The relationship between corporate social responsibility disclosure and corporate governance characteristics evidence from VN100

TheRelationship betweenCorporateSocialResponsibilityDisclosureandCorpor ateGovernanceCharacteristics: EvidencefromVN100... thebestknowledgeoftheauthors,thereexistednoextensivestudiesonCS

TheRelationship betweenCorporateSocialResponsibilityDisclosureandCorpor ateGovernanceCharacteristics: EvidencefromVN100.

corporategovernancecharacteristicsinVietnam.Usingasampleof100biggestmarketcapitalizationfirms(VN100) f r o m 2014to2016,ourstudyr e v e a l s amoderateextentofCSRdisclosures.BoardofdirectorsizeandaudittypearefoundtohaveapositivesignificantlinkwithCSRreportingwhilethemeetingsbyboardofdirectorandnumberofoutsidedirectorsd e m o n s t r a t e anegativeconnectionwithCSRdisclosure.However,theCEOduality

andpresenceofwomend i r e c t o r s intheboardshownorelationshipwith

CSRdisclosure.Findingsfromthisresearchare

expectedtoextendthecurrentliteratureregardingCSRdisclosureinVietnam.TheycanalsobehelpfulforinvestorsinmakingdecisionstoinvestincorporatecitizensaswellaspolicymakersinconsideringregulationstoimproveC S R practicesinVietnam

Webb,Cohen,Nath&Wood,2009).AlthoughCSRisimportant,CSRdisclosureisstilloptionalinmanycountriesincludingVietnam.Onpublishingsuchinformation,firms wanttoreducetheinformationasymmetryi s s u e M o r e o v e r , theya l s o w o ul d liketoc o m mi t s o c i e t y tos o c i a l , e t h i c a l , a n de nv

i r o nm e n t a l problemsforgaininga goodreputation.H o w e v e r , thereexistedl i t t l e r e s e a r c h onthelinkb e t w e e n thec o r p o r a t e socialresponsibility(CSR)practiceandthegovernancestructure(Akhtaruddinetal.,2009,p.1).Consequently,thereisastrongdesiretoanalyzetheimpactofthegovernancemechanismonfirm’scorporatesocialresponsibility(Rao&Tilt,2016)

ThisresearchcanbehelpfultomarketswheretheknowledgeofCSRisstillpoorbecauseoftheperceptionthatsuchpracticesareconsideredbeingasphilanthropicactivities.Bui(2010)alsoshowedthatinthepast,Vietnamesefirmspaidlittleattentiontocorporateethicsforthreemainreasons:thefirmsdonotunderstandthedi sc lo sure impa ct s onsociety,l a c k bothfina nc ia l resources,a nd a n enforcinglegal fr amew or k These f a c t o r s havepreventedfirmsfromadoptingcorporatesocialresponsibilityintheirpolicies.InVietnam,moststudiesaboutthecorporatesocialresponsibilitypracticesarequalitative.To

thebestknowledgeoftheauthors,thereexistednoextensivestudiesonCSRreportingandthegovernancestructureoflistedfirmsonVietnamstockmarket.Prior studiesi nVietnam(e.g.,Vu,2012)mainlyfocusedoninstitutional, firm orindividual

ea n d corporategovernance

understandtheextenttowhichfirmsdisclosureCSRandtherelationshipbetweenCSRdisclosureandfirmgovernancestructure,ourpaperhopestoaddressthegapintheliterature.Particularly,ourpaperaimstoexaminethefollowingr e s e a r c h questions:

2.LiteratureReview

Intheearlystage,corporatesocialresponsibilityisfirstknownasanobligationofbusinessmentofollowtheirpolicies,theirdecision-

making,anddesirableactionsinfavoroftheobjectivesandvaluesofoursocietybyBowen(1953).Later,Friedman(2007)establishedtheconceptbasedontwomainquestion:forwhatarecorporationsresponsiblefor?andtowhomaretheyresponsible?

Overall,disclosingcorporatecitizenship p r o v i d e s companieswithfinancialandstrategicgains.Money&Schepers(2007)suggestedthatthroughsociala c t i v i t i e s anditsreporting, firmscangainthetrustandgoodwillfromstakeholderstoobtainthecompetitivebenefits;p r o m o t e t h e i r i m a g e a n

d theirname(Lie t a l , 2 0 1 0 ) C o r p o r a t e c i t i z e n s h i p p a r t i c i p a t i o n withr e p o r t i n gpracticeisabletolowertheriskthatlaborquarrels,productsafetydisgrace,andfraudscanaffectthefirm’performanceandreputation(Waddock&Graves,1997)

