Corporate governance meets corporate social responsibility: evidence from Latin America

Abstract

PurposeThis study aims to examine the effect of corporate governance mechanisms on social responsibility in Latin America.Design/methodology/approachThe hypotheses were tested using a sample of 371 companies based in eight Latin American countries, resulting in 4,823 observations.FindingsThe results show that more independent boards, with greater female representation and the presence of a sustainability committee lead companies to behave more ethically. The findings indicate that corporate governance mechanisms play an important role for companies to engage in social responsibility actions.Practical implicationsGovernments can use these findings to draft regulations that encourage Latin American companies to disclose more non-financial information and to support a more diverse board composition. The evidence shows that the quality of national governance plays a key role in times of crisis by encouraging more responsible behavior by companies.Originality/valueThis study broadens the scope of application of agency theory and the resource-based view by demonstrating that the board of directors is a unique composition and that organizations must understand how to balance external and internal members on their boards in order to achieve higher social and environmental performance.