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Does CFO Expertise Matter? A Case of Corporate Water Reporting among Malaysian Public Listed Companies.


Traditionally, sustainability was perceived as outside the purview of Chief Financial Officer (CFO). As the name suggests, CFO should concentrate on the financial performance and position of a company. Many believed that the role of corporate social and environmental sustainability fell within the remit of other functions including human resource, marketing, communications or investor relations (Deloitte and Touche, 2012). However, over the years, companies have seen billions of dollars being wasted as a result for corporate environmental misbehaviour. For example, British Petroleum was asked to pay $20.8b as a result of 2010 Deepwater Horizon oil spill (Davenport and Schwartz, 2015). In addition, in 2015, the United States Environmental Protection Agency (EPA) had issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group for cheating on government emissions tests which has seen the company posting its first quarterly loss for 15 years of [euro]2.5bn (Hotten, 2015). These incidents coupled with the rising expectations of the stakeholders for companies to be more socially and environmentally responsible have challenged the conventional 'financial' roles of CFO to include the management, measurement and reporting of companies' sustainability programmes. This research is motivated by the lack of empirical literature which examines the roles of CFO towards corporate sustainability reporting practices. To the best of the authors' knowledge, Sun and Khan (2013) is the only study which has investigated this issue among the US companies. In this regard, it is well argued in the literature that differences in the social, economic, environmental and legal settings of a country could result in different findings (Alrazi et al., 2016). Additionally, unlike carbon reporting, the reporting on water related information has received scant attention despite that these two issues (carbon and water) are closely related to climate change. However, these few studies only analysed the extent of reporting (Alrazi et al., 2017; Mohd Remali et al., 2016; Ceres, 2012, 2010) and the voluntary participation in CDP surveys (CDP 2016, 2010) without any attempt to empirically test the factors associated with reporting.

Therefore, the objective of the research is to examine the influence of CFO expertise on the corporate water reporting practice of a sample of Malaysian companies. It is pertinent for several reasons. In terms of contribution to the body of knowledge, it fills the gap in the extant literature relating to the roles of CFO in enhancing corporate sustainability. In doing so, it focuses specifically on water reporting and uses resource-based theory as the underlying arguments. In the light of climate change issues, this research could help in creating awareness among the companies to be more vigilant in protecting our natural resources and forthcoming in informing the stakeholders of any initiatives undertaken to mitigate this issue through corporate disclosures. The finding from this research could become a basis for regulators and policy makers to revisit the requirements for sustainability reporting and competency framework for CFOs.

The remainder of the paper is structured as follows. The next section reviews the relevant literature. It is followed by the description of theoretical framework and hypotheses development. The subsequent section elaborates research methods comprising sample selection, data collection methods, measurement of variables, and regression equation. The penultimate section will present the findings of the research. The final section concludes the research, highlights the limitations and provides recommendations for future research.

Literature Review CFO and sustainability

MIA (2018) defines CFO as "the most senior person involved in the finance function of an organisation whose primary role normally includes being overall responsible for managing all financial aspects of the organisation including assessing financial risks and controls, managing budgets, preparing financial statements and providing financial information" (p. 6). Despite the emphasis on 'finance function', in the recent years, there have been many calls by the professional accountancy organisations for CFOs to have different sets of competencies so as to remain relevant in the ever-changing business environments and societal expectations. The International Federation of Accountants (IFAC), for instance, promulgated five Principles Guiding the Role and Expectations of a CFO, with Principle C addresses the need for CFOs to act as the integrator and navigator for the organisation (IFAC, 2013). In this regard, CFOs are responsible to ensure that the organisation they are working with must integrate economic, environmental, and social factors at all levels of decision making and reporting. This expectation is also shared by other professional bodies including CIMA (2016) and ACCA (2012), to name but a few.

