Board Independence and the Efficacy of Social Reporting

Abstract

The recent decade of scandals, financial crisis, and loss in moral values questioned the soundness of firms' governance structure and held them more accountable to their societies. This put corporate boards under increased pressure to acknowledge their monitoring needs and respond to societal obligations. This paper offers a deepened understanding of the CSR-firm welfare relationship by suggesting its reliance on the participation of independent directors on corporate boards. Our findings show that higher board independence increases social disclosures. We also show that the effect of social disclosure on the firm's risk and performance is favorably affected by the participation of independent directors on corporate boards. Accordingly, we demonstrate that board independence not only facilitates firms' CSR reporting, but also positively influences the CSR-firm performance association. Board independence enhances the efficacy of CSR reporting by elevating the reliability of the disclosed information and amplifying its signaling power regarding the firm's future prospects. Our empirical evidence supports the U.K. corporate governance code main principles encouraging higher board independence for effective discharge of responsibilities.

Corporate Governance Configurations and Corporate Social Responsibility Disclosure: Qualitative Comparative Analysis of Audit Committee and Board characteristics

“…Finally, Board gender diversity is one of the most common variables studied by researchers. Consistent with our results, most authors indicate that board gender diversity positively affects CSR performance (Bear et al, 2010; Cuadrado‐Ballesteros et al, 2017; Yasser et al, 2017) and CSR disclosure (Dah & Jizi, 2018; Fernandez‐Feijoo et al, 2014). However, women directors have other essential characteristics, for instance, independence, age, experience.…”

“…Setó‐Pamies (2015) conclude that women talent could play a strategic position in enabling companies to dominate their environmental and social practises properly. In this vein, the crushing majority of previous studies reveal that there is a positive and statistically significant nexus between the presence of female members on the boardroom and CSR disclosure (Dah & Jizi, 2018; Fernandez‐Feijoo et al, 2014; Ferrero‐Ferrero, Fernández‐Izquierdo, & Muñoz‐Torres, 2015; Kassinis, Panayiotou, Dimou, & Katsifaraki, 2016). In contrast, Muttakin et al (2015) find a negative relationship, and they conclude that women directors do not have enough education and experience to improve CSR reporting practises.…”

Do environmental, social and governance performance affect the financial performance of banks? A cross-country study of emerging market banks

“…Corporate scandal and accounting fraud are argued to be the primary cause of the global financial turmoil (Dah & Jizi, 2018). Strong corporate governance of the company is crucial for the company's future operations and upholding stable financial performance and growth (Brown & Caylor, 2009).…”

Analysing the Link Between CSR Reporting and Financial Performance Variables of Belgrade Stock Exchange Companies

“…Interesting research was done to correlate corporate governance structure and CSR disclosure. It shows that higher board independence increases the quality of social disclosures (Dah & Jizi, 2018).…”