THE EFFECT OF INTERNAL AND EXTERNAL MECHANISM ON CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE

Astrid Rudyanto

doi:10.47312/aar.v3i02.195

Abstract

Corporate social responsibility disclosure should be controlled by internal and external mechanism to make sure that company is doing its business morally. Board of commissioners are responsible for supervising company from internal. This study uses board (of commissioner) diversity as internal mechanism. Board diversity is measured by board size, women on board , and board tenure. Public visibility acts as external mechanism to watch corporate social responsibility disclosure. Public visibility is measured by firm size, profitability, and listing age. Corporate social responsibility disclosure is measured using content analysis made by Sembiring (2005). This study aims to examine the effect of board diversity and public visibility on corporate social responsibility disclosure. Using 177 manufacturing companies listed in Indonesia Stock Exchange in the period of 2013-2015, the result shows substitution association of internal and external mechanism on corporate social responsibility disclosure. This shows that one of those mechanisms is enough to increase corporate social responsibility disclosure and regulator shall consider external mechanism for making regulation on internal mechanism. Keywords: board diversity, corporate social responsibility disclosure, external mechanism, internal mechanism, public visibility

Highlights

Since 2007, Indonesian government has required listed companies disclose corporate social responsibility with the hope of making it as the bridge of the commercial companies profit and moralist corporate social responsibility
Additional test shows that 6 years and 9 years tenure are positively associated with corporate social responsibility disclosure but 20 years tenure has no association with corporate social responsibility disclosure
Not all of the mechanism are effective in increasing corporate social responsibility

Summary

Introduction

Since 2007, Indonesian government has required listed companies disclose corporate social responsibility with the hope of making it as the bridge of the commercial companies profit and moralist corporate social responsibility. There are still tremendous numbers of corporate social responsibility violation in Indonesia, for instance in 2016, the case of PT Jaya Mestika Indonesia, one of the listed manufacturing companies, which dumped its hazardous waste recklessly (Detik, 2016). If the government law cannot make the listed companies to do social responsibility, who can? Purwanto(2011) indicates that making corporate social responsibility as a mandatory disclosure is just degrading social responsibility into social obligation. Responsibility should be coming from companies’ morality. It is extremely hard to rely on companies’ morality. There has to be special supervisory mechanism to enforce companies to become moralist

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Discussion

Conclusion