The Influence Of Government Ownership On Corporate Accounting Essay


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Libya has experienced anarchy over the 42 years under the rule of Gaddafi, and confiscated of the private ownership even homes, real estate and lands since the beginning of the eighties based on Gaddafi theory which called "Third Universal Theory" "Green Book, where Gaddafi said that no one owns more than one car and one house and no one may own another house, he added that private ownership is a exploit in itself (Gaddafi, 1975). Gaddafi's ideas have changed after the collapse of the former Soviet Union, where allowed the private sector to begin participation in the Libyan economy in 1991 but still slow.

In the wake of chain for corporate crises in the markets started in mid-1997, Corporate Governance (CG) imposed itself on Middle East and North Africa (MENA) region. However, due to growing the globalization, corporate governance scope is widening by time. The idea of this study is to identify the influence of Government Ownership (GOVO) as a part of corporate governance on Corporate Social Responsibility and Environmental Reporting (CSER).

Despite this possible link, there are limited studies regarding to the Influence of government ownership on the corporate social responsibility and annual environmental reporting in Libyan public sector. The global consciousness of corporate social responsibility and environment reporting has increased. Thus, the voluntary disclosures of CSER reporting has been raised (Buniamin, Alrazi, Johari, & Abd Rahman, 2008). Thus, the effect of GOVO on CSER in less developed countries is not lower in importance than developed world.

Thus, the cover of CG and CSER is important to developing countries in general and Libya in particular because it has unique economic and politic under the "Third Universal Theory" "Green Book" which divide into three sections, political, the solution of the economic problem 'New Socialism' and social (Gaddafi, 1975) There is no doubt in recent years that Ownership Structure (OS) and CSER by firms have received more attention among researchers. However, the previous studies identified the following existing gaps which have given an impetus for this study namely: the requirement for investigating other available factors that affect CSRER such as the effect of GOVO on CSRER practice in Libya where there was no previous attention given to this country.

There are some researches that dealt with some aspects of this title in Libya for example, Al-Khater and Naser (2003) "Users' Perceptions of Corporate Social Responsibility and Accountability", Mashat et al (2005) "The Social Role of Accounting: Views and Perceptions of the Accounting, Community in Libya towards Corporate Social Responsibility and Accountability", Ahmad and Gao (2005) "Corporate Environmental Reporting In Libya", Ellabbar and Havard (2005) "The accounting disclosure in developing countries", Elmogla (2009) "Corporate Social Reporting in a Transition Economy", Ahmad and Mousa (2010) "Corporate Environmental Disclosure in Libya", Larbsh (2010) "An Evaluation of Corporate Governance Practice in Libya" and Zagoub (2011) "Corporate Governance in Libyan Commercial Banks".

Background of the Study

According to Cho and Patten (2007) showed that the companies do appear to use environmental disclosure as a tool of legitimacy. Thus, the nature of legitimacy was removed by focusing on non-litigation-related environmental information and differentiates between monetary and nonmonetary environmental disclosure. In Libyan case, the findings of content analysis of Ahmad (2004) showed that CED have not developed yet in Libya. If we exclude the category of health and safety, the Libyan companies do not provide environmental disclosure either in terms of the quantity or quality.

Other study for Ellabbar and Havard (2005) reveal that the level of general disclosure of Libyan companies is at a low level compared to neighbor Egypt companies. On the other hand, the study of Ahmad and Mousa (2010) showed that corporate environmental disclosure in Libya has been developed over the period between 2001 and 2007, both in term of its quantity and quality. Complying with international accounting standards or establish of domestic standards will help Libyan companies to make the disclosures more effectively. This, thus, pushes towards the need for more researches in Libya while the several countries have issued guidelines and recommendations for best CG and CSER practices (Buniamin, et al., 2008).

The increasing interest in CSER for achieving corporate accountability is the step with the new governance model of regulation (D. Hess, 2005). Accountability of directors is considered as one of the important issues. This surely has implications as environmental reporting becomes mandatory, companies will refuse to report the 'positive' information only. Thus, the corporate governance and environmental concern need to be converged for good reporting. This closely linked to the recognition that good corporate governance requires consideration of the impact a company has on the wider environment and the community (Andrew, 2003).

Problem of Statement

While CSER literature has focused on the impact of some characteristics of ownership structure in general, but it ignores the impact the government ownership in particular as well as the impact of other characteristics combined such as company size, company age and industry type, it might be the main reason of getting mixed results, especially since the most of the Libyan economy consists of public sector and most large firms are owned by government and the big firms have the required capital to participate with foreign partners. Government-owned companies are controlled in all sectors in Libya for example, Energy, Telecommunications, and Construction sectors (U.S., 2011).

The stakeholders in Libyan public sector are limited compared to private firms (Report, 2011). In recent years the Libyan government allowed to the private companies to participate with public firms. Some of public firms are not listed in the Libyan stock market. There are some differences between public and private sector in terms of aims, employment and attention to environmental and social impact (Fakher Buferna, Kenbata Bangassa, & Hodgkinson, 2005). Sun, Tong and Tong (2002) pointed out that the public sector is more interested in terms of social and political goals than profit maximization.

However, Gaddafi said that the profit is exploitation and the money and profits will disappear when applied new socialist society and there will be no need for money (Gaddafi, 1975). Government-owned companies are a particular feature of Libyan companies. Therefore, ownership in this research classified into several categories, namely government ownership, foreign, family and management ownership (Nurul Afzan Najid & Rahman, 2011). The ownership firms impact the disclosure of CSER. For example, government and foreign ownership have a relationship with increased CSER disclosure In Malaysian companies (Eng & Mak, 2003; Haniffa & Cooke, 2005).

To that reason, there are some theories that have been used to explain why firms voluntarily disclose CSER information in their annual reports. On the other hand, Gaddafi pointed out in his book, companies give social benefits workers that are closer to the charitable granted or donations such as those the rich giving to the poor (Gaddafi, 1975). Theory development related to CSER in general is fragmented and undeveloped (Maali, Casson, & Napier, 2006; Sadeghzadeh, 1995). In this perspective, the political and social contexts have been discovered to be major determinants disclose CSER information (Roberts, 1992; M. Williams, 1999). Whereas, there are some similarities between the agency, legitimacy, and stakeholder theories basically differ on primary assumptions.

