Abstract
There is a distinct lack of research into the relationship between corporate governance and corporate social responsibility (CSR) in the banking sector. This paper fills the gap in the literature by examining the impact of corporate governance, with particular reference to the role of board of directors, on the quality of CSR disclosure in US listed banks’ annual reports after the US sub-prime mortgage crisis. Using a sample of large US commercial banks for the period 2009–2011 and controlling for audit committee characteristics, board meeting frequency, and banks’ profitability, size and risk, we find evidence that board independence and board size, the two board characteristics usually associated with the protection of shareholder interests, are positively related to CSR disclosure. This indicates that, with regard to CSR disclosure, more independent boards of directors and larger boards are the internal corporate governance mechanisms which promote both shareholders’ and other stakeholders’ interests. Contrary to our expectations, CEO duality also impacts positively on CSR disclosure. From an agency-theoretical viewpoint, this suggests that powerful CEOs may promote transparency about banks’ CSR activities for their private benefits. While this could indicate that powerful CEOs are under particular pressure to appease stakeholders’ concerns that they might abuse their power by providing a high degree of CSR disclosure, it could also be a sign of managerial risk aversion or managers’ private reputational concerns.
Notes
See: Securities Exchange Act Release No. 48745 (November 4, 2003); 68 FR 64154 (November 12, 2003) (SR-NYSE-2002-33).
We also employ OLS regressions with robust standard errors to test the sensitivity of the estimated regression results.
References
Aguilera, R. V., Williams, C. A., Conley, J. M., & Rupp, D. E. (2006). Corporate governance and social responsibility: A comparative analysis of the UK and the US. Corporate Governance: An International Review, 14(3), 147–158.
Ahmed, K., Hossain, M., & Adams, M. (2006). The effect of board composition and board size on the informativeness of annual accounting earning. Corporate Governance: An International Review, 14(5), 418–431.
Arora, P., & Dharwadkar, R. (2011). Corporate governance and corporate social responsibility (CSR): The moderating roles of attainment discrepancy and organization slack. Corporate Governance: An International Review, 19(2), 136–152.
Bai, G., & Elyasiani, E. (2013). Bank stability and managerial compensation. Journal of Banking & Finance, 37(3), 799–813.
Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of Business Ethics, 97(1), 71–86.
Barry, T. A., Lepetit, L., & Tarazi, A. (2011). Ownership structure and risk in publicly held and privately owned banks. Journal of Banking & Finance, 35(5), 1327–1340.
Bear, S., Rahman, N., & Post, C. (2010). The impact of board diversity and gender composition on corporate social responsibility and firm reputation. Journal of Business Ethics, 97(2), 207–221.
Bédard, J., Chtourou, S. M., & Courteau, L. (2004). The effect of audit committee expertise, independence and activity on aggressive earnings management. Auditing: A Journal of Practice and Theory, 23(2), 15–37.
Beyer, A., Cogen, D. A., Thomas, Z. L., & Walther, B. R. (2010). The financial reporting environment: review of the recent literature. Journal of Accounting and Economics, 50(2–3), 296–343.
Branco, M. C., & Rodrigues, L. L. (2006). Communication of corporate social responsibility by Portuguese banks. Corporate Communication: An International Journal, 11(3), 232–248.
Campbell, D., & Slack, R. (2008). Narrative reporting: Analysts’ perceptions of its value and relevance. Report: Association of Chartered Certified Accountants Research. 104.
Chau, G., & Gray, S. J. (2010). Family ownership, board independence and voluntary disclosure: Evidence from Hong Kong. Journal of International Accounting, Auditing and Taxation, 19(2), 93–109.
Cheng, E. C. M., & Courtenay, S. M. (2006). Board composition, regulatory regime and voluntary disclosure. The International Journal of Accounting, 41(3), 262–289.
Cormier, D., Ledoux, M., & Magnan, M. (2011). The informational contribution of social and environmental disclosures for investors. Management Decision, 49(8), 1276–1304.
De Haan, J., & Poghosyan, T. (2012). Bank size, market concentration, and bank earnings volatility in the US. Journal of International Financial Markets, Institutions & Money, 22(1), 35–54.
