Does a Foreign Board Improve Corporate Social Responsibility?

Doddy Setiawan,Siti Maisaroh,Rayenda Khresna Brahmana,Andi Asrihapsari

doi:10.3390/su132011473

Doddy Setiawan, Siti Maisaroh + Show 2 more

Open Access

https://doi.org/10.3390/su132011473

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Journal: Sustainability	Publication Date: Oct 17, 2021
Citations: 18	License type: CC BY 4.0

Affiliation: Sebelas Maret University, University of Bahrain

Abstract

This study examines the effect of foreign boards on corporate social responsibility, exploring the issues of two-tier board systems (boards of directors and boards of commissioners). Using data for manufacturing firms listed on the Indonesia Stock Exchange over the sample period of 2017–2019, the results suggest that a foreign board engages more in corporate social responsibility activities. Our key finding remains robust with respect to all foreign board measures (foreign ownership, foreign board members, foreign directors, foreign commissioners, foreign CEO, and foreign chairperson) and to alternative estimation methods, and pass a series of endogeneity checks. We established the causal effect from foreign boards to CSR, supporting institutional theory and contesting agency theory.

Highlights

Corporate social responsibility (CSR) is an important topic that emerges in the business environment [1]
Our results suggest that foreign ownership and foreign boards have a positive effect on CSR performance
This research examined the effect of foreign boards on corporate social responsibility performance

Summary

Introduction

Corporate social responsibility (CSR) is an important topic that emerges in the business environment [1]. One intriguing aspect in this area is the effectiveness of corporate governance [8]—in particular, the managerial characteristics that are important antecedents of corporate social responsibility. Corporate governance mechanisms, such as control and monitoring, are an important aspect of CSR activities. Proponents of the legitimacy theory argue that agents (managers) will perform proactively in CSR to earn legitimacy in achieving value creation [9]. In other words, this theory posits that managers will pursue more CSR to achieve a better firm position. This means that the agency theory posits that agents will be less likely to pursue CSR activities

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