The agency theory makes the wealth-maximizing individuals operating within the environment of efficient capital markets (N. Bayoud, M. Kavanagh, & G. Slaughter, 2012). While, the stakeholder and legitimacy theories expects boards takes the needs of interest groups linked to social and environmental considerations (Donaldson & Preston, 1995; E. Freeman, 1984; R. E. Freeman, 1984; Freeman, Wicks, & Parmar, 2004; Ranasinghe, 2011). Woodward et al. (1996) have revealed that a firm is a significant part of the social system according to both stakeholder theory and legitimacy theory.

In addition, stakeholder theory suggests that some groups within the society are more powerful than shareholders and employees, while legitimacy theory looks at society as a whole (N. Bayoud, et al., 2012). The researcher draws on legitimacy theory to explain CSER. Thus, the theoretical framework development here will integrate both influences. The three theories of government-ownership are agency, political, and social views. The social theory is related to the economic theory of institutions, which is government-owned companies are established to address market defects whenever the social benefits exceed the costs (Atkinson & Stiglitz, 1980).

On the other hand, the politics views of government-ownership is a tool for achieving the goals of politicians, the government-owned companies are unsuccessful because of the political interference (Shleifer, 1998). Regarding to "The Green Book" Gaddafi said that "The wealth of the society is like a corporation or a store of supply which daily provides a number of people with a quantity of supply of a definite amount which is enough to satisfy the needs of those people during that day" (Gaddafi, 1975).

The agency theory says that government-owned companies may be established to increase the social benefits, but may cause corruption, poor distribution and weak managerial incentives (Banerjee, 1997; Hart, Andrei Shleifer, & Vishny, 1997; Sapienza, 2002). According to these theories, it is not clear whether government-owned companies are less profitable for the reason that they maximize the social objectives, or for the reason that they inefficiently due politicians (Sapienza, 2002). On the other hand, Gaddafi pointed out that what is received directly by the workers, as regards their own interests, in the form of wages, percentage of the profit or social benefits, is the same as is received by the workers in the private corporation.

The significant gap in both CG and CSER literature is the rareness of such studies in the context of emerging economies (Arifur Khan, Mohammad Badrul Muttakin, & Siddiqui, 2012; Judge, T. J. Douglas, & Kutan, 2008). Consequently, the effect of CG mechanisms on CSER disclosures may be different in emerging economies (Arifur Khan, et al., 2012). However, the relationship between GOVO and CSER is largely absent in the literature (Geoffrey, 2008). Therefore, it is important to study the influence of government ownership on disclosure of CSER to see how it can affect in Libya context. However, there is no evidence of research which examines the effect of GOVO on CSRER in the Libyan context may it is due to delay in the establishment of CG system and stock market.

Significance of the Study

The researcher chose Libya in this research for some reasons. Libya has a different political and economic system (Wallace & Wilkinson, 2004) and Gaddafi pointed out that "The Third Universal Theory is a herald to the masses announcing the final salvation from all fetters of injustice, despotism, exploitation and economic and political hegemony" (Gaddafi, 1975). In addition, Libya is a particularly interesting country, as socialist and Islamic system have influenced on the nature of GOVO and CSER disclosure. Additionally, Libya established a public organization for the environment in 2000 to reduce negative effects on the environment (Bayoud, Kavanagh, & Slaughter, 2011).

Libya has experienced changes over a short period of time. It has started establish a stock market in 2006 which requires a high level of accounting disclosure and CSER to achieve an efficient market. The study determined the items which should be enclosed by Libyan companies as well as the items that are enclosed by these companies in the annual reports. According to Ellabbar and Havard (2005), the level of accounting disclosure of Libyan construction companies is low as compared to Egypt. The low level will be a hindrance towards establishing a capital market in Libya.

One of the ways, Libyan companies can raise this level by complying with the international accounting standards, or the Libyan accounting profession should develop accounting standards that are appropriate for the country's environment. This study attempts to statistically prove whether there is any significant association between the GOVO and CSER in Libyan companies during the period 2006 to 2011. The importance of this study lies for three important reasons; first, the study would contribute to the literature to help the researchers through the provision of the modern CSER practices in Libya. With a lot of effort by the government and the various relevant organizations, and perhaps the researcher can note the difference in disclosure practices in Libyan comparison with previous studies.

Additionally, since the study incorporates the issue of GOVO and the researcher think that this study will be among the first attempts in Libya to the effect of government ownership on corporate social responsibility and the environmental reporting. Second, the results will convey the integrating environmental considerations to the investors' community in their decision making process. As for practitioners, will perhaps become a challenge to them to be more environmentally responsible in the future. Finally, for policy makers, this research will provide indispensable evidence on the necessity of revisiting the existing standards and regulations.

For instance, the Libyan Business Organizations LBOs and Libyan Association of Accountants and Auditors (LAAA) may need to reinstate the importance of environmental performance in companies owned by government, and perhaps, it is very timely to introduce specific standards on environmental accounting. It is expected that this study will bring the issue of GOVO and CSER to the attention of the Libyan researchers for further research in this field.

To fulfill the aim, the research will identify different aspects of influence in the nature and extent of corporate information disclosed in companies' annual reports, from a CG and CSER perspective and by investigating the voluntary corporate governance disclosure made by Libyan government-owned companies. The purpose of this research is to examine the influence of CG characteristics, namely the government ownership, foreign ownership, board size, board independence, and CEO duality on CSER in government-owned companies in Libya.

Research Question

The purpose of this study is to probe these issues further.

What kinds of CSER (categories) are mostly disclosed by the Libyan companies?

Is there any factors affect the CSER in Libyan companies?

Is there any significant association between government ownership and CSER?

