Board independence, ownership and CSR of Malaysian large firms

Abstract

The purpose of this study is to determine whether board independence and ownership have any influence on the decision on CSR disclosure. This study uses the proportion of pages in an annual report and a CSR disclosure checklist to measure the extent and quality of a firm’s CSR disclosure. Multiple regression and logistic regression analysis are employed to test the hypotheses. The paper finds that boards of family owned firms are negatively associated with the level and the quality of CSR disclosure. The fact that board independence is not significant on CSR disclosure could be due to the fact that CSR initiatives are strategic in nature. Finally, firm’s size, performance and leverage are found to have significant effects on CSR. This study was conducted among Malaysian top 100. The generalizability of the findings of this study is, thus, limited to Malaysian large firms. One of the major findings of this study is the ineffectiveness of the board of directors in ensuring firms discharge its social responsibility. Relevant authorities may need to come up with measures to ensure independent directors are effective. The study adds to the understanding of how ownership structure plays an influential role as oppose to independent board of directors on CSR disclosure in Malaysia.

Board Independence and Corporate Social Responsibility (CSR) Reporting in Malaysia

“…This is consistent with other prior studies (Chan et al, 2014;Abdullah et al, 2011;Ibrahim and Samad, 2011;Haji, 2013). Further, annual reports are presumed to be the main vehicle used by companies to communicate information to the public (Hasnah et al, 2006, Gray et al, 2001, Othman and Ameer, 2010, including social and environmental reporting (Chan et al, 2014).…”

“…Similar findings have been reported bailiff and Cooke (2005). Independent directors are hindered in their ability to influence majority board decisions (Abdullah et al, 2011).In the same vein, Gul and Leung (2004), along with others(e.g., Allegrini and Greco, 2013;Rouf, 2011), document a negative relationship between board independence and voluntary disclosure. Meanwhile, Said et al (2009), Haji (2013, Shamil et al (2014) and Sartawi et al (2014) find no evidence of a significant association between board independence and CSR disclosures.…”

“…Content analysis was used to investigate environmental disclosures in the annual reports (e.g., Chan et al, 2014;Abdullah et al, 2011;Ibrahim and Samad, 2011;Haji, 2013). Content analysis is a technique used by researchers to replicate and make valid inferences from data in their context (Krippendorff, 1989) and involves both qualitative and quantitative methods and converting information in annual reports into scores (Djajadikerta and Trireksani, 2012).…”

“…In addition, Malaysian checklists in particular were also referenced (e.g., Abdullah et al, 2011;Haji, 2013). To ensure conformation of the checklist items to the listing requirements and their relevance to the current Malaysian context, the framework launched by Bursa Malaysia in 2006 was also used as a reference.…”

“…The framework focuses on four dimensions: Environment, Community, Marketplace and Workplace. A checklist of 22 CSR items developed by Abdullah et al (2011)was used as the benchmark. This checklist adapted the work of MohdGhazali (2007)and incorporated aspects of Hackston and Milne (1996) and Ng (1985).…”