In a similar vein, they have been various surveys conducted among CFOs around the globe to understand their involvement in sustainability goals and initiatives of their companies. For example, In Ireland, a study by Deloitte (2012) reveals that 28% of CFOs agreed that they have reported on non-financial measures, such as social and environmental impacts, while 37% have incorporated sustainability dimensions into their company's bidding and/or procurement processes. In Australia, 83% of the CFOs indicated that they are involved in setting sustainability strategy (Deloitte Touche Tohmatsu, 2013). In a recent survey published by ING (2018) on the response of CFOs in the US, they found that more than close to one-half claimed that finance department contributes to sustainability initiatives. The significant role of CFOs in sustainability was also observed in a cross-country survey conducted by EY (2016). The survey participants affirmed that they play a major role in integrated reporting and stakeholder management and communication across multiple channels.

Despite the potential roles as discussed above, empirical research which links CFO expertise and sustainability reporting is scarce. Sun and Rakhman (2013) have examined the influence of CFO tenure, education, and professional expertise on the CSR performance (KLD rating) of 258 US companies for the year 2005. They found that tenure has a positive and significant influence, but not for the other two variables. Additionally, firm size, age of long-term assets, return on equity, leverage, and the market-to-book ratio were included and statistically significant.

Corporate Water Reporting

Carbon/greenhouse gas (GHG) emissions and water are issues closely linked to climate change. However, unlike emissions, the interest in water and how companies are dealing with this issue is a recent phenomenon. In a Malaysian study, Mohd. Remali et al. (2016) found that the extent of water disclosure in the annual reports of the top 10 public listed companies was low. Using a larger sample and more recent data, Alrazi et al. (2017) investigated the corporate water reporting among 708 public listed companies for the 2014-2016 period. The level and extent of reporting increased during the period; however, the reporting was considerably low and predominantly descriptive in nature with limited emphasis on quantitative data.

In US, Ceres (2010) examined various reporting media including sustainability reports, company websites, and 10-K filings of 100 companies from eight water-intensive industries in year 2009 and found that disclosure of risk and corporate water performance was weak. In another study, Ceres (2012) examined the corporate water risk disclosure in SEC filings of 82 companies. The overall disclosure increased since year 2009, but much reporting remains weak and inconsistent. CDP, a London-based not for profit organisation, has conducted a survey among the world's largest companies since 2010 (CDP, 2010). The survey asked the companies to provide information on water consumption, water discharges, business impacts, risk and opportunities assessment, governance and strategy, and compliance. In 2016, there were 1,252 companies approached with 607 companies responded (48%, an increase from 38% in year 2015) (CDP, 2016).

Based on the review of literature, there has been a limited number of research on corporate water reporting. Furthermore, there is no empirical research which attempted to link the reporting practice with any factor particularly in regards to the expertise of CFO.

Theoretical Framework and Hypothesis Development

The resource-based theory is used as the underlying theory for this research. In general, the theory posits that the availability and ownership of resources are imperative for companies to implement any strategy and as a source of competitive advantage. They have been many attempts at categorising resources; but, a common consensus is human resource or people that are working with the companies is as an important corporate resource. Russo and Fouts (1997) treated this resource as human resources and organizational capabilities; Das and Teng (2000) considered it as knowledge-based resources; while Branco and Rodrigues (2006) classified it under the intangible resources and capabilities.

Based on the discussion on the roles of CFO on sustainability, it is predicted that certain characteristics could result in more effective CFOs. As argued by Sun and Rakhman (2013), better corporate social performance can be expected from companies with CFOs who have long served the companies, postgraduate degree, and membership in professional accounting organisations. Additionally, Post et al. (2011) argued and found that boards with older and female members have better scores for environmental corporate social responsibility. This is so as older individuals exhibit higher moral reasoning, while women due to their reproductive role have more protective attitude towards the environment. Therefore, it is hypothesised that,

H1: The extent of corporate water reporting is associated with CFO (a) tenure, (b) postgraduate qualification, (c) professional expertise, (d) age, and (e) gender.