Objectives of the Study

This study aims to examine the existence of CSER among Libyan companies and to identify the influence of government ownership on CSER. Therefore, this study attempts to achieve the following objectives:

(1) To identify the level of CSER in Libyan companies.

(2) To examine the factors that influence CSER among Libyan companies.

(3) To examine the effect of government ownership on CSER in Libyan companies.

Chapter 2

Literature Review

Historical and Social Background of Libya

Libya is a developing Arab and Islamic country, situated in North Africa. With an area of almost 1,800,000 square kilometers (694,984 sq mi), Libya is the 17th largest in the world and the fourth largest country in Africa by area. However, about 90% of the county's land area is Sahara and thus only about 10 % of the county's land area is used for grazing and farming (Wikipedia., 2012).

Figure Map of Libya

As shown in Figure 1 Libya has the longest coastline in Africa bordering the Mediterranean. Libya is bordered by the Mediterranean to the North, Chad and Niger to the South, Sudan to the Southeast, Tunisia and Algeria to the West and Egypt to the East. The Libya's population is approximately 6.4 million people (UN, 2009). Most of country's population lives around the coastal strip next to the Mediterranean Sea, and more than third of population live in the two major cities of Tripoli and Benghazi (Oxford Business, 2008).

While, the dominant group is the Arab tribes, the country is also home to other ethnic including Berber tribes such as "Amazigh", and "Touareq". In addition, the country is home to several foreign nationals including Greeks, Maltese, Italians, Egyptians, Turks, and others (Oxford Business, 2008). The main language is Arabic. English and Italian are also spoken and understood in the main urban cities and are often used in trade.

Moreover, Tamazight (Amazigh tribe language) and Tamahaq (Touareq tribe language) are spoken by those Libyan tribes (Oxford Business, 2008). The one religion in Libya is Islam, which is adhered to about 100% of Libya's population. As for Libya's location, where Europe, Africa, and the Middle East meet the country has been subject to foreign military invasions and colonization's from the eighth millennium BC until 1951, when the United Nations declared the independence of Libya (Farley, 1971; Mahmud, 1997).

During this period, Libya was occupied by several foreign military invasions. Table 1 summarizes the most important historical events that have occurred in Libya. Although these series of occupations has given Libya a unique mix of indigenous and foreign cultures (Oxford Business Group, 2008). The Arab and Islamic culture has a significant impact in forming culture of the Libyan society. In particular, the Muslim religion, Arabic language, the extended family and tribal values are important characteristics that shape the current social environment of Libyan society (Agnaia, 1996).

Table Main Historical Events of Libya

Date Event

Before 642

Libya was occupied by the Byzantines, Greeks, Romans, Carthaginians, Vandals and Phoenicians.


Arab Islamic Rule: Libya conquered by Arab Islamic conquerors. In this period, Libya was ruled by several Islamic rulers (states).


Tripoli was invaded by the Habsburg Spain.


Ottoman Empire: Libya was occupied by Ottoman Turks and it remained part of Ottoman Empire.


Italian Colonies: the Italians supplanted the Ottoman Turks in Tripoli in 1911 and did not relinquish their hold until 1943 when defeated in World War II.1911


British and French military administration: the Allied powers controlled Libya and then it passed to United Nation (UN) administration and achieved independence in 1951.


A monarchy hereditary and constitutional under King Idris al-Sanussi.


The discovery of significant oil reserves: enabling one of the most world's poor nations to establish an extremely wealthy state, and becoming one of leading of leading oil producers.


September military coups in 1969 (Libyan Arab Republic): the governing authority became the Revolution Command Council (RCC) led by Gaddafi.


In 1973, Gaddafi declared the Cultural Revolution to encourage people to participate in political life by creating "People's Committees" to administrate local and regional administrations. This caused administrative chaos in the country by abolishing all laws; eliminating political parties and the revolution's enemies.


The People's Authority" the RCC was replaced by the General People's Congress (GPC) as a parliamentary body (the highest legislative authority) which established the new political regime for the country, The People's Authority.


Revolution broke out on February 17, which toppled the Gaddafi regime and emerged a new democratic regime.

Source: (A. Zagoub, 2011)

The name of Libya came into effect for the first time when Italy occupied Libya between1911 and 1943. During the Italian occupation, the Italian government in Libya made several improvements in the infrastructure in order to retain control of the country and to serve the Italians who were given the best farmland (Oxford Business, 2008). However, Italy was defeated in the Second World War and lost its control over Libya which became under the Allied powers control.

December 1951, Libya declared its independence, a constitutional and hereditary monarchy under King Idris al-Sanussi. During the war, the Libyan Arab Force was established by the king which fought alongside the Allied forces. Therefore, he claimed the Libya throne, with encouragement from the Great Britain (Esposito, 1998). The discovery of significant oil reserves in 1959 affected the Libyan modern development, the income from crude petroleum sales led Libya to become one of leading oil producers and improved the Libyan government's finances and infrastructure (Oxford Business, 2008).

The Libyan Political Regime

Muammar Gaddafi led a military coup that overthrew King Idris in 1969. and become the ruler of Libya. He canceled the Libyan Constitution of 1951, and created laws based on his own ideology from his book "The Green Book". Gaddafi officially stepped down from power in 1977, and subsequently claimed to be merely a "symbolic figurehead president" until 2011. Dissatisfaction appeared as a consequence of the increased concentration of the country's wealth in the hands of the ruling elite and this discontent continued especially from the country's younger generation who began to call for change, impacted by events taking place in Egypt and Tunisia protests and has been began in Benghazi in February 2011, which led to clashes with security forces that fired on the crowd (Wikipedia., 2011).

The protests escalated into a rebellion that spread across the country (Wikipedia, Unknown), On 17 February exploded a popular revolution against the Qaddafi regime, which led to the fall of his regime and composition of the Transitional National Council (TNC). Although there are some pockets of resistance by the previous regime, but now all of the Libyan territories have been liberated from the previous regime and began a new regime.

