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Corporate Governance and Corporate Social Responsibility Disclosures: Evidence from an Emerging Economy

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Abstract

We examine the relationship between corporate governance and the extent of corporate social responsibility (CSR) disclosures in the annual reports of Bangladeshi companies. A legitimacy theory framework is adopted to understand the extent to which corporate governance characteristics, such as managerial ownership, public ownership, foreign ownership, board independence, CEO duality and presence of audit committee influence organisational response to various stakeholder groups. Our results suggest that although CSR disclosures generally have a negative association with managerial ownership, such relationship becomes significant and positive for export-oriented industries. We also find public ownership, foreign ownership, board independence and presence of audit committee to have positive significant impacts on CSR disclosures. However, we fail to find any significant impact of CEO duality. Thus, our results suggest that pressures exerted by external stakeholder groups and corporate governance mechanisms involving independent outsiders may allay some concerns relating to family influence on CSR disclosure practices. Overall, our study implies that corporate governance attributes play a vital role in ensuring organisational legitimacy through CSR disclosures. The findings of our study should be of interest to regulators and policy makers in countries which share similar corporate ownership and regulatory structures.

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Notes

  1. We acknowledge that the definition of an ‘emerging economy’ is problematic. However, in 2005, Goldman Sachs, the global asset management company, classified Bangladesh as one of the ‘next 11’ emerging economies for its high potentials, along with the BRIC countries, to be the largest economies in the twenty-first century (http://www.goldmansachs.com).

  2. According to the Bangladesh Bureau of Statistics the industrial sector contributed around 18 % of gross domestic product (GDP) in 2009.

  3. This mechanism provides both flexibility in the application of the ‘Corporate Governance Notification’ and a means by which compliance to be assessed. Any non-compliance or non-application of the relevant rule can still be said to be consistent with the spirit of the notification. Non-compliances/non-applications is to be monitored by shareholders.

  4. Uddin and Choudhury (2008) report that in 2007, only four of the top 20 ‘A’ category companies listed in the Dhaka Stock Exchange, the country’s premium stock exchange, had significant foreign shareholdings, ranging from 11 % (two companies) to 34 % (one company).

  5. SEC (2006) defines independent director as ‘who either does not hold any share in the company or holds less than 1 % shares of the total paid-up shares of the company, who is not connected with the company’s sponsors or directors or shareholder who holds 1 % or more shares of the total paid-up shares of the company on the basis of family relationship. His/her family members also should not hold above mentioned shares in the company’.

  6. The recent proposals require at least one-third members of the board of directors of public limited companies to be independent (SEC 2012).

  7. None of these companies are listed on any international stock exchange.

  8. None of the variables have a VIF value in excess of 10 (Neter et al. 1983) which suggest that multicollinearity is not a problem in interpreting the regression results.

  9. There are a number of tests available to evaluate the specification of our model (see Greene 2003, pp. 283–333). Accordingly, we perform two tests to evaluate the adequacy of our model specification. Our fixed effect model will outperform the simple pooled model if the null hypothesis of homogeneity of individual effects, which can be tested with an F test, is rejected. Our fixed effect model can also be compared with random effect using Hausman’s specification test to determine whether random effects are orthogonal to the regressors. Based on Hausman test Chi-square statistic the fixed effect model was found to be superior to the random effect model at 0.01 levels.

  10. We thank an anonymous reviewer for suggesting to test the internal validity of our disclosure index.

  11. Botosan (1997) obtains a coefficient alpha computed on standardised data of 0.64. Gul and Leung (2004) computes a coefficient alpha of 0.51.

  12. Imam and Malik (2007) report that more than 37 % of the shares in the textile industry in Bangladesh are held by top three shareholders.

  13. We thank an anonymous reviewer for suggesting Chow test.

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Acknowledgments

The helpful comments of two anonymous reviewers and section editor Professor Thomas Clarke are gratefully acknowledged.

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Authors and Affiliations

  1. School of Accounting, Economics and Finance, Deakin University, 221 Burwood Highway, Burwood, VIC, 3125, Australia

    Arifur Khan & Mohammad Badrul Muttakin

  2. Manchester Business School, University of Manchester, Manchester, UK

    Javed Siddiqui

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  1. Arifur Khan
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  2. Mohammad Badrul Muttakin
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Correspondence to Arifur Khan.

Appendix

Appendix

CSR disclosure items

I

Community involvement

1

Charitable donations and subscriptions

2

Sponsorships and advertising

3

Community program (Health and Education)

II

Environmental

1

Environmental policies

III

Employee information

1

Number of Employees/Human resource

2

Employees Relations

3

Employee Welfare

4

Employee education

5

Employee training and development

6

Employee profit sharing

7

Managerial remuneration

8

Worker’s occupational health and safety

9

Child labour and related actions

IV

Product and service information

1

Types of products disclosed

2

Product development and Research

3

Product quality and safety

4

Discussion of marketing network

5

Focus on customer service and satisfaction

6

Customer Award/Rating Received

V

Value added information

1

Value added statement

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Khan, A., Muttakin, M.B. & Siddiqui, J. Corporate Governance and Corporate Social Responsibility Disclosures: Evidence from an Emerging Economy. J Bus Ethics 114, 207–223 (2013). https://doi.org/10.1007/s10551-012-1336-0

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  • DOI: https://doi.org/10.1007/s10551-012-1336-0

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