Deegan, C., & Gordon, B. (1996). A study of the environmental disclosure practices of Australian corporations. Accounting and Business Research, 26(3), 187–199.
Dey, A. (2008). Corporate governance and agency conflicts. Journal of Accounting Research, 46(5), 1143–1181.
Donnelly, R., & Mulcahy, M. (2008). Board structure, ownership, and voluntary disclosure in Ireland. Corporate Governance: An International Review, 16(5), 416–429.
Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of Political Economy, 88(2), 288–307.
Fama, E. F., & Jensen, M. C. (1983). Corporations and private property. Journal of Law and Economics, 26(2), 301–325.
Gemmill, G., & Keswani, A. (2011). Downside risks and the size of credit spreads. Journal of Banking & Finance, 35(8), 2021–2036.
Ghoul, S. E., Guedhami, O., Kwok, C. C. Y., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance, 35(9), 2388–2406.
Gill, A. (2008). Corporate governance as social responsibility: A research agenda. Berkeley Journal of International Law, 26(2), 452–478.
Godfrey, P. C., Merrill, C. B., & Hansen, J. M. (2009). The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30(4), 425–445.
Goh, B. W. (2009). Audit committees, boards of directors, and remediation of material weaknesses in internal control. Contemporary Accounting Research, 26(2), 549–579.
Gray, R. H., Kouhy, R., & Lavers, S. (1995a). Constructing a research database of social and environmental reporting by UK Companies: A methodological note. Accounting, Auditing and Accountability Journal, 8(2), 78–101.
Gray, R. H., Kouhy, R., & Lavers, S. (1995b). Corporate social and environmental reporting: A review of the literature and a longitudinal study of UK disclosure. Accounting, Auditing and Accountability Journal, 8(2), 47–77.
Grove, H., Patelli, L., Victoravich, L. M., & Xu, P. (2011). Corporate governance and performance in the wake of the financial crisis: Evidence from US commercial banks. Corporate Governance: An International Review, 19(5), 418–436.
Guest, P. M. (2009). The impact of board size on firm performance: Evidence from the UK. European Journal of Finance, 15(4), 385–404.
Hagendorff, J., & Vallascas, F. (2011). CEO pay incentives and risk-taking: evidence from bank acquisitions. Journal of Corporate Finance, 17(4), 1078–1095.
Haniffa, R. M., & Cooke, T. E. (2002). Culture, corporate governance and disclosure in Malaysian corporations. Abacus, 38(3), 317–349.
Haniffa, R. M., & Cooke, T. E. (2005). The impact of culture and governance on corporate social reporting. Journal of Accounting and Public Policy, 24(5), 391–430.
Hasseldine, J., Salama, A. I., & Toms, J. S. (2005). Quantity versus quality: The impact of environmental disclosures on the reputations of UK Plcs. The British Accounting Review, 37(2), 231–248.
Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1–3), 405–440.
Hennigfeld, J., Pohl, M., & Tolhurst, N. (2006). Foreword. The ICCA handbook on corporate social responsibility. West Sussex: Wiley.
Hermalin, B. E., & Weisbach, M. S. (1998). Endogenously chosen boards of directors and their monitoring of the CEO. American Economic Review, 88(1), 96–118.
Hermalin, B. E., & Weisbach, M. S. (2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9(1), 7–26.
Hoitash, R., & Hoitash, U. (2009). The role of audit committees in managing relationships with external auditors after SOX: Evidence from the USA. Managerial Auditing Journal, 24(4), 368–397.
Holder-Webb, L., Cohen, J., Nath, L., & Wood, D. (2009). The supply of corporate social responsibility disclosures among U.S. firms. Journal of Business Ethics, 84(4), 497–527.
Ibrahim, N. A., Howard, D. P., & Angelidis, J. P. (2003). Board members in the service industry: An empirical examination of the relationship between corporate social responsibility orientation and directorial type. Journal of Business Ethics, 47(4), 393–401.