The Libyan Economic Environment

Libyan economic and political system was unique; this is different from the Communism, Socialist or Capital systems. After publishing the second part of the Green Book, Gaddafi announced the nationalization of all private property and consequently the private sector was fully abolished and prevented from exercising any kind of businesses even small retail trade. Gaddafi said in his book "The socialist ownership replaced a private ownership based on the production of wage-workers who had no right in what they produced" (Gaddafi, 1975).

Consequently, most of the Libyan economy became controlled by Gaddafi until 2011 (Wright, 1982). While the Libyan economy is a socialist-oriented economy, in 1992 the government established Act number 9 of 1992, the act allows the private sector to participate in Libyan economy, the act also permits the selling of government-owned companies to private sector. Moreover, the Act number 5 of 1997 is encourage foreign investments in the Libyan market (Fakher Buferna, et al., 2005). Higgins (1959) pointed out that the Libyan economy has faced many economic, social and political obstacles as it had been under the Ottoman Empire, the Italian occupation and the British and French military administration.

After oil discovered and exported in commercial quantities in 1961, the Libya's socio and economic has increased (M. Mahmud & Russell, 2003). The income from oil revenues has enabled the Libyan government to develop the country's infrastructure drastically, economy, education and the healthcare system (Wright, 1982). Saleh (2001) indicated that the main goal of these processes was to decrease public expenses, and to encourage private sector to participate in Libyan economy. According to Zagoub (2011), Libyan policies failed to develop the economic. As a result, the Libyan economy suffered from several problems and difficulties that limited the pace of its economic and human development.

Additionally, the drop of world oil prices in the early 1980s and the political and economic sanctions imposed by the United States (US) and the United Nations (UN) since late 1980s because of Lockerbie affair caused a serious decline in Libyan economic (Ali, 2010). Indeed, the failure of the Libyan political and economic system to solve these difficulties that could deal with such problems which led to public dissatisfaction with such economic philosophy. While Libya has the highest Gross Domestic Product (GDP) per capita in the region, and thus a million Libyans live in poverty (Porter & Yergin, 2006).

After the sanctions by the US and UN was lifted in 2003, Libya has embarked on a series of economic, social and legal reforms but slowly. It has demonstrated its intention to move toward a free market. Libya has begun establish new various laws, such as allowing the private sector to participate in the national economy, paving the way for privatizing of a number of public sector banks and companies, and attracting the foreign investment. In addition, Libya has applied to join the World Trade Organization (WTO), and thus most of laws are being reviewed in the context of the WTO requirements (Ali, 2010).

Although, some development was reached in implementing much-needed economic reforms, these reforms face many difficulties. Possibly the difficulties is that Libya suffers from an unpredictable business environment, which is characterized by managerial bureaucracy and inefficient system. In such environment, opaque legal and institutional frameworks adopted in Libya, the decision making process becomes complex. Another serious problem inadequacy of technicians and skilled manpower that is essential to satisfy the development of economy (Ali, 2010; Outlook, 2010).

Accounting System in Libya

Three key sources of influenced the accounting practice in Libya, namely: (a) regulations and governmental laws that control business in this country; (b) The impact of accounting imported from other countries (from the US and the UK through the experience of qualified personnel and the publications; (c) the impact of practitioners in the accounting field, academics (Bait El-Mal, Smith, & Taylor, 1973). The major effect on disclosure requirements came from Libyan laws related to economic activities, such as Financial System Law, Accounting and Auditing Profession Law,

The Libyan universities played a major role in constructing and developing the accounting practices and the education has been recognized as a key element in political and socioeconomic development. In the recent years, the main obstacle of development accounting education and practice In Libya, include: (a) The accounting curriculum is unfashionable; (b) The scarceness of modern references and textbooks in Arabic; (c) does not exist for the active professional societies; and (d) inadequate the public knowledge of the role of accounting.

The result of the study of Mahmud and Russell (2003) revealed that Libya in order to change and update both its accounting education and practice requires a efficient strategic plan. The Libyan Commercial Code and the Income Tax Law 1953 issued to keep at least two documents, first record should include the firm's total of its expenditures of daily business transactions and a monthly. The second is balance sheet which is accounts that include the inventory statement, the profit and loss account. These documents are required to have numbered pages, before being used, should stamped by a court official (M. Saleh, 2001).

Company Disclosure Practices in Libya

The stock market in Libya has been established in 2006 and Libya issued a number of laws that relate to accounting practice and disclosure.. According to Mashat et al (2005), the companies do not hesitate to disclose negative or hide the requested bad news to reinforce the corporate image or the reputation status and to avoid social pressure. That is because of these companies are government owned.

Public Sector in Libya

Adopted a policy of direct intervention by the government in economic life is as a fundamental method after the socialist transformation since 1978. After that was private sector plays an important role in economic activity and employs, over 75% of the workforce, the government became the main control of most aspects of production and distribution, and has become more than 80% of employment at the mercy of salaries low and late from the public treasury.

Thus, the government dominates the economic areas different and reduces the private sector that has become very marginal role (Bsekri, 2006). A review of five-year economic development plans (1976-1980, 1981-1985) notes that economic gravity shift in the interest of the public sector which take the focus of economic and social development as it accounted for over 85% of the financial allocations for the development plans referred to. Based on the vision of socialism were nationalized banks, foreign trade and the wholesale and retail trade and industrial companies and construction companies.

And helped the oil boom in the expansion of public sector activity, which provided for the Libyan government substantial financial resources a large part of which went to finance large-scale projects, the funding policy of excessive and irresponsible to create and manage government facilities on most financial reserves at a time decrease revenue after the oil shock, and the low production and oil prices in the mid-eighties. The revenue oil is a leading supplier of finance large-scale projects and continued to drain most of the revenue obtained from oil more than two decades, and became a burden on the public purse and reflected raised negatively on various vital sectors production and service, including education and health facilities.

And so it became clear shortly after of Socialist transformation failed experiment and the need for structural change in the national economy which it did not happen during the eighties and nineties (Bsekri, 2006). The findings of the survey (A. Mashat, B. Ritchie, C. Lovatt, & J. Pratten, 2005) showed that the greater part of this survey were less excited about the idea of attaching strategic organizations to the public sector to guarantee the social responsibility.