2.1 Relationshipb e t w e e n theCorporateSocialResponsibilityandt h e CorporateGo vernanceC h a r a c t e r i s t i c s

Therearevarioustheoriesthatcanbeappliedtoexplainwhycorporationsarewillingtodisclosetheira c t i v i t i e s relatingtocommunity.Inthisstudy,theauthorswouldliketodiscussfourmaintheoriesthatarer e l e v a n t totheassociationbetweenthecorporatesocialresponsibilitydisclosureandcorporategovernance

First,theagencytheoryindicatesaconflictofinterestbetweenmanagersandshareholders.Thea

worktotheagent,buttheyareunabletoexaminehowtheagentsbehave(JensenandMeckling,1976)causinganagencyproblemasthereexistedthecontradictionbetweenthegoalandtheinterestamongthem(Eisenhardt,1989).Thisindicatedthattheagentcouldperform inthebestinterestoftheminsteadofamplifyingtheshareholders’ wealth.Therefore, thereexistedthreeformsofcostsinvolvingagencyproblems.Firstly,thereismonitoringcostthattheownersusedtomitigatetheconflictofinterestwiththeagenciesduetodifferentgoals(Hill&Jones,1992).Secondly,bondingcostisthecostutilizedbymanagerstomakesurethathisactionsbenefittheowner’swealth.T h i r d l y , theresiduallossleadstother e d u c t i o n oftheprincipals’advantagebecauseofdifferentpursuedobjectives

andattitudetowardbearingrisk.Thus,itcannotbed e n i e d thata d o p t i n g thec o r p o r a t e s o c i a l responsibilityr e p o r t i n g i s them a i n w a y tor e d u c e informationasymmetry,mitigatetheagencyproblemandreducethecostaswell

Second,stakeholdertheory(Freeman,1984)indicatesthatfirmsoperateethicallyandresponsiblytosatisfytheexpectationofthepublicandthestakeholdershaverighttobeupdatedinformationt h r o u g h t h

e sustainabilityperformanceabouthowthefirmaffectsthesurroundingenvironment(Freeman,2010).M o r e o v e r , thereputationandtheimageofthecorporationcanbeimprovedbyboththecorporateethicsandthestructureo f

governancetogether.Therefore,itcansharpentherelationswithmainfinancialstockholdersandcooldowntheconflicto f interestamongstakeholdersnamedasagencytheory.Bythisway,Aguilera,Williams,Conley,&Rupp(2006)found

thatparticipatinginthecorporatesocialresponsibilityreportingwouldhaveapositiverelationtoanefficientmechanismforcorporategovernance.Moreover,accordingtoBarako&Brown(2008),thetheoryofstakeholderpositedthatane n t i t y attemptstoharmonizeitsactivitieswithexpectationsofstakeholdersthroughthesocialresponsibility.Stakeholdert h e o r y thusintroducedthelinkbetweencorporategovernanceandthecorporatesocialresponsibilitypractice(Driver&Thompson,2002;Michelon&Parbonetti,2012).

Third,legitimacytheory(Suchman,1995)expandsthefunctionofcorporategovernancebyaddingmored i ff e r e n t stakeholderstotheprinciple-

agentrelationship.Moreover,thistheorybasedonthecontractbetweencorporationsandsociety.Specificly,corporationsbear responsibilityforthequantityandqualityofsocialresoucesandgeneratethebenefitsfromeconomicactivitiesforthesocietybecausethecommunityprovidedfi r m s withnaturalan

Therefore,managersarelikelytoreleasetheircorporatesocialresponsibilityactivitiesandotherrelatedinformationtopresentandsustainthelegitimacyofthefirmsorasaremedialstrategyofthefirm(Hooghiemstra,2000)

servingbehavior.DonaldsonandDavis(1991)claimedthatmanagersarebelievedtomanagetheresourcesofbusinesse f f e c t

i v e l y byusingtheirintelligence andexperiences, somanagersarestewardsand trustworthytotakeactionsfor

p r o t e c t i n g theowners’wealth(Donaldson&Davis,1991;McWilliams,Siegel,&Wright,2006).Oneoftheseactionswastheparticipationinthecorporatesocialresponsibilityactivitiesanddisclosure,asitispreferredbysocietiestohavel o n g -

t e r m benefitonthefinancialperformance(McWilliamset al., 2006)andpromotesthepositionoftheorganizationa s wellbasedonthe notionof“doingwellbydoinggood”(McWilliamsetal.,2006)

2.1.1 BoardofDirectorSize

Fromtheagencyperspective,theboardofdirectorsizewasoneofthemostvitalcomponentsofcorporategovernanceinsupervisingthemanagementofthecompanybytheagents,impactingthetransparencyaswella s theperformanceoffirms(Fama&Jensen,1983).Membersonboardofdirectorsrepresentshareholdersandprotectshareholders’wealthbyencouragingthecommitmenttothecorporatesocialresponsibilityinitiativesa s strategicbusinessactivitiesandpromotingahigherlevelofreporting.McWilliamsetal

