Political affiliation types and corporate social responsibility (CSR) commitment: evidence from Indonesia

Abstract

PurposeThis study aims to examine the association between political affiliation types and corporate social responsibility (CSR) commitment for listed companies in Indonesia stock exchange (emerging economy) from 2015 to 2017.Design/methodology/approachThe final sample of this research is 1,121 firm-year observations across industries, except the financial sector, because they are under different regulations. To estimate the association, ordinary least square regression is used. Also, the authors check our results using an alternative measure of political affiliations, additional control variables and the generalized method of moment model for endogeneity problems.FindingsThe result indicates that corporate political affiliations, particularly through military and industry-specialized people, have a significantly positive effect on CSR commitment. After testing for endogeneity problems, the findings remain similar.Research limitations/implicationsThis study implies to the literature by providing empirical findings on how different types of political connections, particularly affiliation through board members with the specifically industry-specialized person and military, influence CSR commitments. Also, the authors show an exchange relationship between government and affiliated firms as the primary external motivation for performing CSR in Indonesia. When investors, creditors and policymakers comprehend the political incentives behind CSR performance, it can enable them to create better business valuations and effective CSR strategies in developing countries. However, this study is subject to several limitations. First, the authors do not examine the effect of a different regime with different types of power. Second, the qualitative aspect of the association between political affiliation and CSR is not explored yet.Originality/valueThe authors investigate the impact of several types of political affiliations on the nonfinancial outcome (CSR) in the context of an emerging country where business practices are heavily influenced by political connections and the military’s dominance.