This may reflect the discontent at the performance of the government owned companies due to problems facing these firms and its failure of achieving its goals. In addition, Sun et al (2002), Dewenter and Malatesta (2001) revealed that public ownership is less efficient than private ownership. Since most Libyan companies are either fully or partially government-owned companies, maximising their market value is not considered to be the company's main aim.

The Libyan companies provide some information about the employees. However, the delay in acquiring some information makes the usefulness of this information questionable (Buzied, 1998; A. Kilani, 1988; M. Saleh, 2001). In this context, nowadays the companies which are registered in the Libyan stock market should provide more information about such things that were not provided it the past, to give all investors in the market the right picture about themselves and to attract more investment (M. Elmogla, 2009).

The relationship between government ownership (GOVO) is positive and significantly with the level of disclosure of CSER. The most important variable that affects the level of disclosure of CSER is GOVO (Roshima Said, Yuserrie Hj Zainuddin, & Haron, 2009). The previous studies show that GOVO has positive impact on CSER level in Malaysian firms (Amran & Devi, 2007; Mohd Ghazali, 2007; Shamsul Nahar Abdullah, Nor Raihan Mohamad, & Mohd Zulkifli Mokhtar, 2011a).

On the other Hand, the Results of Shamsul Nahar et al (2011a) revealed that government-linked companies do not have an impact on CSER disclosure. The study of Khan et al (2012) showed that GOVO in the context of Bangladesh may not have good level of CSER disclosures but he reveal that GOVO, foreign ownership (FORO) and board independence (BI) have positive influence on CSER disclosures.

Corporate Social Responsibility and Environmental Reporting (CSER)

Corporate social responsibility has been defined by different authors in various ways. Mohr and KEJ (2001) has defined CSR as "a company's commitment to minimizing or eliminating any harmful effects and maximizing its long-run beneficial impact on society". Noyer (2008) defined the corporate social responsibility as:

"CSR is a concept whereby financial institutions not only consider their profitability and growth, but also the interests of society and the environment by taking responsibility for the impact of their activities on stakeholders, employees, shareholders, customers, suppliers, and civil society represented by NGOs" (Azim, Ahmed, & D‟Netto, 2011).

According to Manakkalathil and Rudolf (1995) and Oppewal et al (2006), CSR is defined as the duty of the companies to respect human rights and raise human welfare in its programs. However, the main essence of these definitions is similar what the associations are undertaking CSR activities for creating healthy products, awareness for improved environment, social consciousness of most important issues, take care of employees and philanthropic activities to reach sustainability in the business markets (Imran Ali, Kashif Ur Rehman, Ayse Kucuk Yilmaz, Nazir, & Jawaria Fatima Ali, 2010).

Gray et al (1996) showed that CSR as a way by which a company can performance what they need for social responsibility. Gray and Bebbington (2001) says that CSR has been received more attention of academic studies for more than 30 years. Especially the business community, the media, and academia are paying more attention to CSR issues. On the other hand, that could be seen CSR as supportive to legitimacy theory, that: CSR is a type of corporate social receptiveness by the directors of a company and the managers then attempt to impact the social environment. The disclosure in annual report form part of the corporate social responsiveness within the economic activity (Mangos & Lewis, 1995).

Elasrag (2011) pointed out that Global CSR, a global initiative of the United Nations, released in 1999 and the Charter is divided into four groups, which is explained below: human rights, standards of work, preservation of the environment and anti-corruption. According to McWilliams and Siegel (2000) and Castka et al (2004), one of the main concerns on directors unwillingness to disclose CSR information is to achieve a balance between the require for optimizing earning from disclosing CSR information while meet the request for this information from multiple stakeholders.

Gray (1995) revealed that in relation to the CSR, stakeholders groups and community pressure companies to disclosure and they try to bring more control to bear upon a company, and reflected in disclosing information about social and environmental issues. According to John et al. (2009) the nature of CSER becomes clear, companies require making a profit, but they must show to behave in a moral fashion, and are responsible for their actions toward a society. The firms should presented social information relate to their activities in the workplace, the community, the environment and the consumer. Their actions should be acceptable to all stakeholders.

CSR reporting and 'transparency initiatives' play a key role in impacting the media and public opinion because they help to portray companies as responsible citizens that care about people and the environment more than about profits (Frynas, 2010). This rise in attention is demonstrated by the several of academic researchers who interested in this area, and by the increased concentrate being used by governments, accounting bodies, association bodies, factory, and business enterprises to different related issues.

It is now agreed that CSR disclosure should show how a company interact its stakeholders and would commonly comprise environment related disclosure; community participation related disclosure; product and consumer relations (Deegan, 2002; Epstein & Freedman, 1994; Gray, et al., 1995; Hackston & Milne, 1996; Ng, 1985; S. M. a. P. Williams, C.H.W. , 1999). Thus, CSR may be regarded as ''the provision of financial and non-financial information relating to an organization's interaction with its physical and social environment'' (Guthrie & Mathews, 1985).

Guthrie and Parker (1989) show that environmental and social accounting disclosures ''appeared to reflect public social priorities, respond to government pressure, accommodate environmental pressures and sectional interests and protect corporate prerogatives and projected corporate images''. However, very few studies are available on the CSR practices in the developing countries. The majority of these studies were undertaken in the context of recently manufacturing countries such as Malaysia, Singapore and some African countries such as South Africa, Nigeria and Uganda (R. Belal, 2001; Tsang, 1998).

CSER associate the social and environmental aspects in practicing business (Imran Ali, et al., 2010). Radebauh and Gray (2002) revealed that CSR refers to "accountability to society as a whole with respect to matters of public interest such as community welfare, public safety, and the environment". CSR has grown to comprise environmental issues over the recent years as environmental concerns such as environmental pollution. Environmental litigations have become more important for economic, social and political problems throughout the world. These have pushed the companies to enter into environmental responsibility including environmental disclosure and reporting matters as argued by Margolis and Walsh (2003).

