Assessing the Governance Mechanisms, Corporate Social Responsibility and Performance: The Moderating Effect of Board Independence

Abstract

This article serves two purposes. First, it attempts to examine the joint impact of corporate governance mechanisms and corporate social responsibility (CSR) practice on firm performance. Second, the moderating role of board independence is investigated on 588 non-financial Malaysian firms listed on Bursa Malaysia during the period 2006–2017. Both accounting-based return on assets (ROA) and market-based (Tobin’s Q) performance measures have been used for measuring performance. Dynamic model using Generalized Method of Moments (GMM) has been employed on the data set to control for potential endogeneity, reverse causality and dynamic heterogeneity. Findings indicate that ROA is a better determinant of firm performance than Tobin’s Q, where ownership concentration, managerial ownership and money spent on CSR negatively affect ROA; however, an insignificant relationship is observed with Tobin’s Q. Finally, board independence negatively moderates governance-CSR and firm performance relationship. Findings of this article have implications for Bursa Malaysia and Securities Commission Malaysia to reset the limit of independent directors on board so that their unnecessary interference in operations of management may be avoided. Furthermore, companies need to reassess their CSR strategies whether they are spending on CSR activities or hiding their financial malfeasance in the name of money spent on CSR.

Do women on corporate boardrooms influence remuneration patterns and socially responsible practices? Malaysian evidence

“…Accordingly, this study found a significant linkage between executive remuneration (CEO and Executive Directors) and corporate social responsibility activities (marketplace, environment, community, workplace and money spent on CSR); where CEO remuneration and directors' remuneration inversely influence marketplace practices, environment practices and community practices of CSR; whereas directors' remuneration positively impacts workplace practices of CSR. Building on the prophecy of overinvestment hypothesis (Barnea and Rubin, 2010; Jensen and Meckling, 1976) and conflict resolution hypothesis (Scherer et al ., 2006), this study fetches its theoretical support from agency theory and stakeholder theory (Karim et al , 2020b, c). Moreover, executive board gender diversity negatively moderates CEO remuneration-CSR relationship and positively moderates directors' remuneration and workplace practices' nexus.…”

“…The growing literature on conflict resolution hypothesis based on stakeholder theory argues that socially responsible activities can help one resolve conflicts between stakeholders (e.g. Calton and Payne 2003; Scherer et al , 2006; Harjoto and Jo, 2011; Karim et al , 2020a, b).…”

Examining the Role of Stakeholder-Oriented Corporate Governance in Achieving Sustainable Development: Evidence from the SME CSR in the Context of China

“…There are numerous studies examining the relationship between CSR and firm performance. However, there is no consensus on whether such a relationship is positive [47][48][49], negative [50][51][52][53], mixed [54], or even non-significant [55]. Meanwhile, in the context of SME CSR and firm performance, most results show positive results given the closer relationships between SMEs and their stakeholders.…”

Do CEO overconfidence and narcissism affect corporate social responsibility in the UK listed companies? The moderating role of corporate governance

“…In addition, Naciti (2019) shows that the proportion of independent directors leads to a decrease in sustainability performance. Karim et al (2020) suggest that the proportion of independent directors on the board increase management operations linked to CSR. Pekovic and Vogt (2020) argue that board size and gender diversity positively moderate the link between financial performance and CSR performance.…”