CEO power and corporate social responsibility (CSR) disclosure: does stakeholder influence matter?

Abstract

Purpose This study examines the association between Chief Executive Officer (CEO) power and the level of corporate social responsibility (CSR) disclosure, as well as the moderating role of stakeholder influence on this association. Design/methodology/approach Using a sample of 986 Bangladeshi firm-year observations, this study uses a content analysis technique to develop a 24-item CSR disclosure index. The ordinary least squares regression method is used to estimate the research models, controlling for firm-specific factors that potentially affect the levels of CSR disclosure. Findings The study findings indicate that CEO power is negatively associated with the level of CSR disclosure, and that the negative effects of CEO power on the level of CSR disclosure are attenuated by stakeholder influence. CEO power is documented as reducing the positive impact of CSR disclosure on a firm’s financial performance, with this negative impact attenuated if stakeholders have greater influence on the firm. Practical implications This study suggests that CEO power and stakeholder influence are important factors in determining firms’ incentives to disclose CSR information. Both CEO power and stakeholder influence need to be considered in the CSR – firm performance nexus, given the mixed findings documented in the literature. Originality/value This study makes a significant contribution to the literature on CSR practices by documenting that firms with a powerful CEO have lower levels of CSR disclosure, and that stakeholder influence affects CSR disclosure in the emerging economy context.

The Role of CEO Power on CSR Reporting: The Moderating Effect of Linking CEO Compensation to Shareholder Return

“…Studies aimed at analyzing the influence of CEO power on CSR disclosure have traditionally focused on a single country. For example, the work of Rashid et al [19] focused only on Bangladeshi firms and revealed that CEO power was negatively associated with CSR disclosure, although this negative association appeared to be positively moderated by the stakeholders' degree of influence. Thus, while CEO power reduces the level of CSR disclosure in Bangladeshi firms, stakeholder influence lessens this negative effect of CEO power on the level of CSR disclosure.…”

“…Thus, while CEO power reduces the level of CSR disclosure in Bangladeshi firms, stakeholder influence lessens this negative effect of CEO power on the level of CSR disclosure. Rashid et al suggest [19] that further empirical research is required to understand the role of powerful CEOs in the disclosure of CSR information. For firms based in the USA, studies such as that by Jiraporn and Chintrakarn [16] showed that increases in CEO power are associated with greater CSR engagement.…”

“…In a similar vein, Harjoto and Jo [29] argued that managers engage in CSR activities to resolve conflicts between various stakeholders. The debate around CSR is more complex to understand when CEOs gain power, as that power can affect CSR reporting [19]. Hence, according to Harper and Sun [30], when CEOs become more powerful, they may not act in the best interests of stakeholders and shareholders.…”

“…Among firms listed on the Standard & Poor's (S&P) 500 Index, Sheikh [18] found that CEO power was negatively related to CSR reporting and demonstrated a significant negative association between CEO power and CSR disclosure in four social dimensions (diversity, community, environment, and employee relations) and a non-significant association in the product dimension. In the context of Bangladeshi firms, Rashid et al [19] proved that businesses with greater levels of CEO power were negatively associated with CSR disclosure.…”

“…Conversely, stakeholder theory suggests that the CEO position is always one of the most powerful in a firm. Its power may stem from its importance because CEOs are expected to be able to position their firms to create wealth and maximize future opportunities for interest groups, but powerful CEOs may also fail to act in the best interests of shareholders and stakeholders due to personal interests [19]. This argument merits further exploration of whether powerful CEOs act against the best interests of shareholders and stakeholders by decreasing CSR disclosure.…”