Population and Sample

The population of the sample is all companies listed in the Main Market of Bursa Malaysia as of 31 July 2017. There were 806 companies as of that date. Initially, 300 companies were randomly drawn using Microsoft Excel formula. In order to be selected for further analysis, the companies must have annual reports for the year 2016 and detailed profile of the CFOs in such reports. After excluding missing observations, the final sample consists of 201 companies which can be classified into nine industries, namely trading and services (27.4%), industrial products (24.4%), consumer products (14.4%), properties (11.9%), construction (6.0%), plantation (5.0%), technology (5.0%), finance (4.0%), and REITS (2.0%).

Data Collection Methods

Data for the dependent variable i.e. the extent of corporate water reporting were obtained through content analysis of annual reports and stand-alone sustainability reports for the year 2016. The year of analysis was chosen based on the most recent data available at the commencement of this research. For this purpose, a disclosure index was developed focusing on issues related to organisation's policies, activities, and impact on water availability and security. GRI (2016)'s G4 Sustainability Reporting Guidelines as widely recognised reporting framework on sustainability performance (KPMG, 2017) was used as a basis to derive at items relevant for this research. A total of 11 items was identified and each item was scored on a scale of 0-1 in which 1 denotes the item is being disclosed by the company, and 0 otherwise. The total maximum score is 11. The content analysis procedure utilised in this research is discussed in great length in Alrazi et al. (2017).

Data for the independent variables, namely CFO experience, education, professional expertise, age and gender were hand collected from the same reports described earlier. The relevant sections in which the data were collected include Board of Directors' Profile, Senior Management Team and the likes.

Measurement of Variables

Corporate water reporting is measured based on a 11-item disclosure index with a score of 11 indicates that companies disclosed all the items included in the index, whereas 0 indicates that none of the items being disclosed by companies in either annual reports or stand-alone sustainability reports. Following Sun and Rakhman (2013), experience is measured based on tenure or the number of years (from 1 January 2017) the officer has been the firm's CFO; education is denoted as 1 if the CFO has an advanced degree in business or related fields, and 0 otherwise; and professional expertise is indicated as 1 if the CFO is CPA or has professional qualification (e.g., ACCA, CIMA, MICPA, ICAEW, CPA Australia, etc), and 0 if he/she is not. Age is based on the actual age of the CFO. For gender, female CFO is assigned 1, while male CFO is assigned 0.

Empirical model

Following is the multiple regression model used for this research:

CWR = [[beta].sub.0] + [[beta].sub.1]TENURE + [[beta].sub.2]POSTGR + [[beta].sub.3]CPA + [[beta].sub.4]AGE + [[beta].sub.5]GENDER + [epsilon]
CWR     = corporate water reporting
TENURE  = the number of years the officer has been the firm's CFO
POSTGR  = "1" if the CFO has a postgrad degree, otherwise "0"
CPA     = "1" if the CFO has a CPA certification, otherwise "0"
AGE     = age of the CFO
GENDER  = "1" if the CFO is female, otherwise "0"


The objective of the research is to examine the influence of CFO expertise on the corporate water reporting practice of a sample of Malaysian companies. This section will present the result from the descriptive statistics, correlation analysis and regression analysis.

Descriptive statistics

Table 1 depicts the descriptive statistics of the sample included in this research, with Panel A is for continuous variables and Panel B for categorical variables. Based on the table, the extent of corporate water reporting (CWR) among the sample companies was poor. This can be seen from the mean value which is 0.960 (out of possible 11 marks). A more detailed analysis on the reporting practice reveals that a total of 120 companies (60%) did not make any related disclosure at all. This scenario indicates that the reporting of water related information in Malaysia is still at its infancy stage, hence implying the relative (un)importance attached by companies in Malaysia towards water issues vis-a-vis other environmental issues particularly carbon emissions. In terms of TENURE, on average, the CFOs have been in the position with the companies for 7 about 7 years. In regard to the AGE, the average age of the CFOs is 49 years old, with the youngest being 30 years, while the oldest being 64 years.