Jamali, D., Safieddine, A. M., & Rabbath, M. (2008). Corporate governance and corporate social responsibility synergies and interrelationships. Corporate Governance: An International Review, 16(5), 443–459.
Jiraporn, P., & Chintrakarn, P. (2013). How do powerful CEOs view corporate social responsibility (CSR)? Economics Letters, 119(3), 344–347.
Jo, H., & Harjoto, M. (2011). Corporate governance and firm value: The impact of corporate social responsibility. Journal of Business Ethics, 103(3), 351–383.
John, K., & Senbet, L. W. (1998). Corporate governance and board effectiveness. Journal of Banking & Finance, 22(4), 371–403.
Johnson, R. A., & Greening, D. W. (1999). The effects of corporate governance and institutional ownership types on corporate social performance. The Academy of Management Journal, 42(5), 564–576.
Karamanou, I., & Vafeas, N. (2005). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43(3), 453–486.
Kent, P., & Stewart, J. (2008). Corporate governance and disclosures on the transition to international financial reporting standards. Accounting and Finance, 48(4), 649–671.
Kolk, A., & Pinkse, J. (2010). The integration of corporate governance in corporate social responsibility disclosures. Corporate Social Responsibility and Environmental Management, 17(1), 26–150.
Kothari, S. P., Xu, L., & Short, J. (2009). The effect of disclosures by management, analysts, and business press on cost of capital, return volatility, and analyst forecasts: A study using content analysis. Accounting Review, 84(5), 1639–1670.
Krishnan, G., & Visvanathan, G. (2009). Do auditors price audit committee’s expertise? The case of accounting versus non-accounting financial experts. Journal of Accounting, Auditing and Finance, 24(1), 115–144.
Laeven, L., & Levine, R. (2009). Bank governance, regulation and risk taking. Journal of Financial Economics, 93(2), 259–275.
Lee, H. Y., Mande, V., & Ortman, R. (2004). The effect of Audit Committee and Board of Director Independence on auditor resignation. Auditing: A Journal of Practice and Theory, 23(2), 131–146.
Li, S., Fetscherin, M., Alon, I., Lattemann, C., & Yeh, K. (2010). Corporate social responsibility in emerging markets. Management International Review, 50(5), 635–654.
Li, J., Pike, R., & Haniffa, R. (2008). Intellectual capital disclosure and corporate governance structure in UK firms. Accounting and Business Research, 38(2), 137–159.
Lim, S., Matolcsy, Z., & Chow, D. (2007). The association between board composition and different types of voluntary disclosure. European Accounting Review, 16(3), 555–583.
Linck, J. S., Netter, J. M., & Yang, T. (2008). The determinants of board structure. Journal of Finance and Economics, 87(2), 308–328.
Linsley, P. M., Shrives, P. J., & Crumpton, M. (2006). Risk disclosure: An exploratory study of UK and Canadian banks. Journal of Banking Regulation, 7(3/4), 268–282.
Lourenco, I. C., Branco, M. C., Curto, J. D., & Eugenio, T. (2012). How does the market value corporate sustainability performance? Journal of Business Ethics, 108(4), 417–428.
Mackenzie, C. (2007). Boards, incentives and corporate social responsibility: The case for a change of emphasis. Corporate Governance: An International Review, 15(5), 935–943.
Matten, D. (2006). Why do companies engage in corporate social responsibility? Background, reasons and basic concepts. The ICCA handbook on corporate social responsibility. West Sussex: Wiley.
McDonald, J. F., & Moffitt, R. A. (1980). The uses of Tobit analysis. The Review of Economics and Statistics, 62(2), 318–321.
McMullen, D. A. (1996). Audit Committee performance: An investigation of the consequences associated with audit committees. Auditing: A Journal of Practice and Theory, 15(1), 87–103.
Meek, G. K., Roberts, C. B., & Gray, S. J. (1995). Factors influencing voluntary annual report disclosures By U.S., U.K. and Continental European Multinational Corporations. Journal of International Business Studies, 26(3), 555–572.
Money, K., & Schepers, H. (2007). Are CSR and corporate governance converging? A view from boardroom directors and company secretaries in FTSE100 companies in the UK. Journal of General Management, 33(2), 1–11.
