Modern Slavery Disclosures in a Voluntary Regime

This paper asserts that firms vulnerable to modern slavery issues will avoid political costs and disclose more information about their commitments and systems against modern slavery. The rising global awareness of the issue and the enactment of modern slavery acts in some developed nations give incentives to potentially affected Indonesian listed firms to use voluntary disclosures as a lobbying strategy to prevent or delay such potential legislation in their jurisdiction. A content analysis was carried out on the annual reports of 169 Indonesian listed firms published in 2018 to measure the level of modern slavery disclosure. The results were regressed using ordinary least squares regression on the proxies for firms’ political vulnerability, namely, firm size and industry sector. Agriculture and construction sectors are considered the most sensitive to modern slavery practices, particularly in a developing economy, due to their employment characteristics, i.e., low educational attainment, easily replaceable, seasonal, and reliance on low-skilled workers. The result supports the notion of political cost hypothesis: firms that are large and belong to sensitive industries disclose more information on anti-slavery programs or activities. This study also finds that consistent with the theories of voluntary disclosures and few empirical findings; in a voluntary disclosure regime, firms tend to reveal only favorable and narrative information; hence it is low in quantity and quality.