This table presents descriptive statistics of the disclosure scores and the independent variables used in correlation and regression analyses. Statistics are presented for the full sample of 201 companies. Furthermore, Panel B reveals that the majority of the CFOs included in this research are not having postgraduate degree (POSTGR = 88.1%), members of a CPA organisation (CPA = 69.7%) and male (GENDER = 70.1%). Although not tabulated here, the composition of CPA organisations include ACCA (22.9%), MICPA (17.4%), CIMA (15.4%), CPA Australia (6.5%), ICAEW (2.5%) and others (5%)

Correlation Analysis

Table 2 provides the results of the correlation statistics with Pearson above the diagonal and Spearman's rho below. This is a two-tailed test of significance. Based on the table, it appears that there is no serious multicollinearity problem which could influence the result for regression analysis.

Regression Analysis

Table 3 presents the results of the ordinary least square (OLS) regression. For each variable, unstandardised coefficient, p-value and variance inflation factor (VIF) are provided. According to Field (2013), a VIF of 10 indicates a serious multicollinearity problem among the variables. None of the variable has a VIF of 10. The highest VIF is for TENURE, i.e. 1.148. The model used for this research is significant (F-statistic=2.262; p-value=0.05). However, based on the adjusted [R.sup.2], the variables estimated in the model could only explain 3.1% of the variation in corporate reporting practice. As explained earlier, 60% of the companies in the sample did not make any disclosure on water at all. Moreover, of the 40% reporting companies, close to 50% (or 40 companies) disclosed only 1 item. The other companies disclosed 3 items (5.5%), 2 or 4 items (4.5% each), 5 or 6 items (2% each), 7 items (1%), and 8 items (0.5%). In summary, there has been a lack of variation in the extent of reporting practice.

In terms of the CFO expertise factors, several findings could be observed. Firstly, except for TENURE, the coefficient sign for other variables are in the predicted direction. The shorter the duration of CFO holding the position in a company, the more extensive the companies' report on water information. This is contradicting with the argument of resource-based view theory which equates tenure of a person with expertise that he/she could offer to the companies. A possible explanation for this would be the longer a person works for a company, the better view he/she has on the issues requiring priority for the company. However, the coefficient is not significant at the 0.05 level.

Secondly, although in the predicted direction, only POSTGR is significant at 0.05 level. This indicates that companies that have CFOs with a postgraduate degree in business tended to provide more extensive water information in their corporate reports. Another proxy for expertise is CPA, i.e. whether the CFO has a professional qualification in accounting or not. Since the sample was divided into 6 categories, it is worthy to investigate if there is any significant difference in the mean of disclosure among the CPA groups. The groups are: (1) ACCA, (2) MICPA, (3) CIMA, (4) CPA Australia, (5) ICAEW, and (6) Others. CFOs without any professional qualification is already denoted "0". Based on the parametric ANOVA test (since the equivalent non-parametric Kruskal-Wallis could not provide the pairwise comparisons), the mean for MICA is the highest (1.83). This is significantly different than the mean for ACCA (0.67) and 'no professional qualification' (0.72) at the 0.05 level. A closer investigation on this finding reveals that MICPA since 1990 has collaborated with Malaysian Institute of Management (MIM) and Malaysian Institute of Accountants (MIA) in National Annual Corporate Report Awards (NACRA). NACRA in 2000 had introduced a separate category for Environmental Reporting before renaming it to Corporate Social Responsibility Reporting Awards in 2008 and Sustainability Reporting Awards in 2017. This could have created awareness among its members on the importance of reporting of environmental information, including water related, in the corporate reports.

This research added AGE and GENDER from the work of Sun and Rakhman (2013). The findings are consistent with the predicted direction in which that older and female CFOs were more inclined to report more extensive water disclosures. However, the relationship is not significant at the 0.05 level.