Newson, M., & Deegan, A. (2002). Global expectations and their association with corporate social disclosure practices in Australia, Singapore, and South Korea. The International Journal of Accounting, 37(2), 183–213.
OECD. (1999). OECD principles of corporate governance. Paris: OECD Publications Service.
Patelli, L., & Prencipe, A. (2007). The relationship between voluntary disclosure and independent directors in the presence of a dominant shareholder. European Accounting Review, 16(1), 5–33.
Pathan, S. (2009). Strong boards, CEO power and bank risk-taking. Journal of Banking & Finance, 33(7), 1340–1350.
Pathan, S., & Skully, M. (2010). Endogenously structured boards of directors in banks. Journal of Banking & Finance, 34(7), 1590–16060.
Perego, P., & Kolk, A. (2012). Multinationals’ accountability on sustainability: The evolution of third-party assurance of sustainability reports. Journal of Business Ethics, 110(2), 173–190.
Pflugrath, G., Roebuck, P., & Simnett, R. (2011). Impact of assurance and assurer’s professional affiliation on financial analysts’ assessment of credibility of corporate social responsibility information. Auditing: A Journal of Practice and Theory, 30(3), 239–254.
Porter, M., & Kramer, M. R. (2006). Strategy and society: The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84(12), 78–92.
Reverte, C. (2009). Determinants of corporate social responsibility disclosure ratings by Spanish listed firms. Journal of Business Ethics, 88(2), 351–366.
Salama, A., Anderson, K., & Toms, J. S. (2011). Does community and environmental responsibility affect firm risk? Evidence from UK panel data 1994–2006. Business Ethics: A European Review, 20(2), 192–204.
Scholtens, B. (2008). Corporate social responsibility in the international banking industry. Journal of Business Ethics, 86(2), 159–175.
Simpson, W. G., & Kohers, T. (2002). The link between corporate social and financial performance: Evidence from the banking industry. Journal of Business Ethics, 35(2), 97–109.
Spitzeck, H. (2009). The development of governance structures for corporate responsibility. Corporate Governance, 9(4), 495–505.
Starks, L. T. (2009). EFA keynote speech: Corporate governance and corporate social responsibility: What do investors care about? What should investors care about? The Financial Review, 44(4), 461–468.
Tobin, J. (1958). Estimation of relationships for limited dependent variables. Econometrica, 26(1), 24–36.
Toms, J. S. (2002). Firm resources, quality signals and the determinants of corporate environmental reputation: Some UK evidence. The British Accounting Review, 34(3), 257–282.
Tuggle, C., Sirmon, D., Reutzel, C., & Bierman, L. (2010). Commanding board of director attention: Investigating how organizational performance and CEO duality affect board members’ attention to monitoring. Strategic Management Journal, 31(9), 946–968.
Van Marrewijk, M. (2003). Concepts and definitions of CSR and corporate sustainability: Between agency and communion. Journal of Business Ethics, 44(2–3), 95–105.
Vanhamme, J., Lindgreen, A., Reast, J., & van Popering, N. (2012). To do well by doing good: Improving corporate image through cause-related marketing. Journal of Business Ethics, 109(3), 259–274.
Veronesi, P., & Zingales, L. (2010). Pauson’s gift. Journal of Financial Economics, 97(3), 339–368.
Waddock, S. A., & Graves, S. B. (1997). The corporate social performance—Financial performance link. Strategic Management Journal, 18(4), 303–319.
Acknowledgments
We thank Thomas Clarke (the section editor) and the three anonymous reviewers for their valuable and constructive comments, which indeed assist in enhancing the clarity and the quality of the paper.
Author information
Authors and Affiliations
Corresponding author
Appendix
Appendix
See Table 5.
Rights and permissions
About this article
Cite this article
Jizi, M.I., Salama, A., Dixon, R. et al. Corporate Governance and Corporate Social Responsibility Disclosure: Evidence from the US Banking Sector. J Bus Ethics 125, 601–615 (2014). https://doi.org/10.1007/s10551-013-1929-2
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10551-013-1929-2