Unfortunately a lot of companies are not realizing the significance of CSR and not investing in this area, however academia is supporting the significance of CSR. The media as well as print media are often not talk on the importance of CSR. Very few programs or interviews have been seen on some television channels and the focus is often limited to issues like employee's rights or environmental problems. A few issues related to this topic like CSR best practices mostly focus on the corporate activities and reports on environmental and society. Several companies take the issue of environment under the corporate social responsibility. This is due to environmental reporting practices which are also one area. (Imran Ali, et al., 2010).

The prior studies on the environmental reporting in developing countries are still few and the results showed varied results. This might be due to the lack of mandatory ER standards (Buniamin, et al., 2008; R. Gray & Bebbington, 2001). There are several definitions in the literature about the ER. Wilmshurst and Frost (2000) define environmental reporting as "those disclosures that relate to the impact company activities have on the physical or natural environment in which they operate" p.16. Berthelot, Cormier and Magnan (2003) define environmental reporting :

"...the set of information items that relate to a firm's past, current and future environmental management activities and performance. The environmental reporting also comprises information about the past, current and future financial implications resulting from a firm's environmental management decisions or actions." p. 2.

The environmental reporting may be used to enhancing the community's perception to environmental issues, or instead to divert attention from adverse environmental situations.(C. Deegan & M. Rankin, 1996; D. M. Patten, 1992). According to Romlah et al. (2002), the target of the ER is to reduce the potential cost that can be imposed on the companies and this is true for companies that pollute the environment. The use of annual reports as the major data source because of annual report is the most important source of environmental information due to its legal compliance (Deegan & Rankin, 1996; Hughes, A. Anderson, & et al, 2001; Tilt, 1994).

In addition, the increasing of ER in annual report and specific section in annual report to send the environmental importance to a wider group of stakeholders (Crowther, 2002). In study conducted by Rankin and Voght (2000) showed that annual report and social disclosures are a helpful tool to reduce the effects on the company activities that are supposed to be adverse to a company's image.

Corporate Social Responsibility and Environmental Reporting (CSER) in Libya

CSR practices in most developing countries still quite undeveloped and comparatively few researches have focused on the CSR practices in developing countries In recent years and more attention by researchers has been given to CSR. Mainly it is an issue that touches various significant aspects which concern us. This become a discussion issue in many developed countries (Samuel & Walter, 2009). ER was the noticeable focus issue in CSR studies during the latter part of the 1981-1990,

Although, there are several studies show that annual reports disclose information related to the CSR (C. Adams, Hill, & Roberts, 1998; Mathews, 1997), the studies are few in this area, even in developed countries where practice is changing rapidly, and it is very limited in developing countries (Abu-Baker & Nase, 2000). Within the Arab world context, in which Libya constitutes an important part, there is still a lack of practical studies on CSR practices (Abu-Baker & Nase, 2000; Al-Khater & Naser, 2003; Jahamani, 2003). Interestingly, the Libyan Tax Law encourages companies operating in Libya to be involved in some social activities. For example, stipulates that companies will be granted a tax privilege for donations to officially recognized charity institutions (A Mashat, et al., 2005).

The study of Elmogla (2009) showed that Libyan companies generally disclose a some information related to social responsibility. However, the amount of information is low. Employee information and society involvement are the elements that companies disclose mostly. According to the survey for John et al. (2009) all of the professional accountants and academics in Libya agreed that companies should pay attention for their social responsibilities, especially on environmental and society issues.. Few of the professional accountants and academics believed that environmental disclosure will lead to protect to the environment in Libya, the managers and auditors support this line strongly. For them, pollution would be a concern.

However, they felt that disclosure was hindered by the absence of legal requirements, administrative problems and the failure of management to achieve its social responsibilities. While most agreed that all stakeholders, owners and investors were considered as more important than customers. And therefore, the accounting sectors of Libya show largely united in their views on the nature of CSR and the purpose of disclosures. Community and environmental issues are significance, but the customer has little importance.

According to John et al. (2009) the laws would be needed to advance the extent of CSR.

Therefore, a view of the Libyan approaches has emerged. So the quantity and quality information related to CSR was limited. Moreover, the disclosures were often in the form of narrative, with little in quantitative form. It is clear that more research should be undertaken, using more modern reports and spreading to a wider range of companies, to find out if CSR in Libya preserves to its own identity and developing human resources would be the assistance to spreading social responsibility information.

Corporate environmental disclosure as defined by Libyan, Environmental Protection Law no. 13 of 2003, Industrial Security and Employees Health and Safety Law of 1976, was summarized into protecting the environment, damaging the environment, health and safety, security statue and evidence (monetary, quantitative and qualitative) and the type of disclosure (bad, neutral and good) (Ahmad & Mohamed, 2004). Although Libya established the Public Organization of Environment (POE) in 2000, Libyan companies showed the lower level of environmental disclosure than more developed countries.

The social reports in Libya Included the employee information and some community disclosure (John, et al., 2009). Ahmad and Gao (2005) examined corporate environmental reporting in Libyan companies, the study showed that no evidence of the existence of ER but found `health and safety' disclosures with 70 percent of their sample presenting such information. In addition, Ahmad (2004) by studying in the period of 1998-2001, found that there is no existence of environmental disclosure quantity or quality, in particular if the health and safety category is excluded.

Some changes occurred in Libya such as set up Libyan Stock Market and the Libyan environmental law no. 15 of 2003. These changes may push ER in Libya forward. The findings of the study of Mashat et al (2005) showed that environmental disclosure is not published properly in the annual reports of Libyan companies, and the study revealed that the level of ER in Libya is low and general, and the information revealed also lacks uniformity and has very little disclosure value.

On the other hand, Ahmad and Mousa (2010) investigated Corporate Environmental Disclosure (CED) practices by the 18 largest industrial companies. The findings of their study showed that CED in Libya increased between 2001 and 2007 both in term of its quantity and quality, This approach was derived from an extensive review of the past literature in general and the selection of largest companies is based on the usual arguments that the environmental sensitivity of industrial companies influences the level of environmental disclosure and that large companies are more likely to respond to the environmental agenda than small or medium-sized companies.

