when such ownership is high. This negative association shows that the shareholders would relegate corporate social responsibility practices to the background to minimize costs. Likewise, the existence of the multiple and conflicting voices or preferences from different large institutional shareholders may deter continuous commitment to sustainability reporting. Following the notion, this leads us to consider the existence of a curvilinear relationship (inverse U-shaped) and a cut-off point, after which the effects of institutional investors may fluctuate. In short, a marginal increase in institutional ownership after a certain critical point will not improve the quality of sustainability reporting disclosure among Malaysian public listed companies