Corporate Governance Effects on Social Responsibility Disclosures

Australasian Accounting, Business and Finance Journal Volume 11 | Issue 2 Article 2 Corporate Governance Effects on Social Responsibility Disclosures António Dias Universidade de Trás-os-Montes, Portugal, Lúcia Lima Rodrigues University of Minho, Gualtar Campus, Braga Portugal, Russell Craig Portsmouth Business School, University of Portsmouth, United Kingdom, Follow this and additional works at: http://ro.uow.edu.au/aabfj Copyright ©2017 Australasian Accounting Business and Finance Journal and Authors. Recommended Citation Dias, António; Rodrigues, Lúcia Lima; and Craig, Russell, Corporate Governance Effects on Social Responsibility Disclosures, Australasian Accounting, Business and Finance Journal, 11(2), 2017, 3-22. doi:10.14453/aabfj.v11i2.2 Research Online is the open access institutional repository for the University of Wollongong. For further information contact the UOW Library: Corporate Governance Effects on Social Responsibility Disclosures Abstract This study uses stakeholder theory to explore how corporate governance [CG] characteristics influence corporate social responsibility disclosure [CSRD] in the context of a global financial crisis [GFC]. Empirical data are drawn from Portugal, a country strongly affected by the GFC. Portuguese companies are characterized by high ownership concentration. The largest shareholder is often the CEO and Board Chair (a phenomenon known as CEO duality). We analyse the association between CSRD (measured by a 40-item disclosure index) and CG variables (board size, CEO duality, board independence, ownership concentration and presence of an audit committee or CSR committee) for 48 of the 51 listed companies in Portugal. The control variables are company size and industry type. We find that CSRD is affected positively by board size, CEO duality, company size and industry type. This accords with suggestions implicit in stakeholder theory that a larger board will represent a broader diversity of stakeholders and will promote better monitoring, more assertive stakeholder management, greater transparency, and increased levels of CSRD. Larger companies and companies close-to-consumers are associated with high levels of CSRD, ostensibly because they are more visible and subject to greater societal monitoring during a period of financial crisis. We reveal that in a country characterized by high ownership concentration, CEO duality has a positive effect on CSRD. Keywords Corporate social responsibility disclosure, corporate governance, ownership concentration, stakeholder theory, Portugal This article is available in Australasian Accounting, Business and Finance Journal: http://ro.uow.edu.au/aabfj/vol11/iss2/2 Corporate Governance Effects on Social Responsibility Disclosures António Dias1, Lúcia Lima Rodrigues2 and Russell Craig3 Abstract This study uses stakeholder theory to explore how corporate governance [CG] characteristics influence corporate social responsibility disclosure [CSRD] in the context of a global financial crisis [GFC]. Empirical data are drawn from Portugal, a country strongly affected by the GFC. Portuguese companies are characterized by high ownership concentration. The largest shareholder is often the CEO and Board Chair (a phenomenon known as CEO duality). We analyse the association between CSRD (measured by a 40-item disclosure index) and CG variables (board size, CEO duality, board independence, ownership concentration and presence of an audit committee or CSR committee) for 48 of the 51 listed companies in Portugal. The control variables are company size and industry type. We find that CSRD is affected positively by board size, CEO duality, company size and industry type. This accords with suggestions implicit in stakeholder theory that a larger board will represent a broader diversity of stakeholders and will promote better monitoring, more assertive stakeholder management, greater transparency, and increased levels of CSRD. Larger companies and companies close-to-consumers are associated with high levels of CSRD, ostensibly because they are more visible and subject to greater societal monitoring during a period of financial crisis. We reveal that in a country characterized by high ownership concentration, CEO duality has a positive effect on CSRD. JEL Classification: M14 Keywords: Corporate social responsibility disclosure, corporate governance, ownership concentration, stakeholder theory, Portugal. 1 CETRAD, and University of Trás-os-Montes, Vila Real, Portugal. Email: GOVCOPP, University of Aveiro, and School of Economics and Management, University of Minho, Gualtar Campus, Braga 4709, Portugal. Email: 3 Portsmouth Business School, University of Portsmouth, Portland Street, Portsmouth, Hampshire PO1 3DE United Kingdom. Email: 2 AABFJ | Volume 11, no. 2, 2017 1. Introduction The overriding objective of business activity has evolved from a classical, largely unfettered quest for profit maximizing, to one of seeking profit in a socially responsible way. In a period of ongoing global financial crisis (GFC) in some European countries (such as Portugal, Greece and Spain, where the effects were pronounced and are on-going), this evolution has directed keen attention to the efficacy of Corporate Governance (CG) mechanisms and the extent and quality of Corporate Social Responsibility Disclosure (CSRD) practices. A company board of directors is responsible for instituting appropriate mechanisms to monitor and control company activity. The board is responsible also for a company’s accountability and transparency through information disclosure. Boards have collective obligations to a wide range of stakeholders. However, there has “been little research linking corporate disclosure to governance structures” (Akhtaruddin et al., 2009, p.1). As a consequence, there is a strong need to examine the influence of board composition on CSR activity and CSRD (Rao & Tilt, 2015). Involvement in CSR, and associated disclosures, stems from board decisions (Ho & Wong, 2001; Gul & Leung, 2004; Haniffa & Cooke, 2005; Cheng & Courtenay, 2006). Nonetheless, knowledge of how the CG characteristics of boards influence CSRD is under-developed (Khan et al., 2013). One shortcoming in the CG and CSRD literature is the low-level of research in the context of economic and financial crises. This is something the present study addresses. We use stakeholder theory to explore how CG characteristics influence CSRD (Snider et al., 2003). The contextual lens for doing so is Portugal, a small developing European Latin country that was affected strongly by the GFC. Portugal is characterized by high ownership concentration and high levels of “CEO duality” (that is, situations where the largest shareholder is also the CEO and Chair of the board). We find that companies with large boards and CEO duality are associated with higher levels of CSRD. This can be explained by large boards (usually representing a wider range of stakeholder (...truncated)