In the Libyan context, CED information used to create big and small decisions or to perform routines in the companies (N. Ahmad & Mousa, 2010).

Corporate Governance (CG)

In recent years, there has been interest in the significance of CG and its influence on the many aspects of economic, legal, political and social systems. Corporate governance has been a growing interest in its importance as a result of the financial collapses of a number of prominent companies in a number of countries (A. Zagoub, 2011). In addition, Monks and Minow (2004) pointed out that the importance of CG became clear after increasing the economic crises in many countries.

The importance of CG for economic development in many countries identified Claessens (2003), first, the increasing of privatization and investment processes especially in the transition countries. Second is the influence of globalization. The Modern technology and the opening up of markets, trade liberalization and the structural reforms in many countries have led to a rise in foreign investments. This makes good CG more important to emerging economic, especially developing countries.

The structure, basis and framework of governance have been mainly provided by the company law itself. It has evolved over the past 160 years into its present form it allows companies to continue their businesses within the framework which benefits not only companies but also shareholders and stakeholders and makes their contribution to the economic growth within the system of free trade which is embraced today. In other words, CG is a system which the law established and developed in consonance with the development of companies. Thus, this is not a new system but has been created a long time ago. However, over time, it need to review on the system is essential to ensure that it suits the present needs and circumstances (Che Haat, 2006).

Koh (2001) defined CG as:

"…the process and structure used to direct and manage the business and affairs of the corporation with the objective of enhancing long-term value for shareholders and financial viability of the business." p. 23.

The definition that was provided by the Malaysian High Level Finance Committee for corporate governance (Committee, 1999):

"Corporate governance is the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long-term shareholders value, whilst taking into account the interests of other stakeholders" p. 52.

Huther and Shah (1998), governance is defined as the exercise of economic,

"It is practiced through mechanisms, processes and institutions, through which citizens and groups articulate their interests, exercise legal rights, meet their obligations and mediate their differences".

CG may be broadly defined as ''the manner in which companies are controlled and in which those responsible for the direction of companies are accountable to the stakeholders of these companies'' (Dahya, Lonie, & Power, 1996) p. 71. CG can also be defined as a general theory that deals with relationships, responsibilities and balances between management and shareholder interest (Grant, 2003; K. Schipper, 2004). Sethi (2002) defined corporate governance as

"Corporate governance procedures determine every aspect of the role for management of the firm and try to keep in balance and to develop control mechanisms in order to increase both shareholder value and the satisfaction of other stakeholders. In other words, corporate governance is concerned with creating a balance between the economic and social goals of a company including such aspects as the efficient use of resources, accountability in the use of its power, and the behavior of the corporation in its social environment"

Solomon (2007) defined CG from a wider accountability perspective as:

"The system of checks and balance, both internal and external to companies, which ensure that companies discharge their accountability to all stakeholders and act in a socially responsible way in all areas of their business activity" (p.14).

Sir Adrian Cadbury (2002) provided a broad definition as follows:

"Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations, and society." (

The Organization for Economic and Development (OECD, 2004) developed a wider definition of CG to extend the relationships with other stakeholders as follows:

"Corporate governance involves a set of relationships between a company's management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined." (p.11).

Corporate Governance in Libya

Corporate governance in Libya was established in 2007 through the establish Libyan Stock Market. The government-owned companies listed for example Libyan Central Bank and General Post and Telecommunication Company were the first companies to adopt the use of CG in Libya. The study of Larbsh (2010) showed that the CG system in Libya is less-evolved and Libya has lagged behind its neighbors. Also, the study revealed that the absence of standards of CG has led to the lack of accountability and responsibility processes.

The effect of the legal system and effect of culture and social, political interference, lack of accounting professionalism the weakness of the education system and were other factors in the CG framework were also clear. According to Elmogla (2009) the Libyan government controlled and supervise the companies. But after the transition from a old system to a market-based system which started a few years ago, some companies are becoming private and others are restructuring and under the control of the General Board of Ownership Transfer of Public Companies and Economic Units (the aim of this board is to achieve the program of transferring public companies to the private sector).

In recent years, an increasing interest on governance as a critical underpinning of companies success generally and environment more specifically (Mizan & Alamgir Hossain, Year Unknown). Libya still has a long way to go in order to attain the level achieved by their counterparts in developed countries. In terms of CG in Libya, most government-owned companies have a ten-member board of directors. The company's senior management send the reports to this board, which send these reports to a government minister, the high-level government officials made most important decisions who instruct the senior management (Report, 2011).

The Relationship between CG and CSER

There are efforts to spreading social and environment responsibility of companies and a growing consciousness that environmental and social effects can have real financial cost. There is argue regarding to the level and nature of convergence between CG and CSER (Strandberg, 2005). The UN Global Compact's 2004 report (Who Cares Wins, 2004) which concerned with the CSER and governance issues that can have a material effect on company financial performance, this is one of many recent reports studying the relations between CSER and governance practices.

CSER can be improved through CG mechanism, companies responsibility towards a society and environment needs can be enhanced during the suitable disclosure of CSER, which is accomplished by strong managers characterized in effective CG (Shahin & Zairi, 2007; Zairi, 2000). In addition, Social and environmental disclosure is increasingly showed as an element of good corporate governance (Organization, 2002).

This is also agreed in the Cadbury (1992) which pointed out that a higher quality of CG could be reflected during development in the quality of CSER. Most of the investigates which showed the relation between CSER and CG have been conducted in developed countries such as USA, Hong Kong and UK, thus posing a question whether the results of these studies can be applied in Libyan context. In spite of significance of CG and its potential impact on firms to participate in CSER, the studies in this area are still lacking. On the other hand, Elmogla (2009) said, no evidence conclusions can be drawn about the relationship between the governance and environmental outcomes.

