Abstract
Firms are facing pressure to convincingly communicate to stakeholders their environment, society, and corporate governance (ESG) disclosure. In developing countries, where frictions among controlling and non-controlling shareholders are pervasive, the possible dissensus inside boards regarding ESG disclosure remains understudied. We investigate the ways in which boards’ heterogeneity between the interests of controlling groups and the interests of institutional investors influences ESG disclosure of firms in the Latin American context. Using social networks and logit panel data models, we analyze for 2015-17 the probability of ESG disclosure by 124 Chilean listed firms. Our evidence suggests that the influence of controlling shareholders through directorate interlocking has a negative relation with ESG disclosure. Additionally, we observe that the influence of institutional investors on ESG disclosure is not yet critical. Moreover, we find partial evidence of the presence of tension within the boards regarding ESG reporting between the directors that represent controlling shareholders and institutional investors. Considering the importance of institutional investors and the ubiquity directorate interlocking among Latin American’ firms, our results are relevant for regulators involved in advancing the rules of ESG disclosure practices, institutional investors focused on enhancing their ESG investment strategies, and firms engaged in improving the ESG decision-making within their boards.
Highlights
When we study the relation between the intensity of directorate interlocking (DI) on the ESG performance disclosure (ESGD), we can observe in Table 2 that there is an inverse DI–ESGD relationship
These results suggest that the implicit influence channel that directorate interlocking provides between firms in Chile is a relevant factor for explaining the ESG reporting behavior of listed firms, and that controlling shareholders are not prone to ESGD
Thereby, we analyze the eventual tension between groups of board members and ESG disclosure
Summary
Concern for the impact of business decisions on the environment, society, and corporate governance quality (ESG criteria) is a crucial element of the agenda of governments and regulatory institutions; it is a critical component of the decision-making of the most important asset managers around the world [1]. At a market level, there are factors linked to supervisory issues that contribute to this trend. Such was the case after the subprime crisis: it led to the emergence of greater regulation of investments, new managerial practices, and novel rules set by governments and stock exchanges [2]
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