(2006);AhmedHaji( 2 0 1 3 ) ; KathyRao,T i l t , & L e s t e r ( 2 0 1 2 b ) suggestedthatthenumberofm

e m b e r s onboardd e c i d e d theeffectivenessandefficiencyofsuchmechanism

Boardofdirectorsizehasbeenfoundtopositivelyaffectthecorporatesocialresponsibilityreportinginmanydifferentnations(e.g.,KathyRaoetal.2012a;Esa&AnumMohdGhazali2012;DeVilliersetal.2011a n d Jizietal.2014a).Forexample,KathyRaoetal

(2012a)foundthattheextentofenvironmentalinformationa n d theboardofdirectorsizewerepositivelyconjoinedbasingondatacollectedforthelargest100firmsonAustraliastockexchangein2008.Giventhesupportfrompriorpapers,thefollowinghypothesisisproposed:

H1:Thereisapositiverelationshipbetweentheboardofdirectorsizeandcorporatesocialresponsibility disclosure.

2.1.2 BoardofDirectorMeetings

AccordingtoLaksmana,

(2008),thenumberofmeetingsperyearisoneoftheindicatorsofthegovernancestructure.Laksmana(2008)arguedthatregularmeetingsgavedirectorschancestodiscussmoreinformation,improvedecision-makingprocess,andincreasefirmvalue,deterfirmgrowth,consequentlypromotingthec o r p o r

a t e ethicspractices(AhmedHaji,2013).Previousempiricalstudiessuggestedapositivelinkbetweentheboardofdirectormeetingandthecorporatecitizenshippractices(e.g.,O’Sullivanetal.2008;Alleg

rini&G r e c o 2013a;Chenetal.2010).Forexample,Allegrini&Greco(2013a)supportedapositiveinfluenceofboard

ofdirectormeetingsonthedegreeofthevoluntarysocialresponsibilityreleasewiththesamplesizeof177non-financialItalianlistedfirmsin2007.Followingthat,H2ispositedasbelow:

H2:Therei s a p o s i t i v e r e l a t i o n s h i p betweent h e n u m b e r o f boardm e e t i n g s a n d corp oratesocialr e s p o n s i b i l i t y disclosure.

2.1.3 AuditType

moretransparentabouttheirfi n a n c i a l r e p o r t i n g a nd thec o r p o r a t e e n t e r p r i s e performancea

s w e l l toattractmorec u s t o m e r s a nd investors.Theycanobtaintheirdesiretoensuretheirexistenceandsuccess(Brown&Deegan1998;Deegan2 0 0 2 ) byhiringagoodauditor(Al-

Gamrhetal.,2015)becausethelargeandinternationalauditfirmsrequiretheirc l i e n t t o p r o v i d e m o r

e m a i n i n f o r m a t i o n i n t h e reportsa n d w e b s i t e s A r e v i e w ofliteratures h o w s e v i d e n c e ofthepositiveassociationbetweenaudittypeandcorporate socialresponsibilityreporting (e.g.,Raffournier,1995;Xiaoetal.,2004).TaketheresearchofRaffournierin1995asanexample,hecollecteddataf r o m 161firmsonresearchingthecomponentofvoluntaryfinancialreporting inSwitzerlandandconcludedthataudittypelinkedpositivelytothecorporatecitizenshipdisclosure.Giventhesupportfrompriorpapers,thisstudydevelopshypothesis

H3:Thereisapositiverelationshipbetweenaudittypeandcorporatesocialresponsibilitydisclosure 2.1.4 WomenDirectors

Thepercentageofwomendirectorsplaysanimportantroleinthecorporategovernanceliterature(Carter,Simkins,&Simpson,2003).Femaledirectorsmightconstrain theboardtosatisfythestakeholders’requirements,t h u s , thee x e c u t i o n ofthec o r p o r a t e socialresponsibilitya n d i t s performancew e r e morep r a c t i c a b l e (Zhang,2012).Moreover,withmorefemaledirectors,theboardcanmakethemostofmultiplestakeholderst o i n c r e a s e l e v e l ofthec o r p o r a t e s o c i

a l responsibility.Furthermore,w o m e n d i r e c t o r s canassociatet h e i r interestsw i t h others t a

reportedapositivelinkbetweenthepercentageofwomendirectorsandthec o r p o r a t e socialresponsibilitypracticebyinvestigatingthestructureofboardof394socialfirmsintheUS.H e n c e , thisstudyexpectsthat

H4:Thereisapositiverelationship betweentheproportionof womendirectorsintheboard and corporatesocialr e s p o n s i b i l i t y disclosure.