The Influence of CG on CSER

According to Buniamin et al. (2008), there is a possible relationship between the CG structure and the predisposition for companies to participate in CSER. In fact, CG is described as a one of significant element influencing in the social responsibility sphere and can be a source of competitive advantage for companies in its own right. On the other hand, the study of Mizan & Alamgir (Year Unknown) concluded that no definitive conclusions about the relationship between the governance process and environmental issues.

Apart from the traditional approach to accountability in the context of CG, sustainability reporting has also appeared, even though it is mostly on a voluntary basis concerning the societal and environmental influences (Kolk, 2006). Disclosure on environmental issues has the potential to increase shareholder's wealth and can be regarded as one of the elements of good CG (Organization, 2002). However, the effectiveness of regulation on environmental risk, which emphasizes awareness of shareholders, essentially depends on the quality and quantity of the environmental disclosure (Sinclair-Desgagné & Gozlan, 2003).

The increasing of global environmental awareness is clear with the introduction of different reporting guidelines by parties like Global Reporting Initiative (GRI), the International Organization for Standardization (ISO), Canadian Institute of Chartered Accountants (CICA), The Association of Chartered Certified Accountants (ACCA). Environmental costs and obligations will continue to rise in line with the consciousness of society, government regulation and corporations towards environmental concerns (Rezaee, Szendi, & Aggarwal, 1995).

Indeed, the increasing interest and the grow in prominence of corporate environmental and social reporting for reaching corporate accountability, is the step for the new governance regulation model (D. Hess, 2007). This situation has also been closely linked to the recognition that good CG needs to consideration of the influence a company on the community and the environment (Andrew, 2003). Despite the importance of CG and its potential impact on CSER for the companies, research in this area is still lacking (Buniamin, et al., 2008).

However, most of the previous studies that examined the relationship between CG and company voluntary disclosure found that board independence, Chief Executive Officer, CEO duality and management ownership are among the significant variables (Cheng & Courtenay, 2004; Haniffa & Cooke, 2005; Ho & Wong, 2001; Norita & Shamsul-Nahar, 2004). In addition, Halme and Morten (1997) revealed that companies in industries that are environmentally sensitive reported most on the environment. However, not found the effect of the number of board members and the proportion of stock owned by the largest shareholder.

In the other word, Haniffa and Cooke (2002) revealed that the percentage of independent directors did not impact the extent of CSER in the midst Malaysian companies. McKendall et al (1999) discovered that: there are several reasons to anticipate a relationship between CG and corporate environmental reporting. First, one of the functions of directors is to ensure companies' compliance to any legislation, including environmental legislation and laws. Second, if the protection of the interests of other stakeholders is a governance issue, this means that managing environmental influences is a governance and performance issue. Third, environmental compliance always includes difficult decisions and needs large expenses, which can affect short term profitability.

Thus, the board should observe and support environmental decisions. Generally The relationship between the environment and governance systems has been discovered from various perspectives (Mizan & Alamgir Hossain, Year Unknown).

Theoretical Framework

Figure 2 depicts the theoretical framework examined in this study. The framework is based on legitimacy theory. Referring to the framework, the study examines the effect of the CG (as independent variable) on the corporate social responsibility and environmental reporting (as dependent variable). The company size (COMS), company age (COMA) and type of industry (TOI) (as control variable). The framework attempts to describe that legitimacy theory has been used by many researchers (Ahmad & Mohamed, 2004; Deegan, 2002; Deegan & Rankin, 1996). All of them examined this theory applied to companies which are considered as 'sensitive' companies toward social and environmental issues.

Deegan and Rankin (1996) stated that legitimacy theory also posits that CSER disclosure practices are responsive to political, social and economic pressures. The most commonly cited theory in social and environmental reporting studies is the legitimacy theory (Gray, et al., 1995). Thus, legitimacy theory has become one of the most cited theories within the social and environmental accounting area.(Tilling, 2004). Tilling believes that legitimacy theory does provide a powerful mechanism for understanding voluntary social and environmental disclosures made by companies. The theory is based on the notion of 'social contract', which limits the activities of a company within the limitations set by the society.

Gray et al (1996) show that the company will gain support from the stakeholders and continue in existence in so far as its activities give benefits, or at least are not harmful to society. 'Legitimacy' is said to exist as there is congruence between the activities of the company and societal expectations.

Thus, in the absence of any mandatory reporting, a company should report on the environment voluntarily to discharge its environmental accountability to the public. The next chapter discusses how this study is conducted and explains the development of the hypotheses derived from the theoretical framework.

Corporate Governance (CG)Figure : Framework

Government Ownership (GOVO)

Foreign Ownership (FAMO)

Family Ownership


Managerial Ownership


Board Independence


CEO Duality


Corporate Social Responsibility and Environmental Reporting


Employee Qualifications


Employee Policy


Employee Health and



Trade Unions









Company Size


Company Age (COMA)

Type of Industry



Control Dependent Variable


Control Variables

Control Variables




The purpose of this chapter is to study the different methods and measures, chosen and employed in this study in order to meet the research objectives. There are various methods that can be used in resolving research problems in social science, for example, among others researchers may employ descriptive, explanatory and exploratory approaches in solving their research problems (DeVaus, 1991; Oppenheim, 1992; Zikmund, 1994). This study will be used the content analysis to meet the overall objectives. Most of the data is secondary in nature will be collected from annual reports of Libyan companies and handbooks.

Hypotheses Development

Chapter 1 mentions that this study attempts to answer the main research question: The question is "Is there any influence of the GOVO on the CSER reporting?" In order to answer the question, many hypotheses were developed based on the review of literature in Chapter 2.

Government Ownership (COVO)

Ownership is the most significant element increases the level of CSER disclosures in Bangladesh (A. Belal & Owen, 2007). The public sector may face pressure from stakeholders to disclose social and environmental information because of transparency and accountability issues (Cormier D. & Gordon, 2001) Moreover, social culture, political regime and laws have an impact on the accounting disclosure (A. Adams & Harte, 1998).

Khan et al (2012) expected that

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