Abstract
The main purpose of this paper is to examine the impact of corporate governance (CG) on corporate social responsibility (CSR) of Indonesian listed firms. Estimations via simultaneous equation models with ordinary least squares (OLS) and two-stage least squares (2SLS) were employed for 84 firms with a total of 924 observations over the period of 2007-2017. The results showed that a lack of CG in monitoring and supervisory mechanisms, as well as a high concentration of managerial ownership, can significantly contribute to low levels of CSR. There are data limitations as a number of firms were omitted due to the application of the CSR criteria utilised in this study. The research has implications for Indonesian listed firms with respect to aligning CSR initiatives to firm objectives. The paper provides recommendations for future research in this area. The paper provides one of the few studies to analyse CG on CSR via a comprehensive measurement of CSR. Further, it adds to the empirical academic literature from a developing country context
Highlights
Emerging economies in the Asian region typically designed their corporate control mechanisms primarily based on the systems of the west (Aguilera & Crespi-Cladera, 2016)
The results of this study demonstrated that a lack of corporate governance (CG) in monitoring and supervisory mechanisms and a high concentration of managerial ownership significantly contributed to low levels of corporate social responsibility (CSR)
It has been established that these two dimensions make significant contributions towards increasing firm value in developed countries, limited studies have been conducted in developing countries
Summary
Emerging economies in the Asian region typically designed their corporate control mechanisms primarily based on the systems of the west (Aguilera & Crespi-Cladera, 2016). The oft-cited principal-agent conflict can be usurped by insider-controlled or closely held firm ownership issues instead (La Porta et al, 1999), where wealthy, powerful families exert ownership control of firms (Claessens, Djankov, & Lang, 2000; Abdallah & Ismail, 2017). In these countries, of which Indonesia is one, the agent and principal conflicts are likely to focus on controlling versus minority shareholders compared to management versus owners. For CG, internal CG mechanisms such as board control and ownership structures are as important as external CG mechanisms in determining control regarding agent priorities (Weir, Laing, & McKnight, 2002)
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