Corporate Governance and Performance in Socially Responsible Corporations: New Empirical Insights from a Neo‐Institutional Framework

Abstract

Manuscript Type: EmpiricalResearch Question/Issue: This paper investigates the relationship between corporate governance (CG) and corporate social responsibility (CSR), and consequently, examines whether CG can positively moderate the association between corporate financial performance (CFP) and CSR.Research Findings/Insights: Using a sample of large listed corporations from 2002 to 2009, we find that, on average, better-governed corporations tend to pursue a more socially responsible agenda through increased CSR practices. We also find that a combination of CSR and CG practices has a stronger positive effect on CFP than CSR alone, implying that CG positively influences the CFP-CSR relationship. Our results are robust to controlling for different types of endogeneities, as well as alternative CFP, CG and CSR proxies.Theoretical/Academic Implications: The paper generally contributes to the literature on CG, CSR and CFP. Specifically, we make two main new contributions to the extant literature by drawing on new insights from an overarching neo-institutional framework. First, we show why and how better-governed corporations are more likely to pursue a more socially responsible agenda. Second, we provide evidence on why and how CG might strengthen the link between CFP and CSR.Practical/Policy Implications: Our findings have important implications for corporate regulators and policy-makers. Since our evidence suggests that better-governed corporations are more likely to be more socially responsible with a consequential positive effect on CFP, it provides corporate regulators, managers and policy-makers with a new impetus to develop a more explicit agenda of jointly pursuing CG and CSR reforms, instead of merely considering CSR as a peripheral component of CG or as an independent corporate activity.

Firm characteristics and excellence in integrated reporting

“…Entity governance has long been a topic of interest, and the impact of corporate governance is still largely unknown (Ntim & Soobaroyen 2013a). Prior studies have found that there are two large categories of corporate governance that have an effect on disclosure decisions, namely ownership structures and the board composition (Fifka 2011).…”

Firms’ Board Independence and Corporate Social Performance: A Meta-Analysis

“…Ntim and Soobaroyen [73] focused on a sample of South African firms and found a positive influence of the board's independence on both CFP and CSP. Similarly, Dunn and Sainty [74] studied a sample of 104 Canadian firms and concluded that companies with more independent boards generally obtain higher levels of CSP.…”

“…In a final step, those empirical studies that did not provided the required statistical data (i.e., correlation coefficients between the variables or the corresponding data to obtain them using Lipsey and Wilson´s [171] conversion method) were removed (73). The final sample included 87 papers.…”

The Implications of Mandatory Corporate Social Responsibility—A Literature Review Perspective

“…This may necessitate investment in CSR activities (Mohd Ghazali [17]). Ntim and Soobaroyen [18] report a negative relationship between close ownership and CSR disclosures. Al-Bassam et al [19] found a negative link between close ownership and corporate governance disclosures.…”