2.1.5 CEODuality

AgencytheoryarguedthatCEOdualityconcentratesalltheauthorityofthemanagersandthechairpersoni n thesamepersonleadingtotheinterestdisputebetweenindividualandfirm (Haniffa &H u

d a i b , 2006).Stewardshiptheorysuggestedthatdualityprovidesmergedcommandstructureboostingthemakingdecisionprocedure,f a s t e n t h e e n a c t m e n t ofc o r p o r a t e s o c i a l responsibilityp e

r f o r m a n c e (Vo,2 0 1 0 ) W e b b (2004)investigatedthestructureofboardin394socialfirmsintheU.S.andfoundanegativelinkbetweentheCEOdualityandcorporatesocialresponsibility

reporting.Mallin&Michelon(2011)reportedthatCEOdualityisnegativelyassociatedwi t h thesocialperformanceof1 7 6 corporations.Foll ow ing thesepaper s, thiss tudy e x p e c t s :

H5:ThereisanegativerelationshipbetweenCEOdualityandcorporatesocialresponsibilitydisclosure 2.1.6 OutsideDirectors(Independentnon-executivedirectors)

Agencytheoryclaimedthatthepresenceofoutsidedirectorsisconsideredbeingcrucialinthecorporategovernanceforeffi c ie nt managementa nd inspectionoftheboard(RozainiMohdH a ni ff a & Cooke,2002;M i c h e l o n & P a r b o n e t t i , 2 0 1 2 ) d u e totheira u t h o r i t y a n d dominancetotaket h e gaugeofmanagementperformancemorefairlythanexecutivedirectorsandtakeactiontoreducetheegocentricitybehavior(Post,R a h m a n , &Rubow,2011).Furthermore,basedonthestewardshipandthestakeholdertheories,independentnonexecutiveboardmembersensureprotectionsfornotonlytheshareholders’wealthandotherstakeholders’interestaswellbypursuingthecorporatesocialresponsibilityactivitiestoreplytosocialconcernsandmeetsocialobligations(Haniffa&Cooke,2005a;Ntim&Soobaroyen,2013).

Webb(2004)investigatedthestructureofboardin394socialfirmsintheU.S.andreportedapositivelinkbetweeno u t s i d e d i r e c t o r s a n d thec o r p o r a t e c i t i z e n s h i p r e p o r t i n g S i m i l a r l y , i n anothercontext,N t i m & Soobaroyen(2013)examined75firmsonthestockexchangeofAfricaandreportedaconsistentfinding.Giventhesupportfrompriorpapers,ourstudyproposesthefollowinghypothesis:

H6:Therei s a p o s i t i v e r e l a t i o ns hi p betweent h e numbero f outsidedirectorsa nd c o r p o r a t e socialr e s p o n s i b i l i t y disclosure.

2.2.TheRelationshipbetweenCorporateSocialResponsibilityDisclosureandControlVari ables

Asinformedfromtheliterature,outstudyalsocontrolfortheimpactoffirm size,listingduration,andprofitabilityontheCSRdisclosure.Thereisconsistentevidenceforthesignificantpositivelinkbetweenthefi r m sizeandthecorporatesocialresponsibilitydisclosure(e.g.,Muttakinetal.2015;Reverte,2009;Mahadeoe t al.,2011).Forexample,Muttakinetal.(2015)examined116non-

financialcorporationsonBangladeshStockexchangeandfoundapositivelinkbetweenthefirmsizeandCSRdisclosure.Similarly,Owusu-

Ansah(1998)investigated49corporationslistedinZimbabweanddocumentedapositiveassociationbetweenthelistingdurationandCSR.Mostpriorempiricalstudiesregardingthelinkbetweenprofitabilityandthecorporatec i t i z e n s h i p disclosurereportapositiveresult(e.g.,Ntim&Soobaroyen,2013;Jizietal.,2014a;Khan,Muttakin,

&Siddiqui,2 0 1 3 b ; Gamerschlage t a l , 2 0 1 1 ) Fore x a m p l e , Gamerschlage t a l ( 2 0 1 1 ) comprising4 7 0 observationsfromselected corporationsinGermanyfoundthatprofitabilitywassignificantlyandpositivelyassociatedwithCSRreporting

m s T h e followingr e g r e s s i o n modeli s u s e d tot e s t theassociationb e t w e e n CorporateSocialResponsibilityDisclosureandCorporateGovernanceCharacteristics.

Model1:CSRDit= β0+β1Dualit+β2BSit+β3INDit+β4ATit+β5BMit+β6WDit+β7LNTAit+β8LD

Model2:GeneralCSRDit=β0+β1Dualit+β2BSit+β3INDit+β4ATit+β5BMit+β6WDit+β7LNTAit

���� 1 −=ProportionofWomenDirectorsonBoardforithfirmattimet-1.

W o o c h a n Kim(2004)

Profitability PROF ROA=Profitaftertax

TotalAsset

HoandYekini(2014)