Corporate governance and corporate social responsibility disclosures

Abstract

PurposeThe purpose of this study is to explore the impact of corporate governance (CG) on the corporate social responsibility (CSR) disclosures. This is done in the context of firms operating in the Gulf Cooperation Council (GCC) countries and is largely based on the legitimacy theory, although other theories such as principal–agent theory and stakeholder theory are disucssed.Design/methodology/approachThis study used the annual reports of 147 firms in the GCC countries, drawing on a legitimacy theory framework to determine the impact of CG characteristics, such as management ownership, ownership concentration, independence of board members, duality of CEO and chairman positions and the existence of an audit committee, on firms’ CSR disclosures to various stakeholders. Accordingly, the authors developed five hypotheses to examine the above variables and used a data set from Hawkamah – the Institute of Corporate Governance. This study covers a period of six years (2007-2012). The data set had been regressed in a multi-variate regression analysis.FindingsThe authors reported that greater managerial ownership and concentration of ownership have positive impact on CSR disclosures. The findings of this study also show that internal CG mechanisms, such as the independence of board members, the separation of powers, between the CEO and chairman positions and the existence of an independent audit committee, also have a positive influence on CSR disclosures. In addition, the leverage ratio, return on assets, company’s size and age emerge as important determinants of CSR disclosures; nevertheless, the company’s size and age are statistically not significant. These significant findings corroborate the recent concern with CG in developing countries that brings greater attention to CSR disclousures, as both internal and external CG mechanisms are effective in influencing the CSR practices.Practical implicationsThis study fills the gap in literature by providing empirical evidence on the impact of CG on CSR disclosures in a significant region in the emerging economies. Furthermore, it alerts regulators, policy-makers, practitioners and firms’ executives in the GCC region and other developing countries to pay more attention to CG reforms and enforcement as well as to increase institutional pressures regarding CSR adaptation.Originality/valueThe study on how CG and CSR disclosures are connected has been limited. This study addresses this research gap and focuses on a region that has often been overlooked by accounting research.