This research has examined the role of CFO in determining the extent of corporate water reporting among 201 public listed companies in Malaysia. Based on the analysis of annual reports and stand-alone sustainability reports for the year 2016, it found a proclivity of companies which have CFOs with a postgraduate degree in business to provide more comprehensive water disclosure in their corporate reports. The authors, however, do not find the influence of tenure, professional qualification, age, and gender of CFO. The findings provide limited support to the arguments of resource-based view theory which posits that resources owned by companies (in this research represented by the expertise of their CFOs) could bring about competitive advantage over their competitors, hence more extensive corporate disclosures are anticipated.

The findings of this research should be interpreted with caution. Firstly, as far as the water reporting is concerned, this research is cross sectional, hence it only provides a snapshot view of the reporting practice. A longitudinal analysis which examines the reporting practice over a certain period of time could uncover the trend in reporting and overcome the problem associated with low disclosure in a year and high disclosure in other years, vice versa. Secondly, the number of expertise variables analysed is limited and based on the information provided in the corporate reports. This can be seen from the low value of adjusted [R.sup.2] obtained for the model used in this research. Other expertise that can be considered are the skills, knowledge, experiences, and relationships (MIA, 2018), which can be better assessed through primary data collection methods such as questionnaire surveys or interviews. Additionally, we did not include established corporate characteristic factors such as company size, profitability, asset age, leverage, market performance, industry as control variables. Future research may consider to include these variables.


The authors would like to thank Universiti Tenaga Nasional for the research grant (J510050765) provided to conduct this research.


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Bakhtiar Alrazi (*)

College of Business Management and Accounting, Universiti Tenaga Nasional, Malaysia Email:

Norhayati Mat Husin College of Business Management and Accounting, Universiti Tenaga Nasional, Malaysia

Inaliah Mohd. Ali College of Business Management and Accounting, Universiti Tenaga Nasional, Malaysia

(*) Corresponding Author
Table 1: Descriptive statistics

Panel A: Descriptive statistics of continuous variables used in
Variable  Mean     Min      Max    Std dev

CWR        0.960   0.000    8.000  1.643
TENURE     6.550   0.000   33.000  5.977
AGE       48.980  30.000   64.000  6.938
Panel B: Distribution of categorical independent variables
             1          0
        n    %     n    %
POSTGR  24   11.9  177  88.1
CPA     141  69.7  61   30.3
GENDER  60   29.9  141  70.1

Table 2: Correlation statistics for dependent and independent variables

        CWR         TENURE        POSTGR       CPA      AGE

CWR     -           -0.050         0.168 (**)   0.096   0.095
TENURE  -0.008      -             -0.062       -0.101   0.326 (***)
POSTGR   0.126 (*)  -0.047        -             0.043   0.021
CPA      0.097      -0.090         0.043       -        0.064
AGE      0.057       0.254 (***)  -0.006        0.053  -
GENDER   0.054      -0.104        -0.039       -0.066  -0.021


CWR      0.076
TENURE  -0.054
POSTGR  -0.039
CPA     -0.066
AGE     -0.011

This table presents the correlation statistics for the dependent and
independent variables used in multivariate analyses. Statistics are
presented for the full sample of 201 companies. (*), (**), and (***)
represent significance levels (two-tailed) at 10 percent, 5 percent,
and 1 percent, respectively.

Table 3: Results of the OLS regression

                 [beta]  p-value     VIF

Constant         -0.568  0.499
TENURE (+)       -0.017  0.408       1.148
POSTGR (+)        0.818  0.022 (**)  1.009
CPA (+)           0.292  0.248       1.027
AGE (+)           0.025  0.148       1.133
GENDER (+)        0.305  0.226       1.010
N               201
Model F stat      2.262  0.050 (**)
Adj. [R.sup.2]    0.031

The expected signs for the variables are presented in parentheses.
Unstandardised coefficients are reported. (**) represents significance
level at 5 percent.
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Author:Alrazi, Bakhtiar; Husin, Norhayati Mat; Ali, Inaliah Mohd.
Publication:Global Business and Management Research: An International Journal
Geographic Code:9MALA
Date:Apr 1, 2018
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