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CHAPTER III

RESEARCH METHOD

In this chapter the research methods to be used in the study is presented. The area where the study will be conducted, the research design, tool and instrument, as well as the population and sample are described. This chapter also covered the procedures on data gathering and data analysis and interpretation.

Research Design

The researchers will use the descriptive and causal research design to determine the components of the selected companies’ sustainability report. The descriptive research design will be used as a tool to determine if sustainability reports have an effect towards the profitability of the company and if its company profile has a moderating effect towards the results. Relatively this method is appropriate to this study since it aims to describe the data and gather information about prevailing conditions or situations for the purpose of description and interpretation (Dr. Y.P. Aggarwal, 2008). The causal research design will be used to accurately measure the cause and effect relationship of the selected companies’ sustainability report on their profitability. This method is used for reasons for demand and are preferred when a set of variables affecting the situation are available (Armstrong, J. S. 2012). Relatively, this is appropriate to this study since it aims to test if a particular independent variable (the cause) has an effect on the dependent variable of interest (the effect).

The researchers will also use evaluative and quantitative research design. Evaluative method will be used to interpret the results acquired in the profitability ratios for 2017. On the other hand, the study will utilize secondary data and quantitative data to analyze the relationship of the sustainability disclosures and the profitability of the selected companies.

Respondents of the Study

The study will utilize secondary data. The list of companies that have submitted sustainability reports in accordance to the GRI Guidelines were obtained from the Global Reporting Initiative database. Companies that do not fit the criteria as respondents for this study were deleted from the list.

Sampling Design and Methods

The study employed the purposive sampling technique which focuses on sampling techniques where the data that are investigated are based on the judgement of the researcher and the following criteria have been used to select companies eligible to be included in the sample: 1. Companies in Asia that has submitted 2016-2017 sustainability reports in the GRI database 2. Has submitted sustainability reports in accordance with the GRI G4 Guidelines 3. Must include a GRI Content Index in their sustainability reports or in their website 4. Has available financial reports for 2016-2017 in their website

Thus, a total of __ companies in Asia were determined to have submitted 2016-2017 sustainability reports in the GRI database; however, only __ companies were included in the sample, considering the submission of sustainability reports in accordance with the GRI G4 Guidelines including a GRI Content Index and the availability financial reports for 2016-2017.

Table 3 Criterias Companies in Asia that have submitted 2016-2017 sustainability reports in the GRI database Less: Companies that have not submitted sustainability in accordance with the GRI G4 Guidelines

N

Less: Does not include a GRI Content Index in their sustainability reports or in their website Less: Have no available financial reports for 2016-2017 in their website Total Number of Companies to be included in the study

Locale of the Study

The study will be conducted in the Philippines. The Global Reporting Initiative Sustainability Disclosure Database provides access to relevant information of different companies situated in Asia who already integrated the use of sustainability reports within their business activities.

Data Gathering Procedure

For this study, the researchers executed the following procedures:

1. First, the researchers obtained a list of companies in Asia submitting sustainability reports for 2016-2017 from the Global Reporting Initiative database. 2. From the obtained list of companies, the researchers gathered the companies that have submitted sustainability reports in accordance with the GRI G4 Guidelines. The sustainability reports must have a GRI Content Index or has the said index in their website. 3. After gathering the number of companies with 2016-2017 sustainability reports, the researchers

searched

from

each

company’s

website

their

2017 financial reports in order to determine the final sample size for the study. 4. From the final list of companies, each company’s profile (company size, company age, board size) will be obtained from their sustainability reports and websites. 5. Lastly, the data and information gathered will be tabulated for the data analysis and interpretation.

Data Analysis and Interpretation

In order to assess and answer the hypotheses presented in the study, the data obtained by the researchers from the sustainability reports and financial reports for 2017 will be analyzed and summarized using the following statistical tools:

The analysis of sustainability reports were limited to the key performance indicators because these are the important dimensions in the generation of sustainability reports. The key performance indicators to be used as a basis in this study are provided in Global Reporting Initiative G4 Guidelines (GRI G4 guidelines). Figure 3 shows the number of aspects, number of indicators and the maximum scores for each disclosure.

Figure 3 Schematic Presentation of GRI G4 Guidelines

In the Global Reporting Initiative (GRI) Guidelines, there are a number of aspects for each disclosure and these aspects are further broken down to key performance indicators. Using the GRI G4 Guidelines and the GRI Content Index of each sustainability report, the researchers will tabulate the number of performance indicators fulfilled by each company. The 91 items (9 for economic, 34 for the environment and 48 for social disclosures) representing the total number of performance indicators are assigned a score between 0 and 1 with 91 as the maximum possible score. Analysis of the sustainability reports will be done manually with focus on the GRI content index, which is necessary to be included in the sustainability report as per GRI guidelines. A score of 0 is given if an indicator is not reported and 1 if an indicator is reported. Cases where companies stated that a specific indicator is not applicable will be considered N/A and is excluded for this reason. Scoring sheets were created and utilized in assessing the sustainability reports. The four independent variables (economic disclosure, environmental disclosure, social disclosure and overall sustainability disclosure) will be measured by scoring index based on the performance indicators provided in the GRI Guidelines which is adapted from the study of Burhan & Rahmanti (2012) is as follows:

Index =

𝑛 𝑘

where: n = number of indicators which is fulfilled by the company k = the maximum number of indicators which should be fulfilled by the company.

The scores will be tabulated and will be the basis for answering the first research questions stated in the beginning of this study which is to determine the scores of the sustainability reports based on economic, environmental and social disclosures.

Profitability ratios are one of the most frequently used tools of financial ratio analysis since it shows a company’s overall efficiency and performance. The researchers used the following ratios to analyze the company’s financial performance in terms of profitability:

1. Return on Equity (ROE) measures the ability of the management of the company to generate adequate returns on the money the investors have put into the company. Net income comes from the income statement and total equity comes from the balance sheet. In general, the higher the percentage, the better, as it shows that the company is doing a good job using the money of investors.

ROE =

Net Income / Total Equity

2. Return on Assets (ROA) measures how much earnings the company is able to generate relative to its assets. Net income is taken from the income statement and total assets are taken from the balance sheet. The higher the percentage, the better, as it shows how efficient the management is in utilizing its assets while earning more money.

ROA =

Net Income / Total Assets

The multiple linear regression analysis will be used in this study to understand how much the profitability of the company in terms of ROA and ROE (dependent variable) changes with a change in the scores of sustainability reports (independent variables) in terms of economic, environmental and social disclosures. This model will also be used to explain if the company profile which is the company age, size, and board size moderates the effect of sustainability reporting on the profitability of the company.