Corporate Performance in the face of Abnormal Social Responsibility and the role of Internal Corporate Governance Quality

Document Type : Research Paper

Authors

Department of Accounting, Faculty of Economics and Management, Urmia University, Urmia, Iran

Abstract

It is believed that agency problems create specific motivations to undertake unusual actions in the field of social responsibility. These actions, which are pursued for reasons other than maximizing shareholder value, may lead to a weakening of the company's performance. However, high-quality corporate governance can mitigate these abnormal investments in social responsibility by reducing agency problems and considering the interests of all stakeholders. Based on this premise, the current research investigates the effect of internal corporate governance quality on the relationship between extraordinary social responsibility and company performance. Data related to 105 companies listed on the Tehran Stock Exchange for the period of 2013 to 2022 were collected and analyzed using Stata and Eviews. The results indicate that abnormal social responsibility has a negative and significant effect on company performance, whereas high-quality corporate governance has a positive and significant effect on company performance. Additionally, the results show that high-quality corporate governance can reduce the negative impact of abnormal social responsibility on company performance.

Keywords

Main Subjects

References

Alfalah, A., Muneer, S., & Hussain, M. (2022). An empirical investigation of firm performance through corporate governance and information technology investment with mediating role of corporate social responsibility: evidence from Saudi Arabia telecommunication sector. Frontiers in Psychology, 13. 959406.
Al-Malkawi, H. A. N., Pillai, R., & Bhatti, M. I. (2014). Corporate governance practices in emerging markets: The case of GCC countries. Economic Modelling 38: 133-141.
Arafat, M., Warokka, A., Abdullah, H., & Septian, R. (2012). The triple bottom line effect on emerging market companies: a test of corporate social responsibility and firm value relationship. Journal of Southeast Asian Research,12(1), 1-15.
Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of Business Ethics, 97(1), 71–86.
Beder, S. (1998). Global spin: The corporate assault on environmentalism. Chelsea Green Publishing.
Benkraiem, R., Dubocage, E., Lelong, Y., & Shuwaikh, F. (2023). The effects of environmental performance and green innovation on corporate venture capital. Ecological Economics, 210, 107860.
Berle, A. A., & Means, G. C. (1932). The modern corporation and private property. Transaction.
Billett, M. T., Garfinkel, A., and Jiang, Y. (2011). The influence of governance on investment: Evidence from a hazard model. Journal of Financial Economics, 102 (3): 643–670.
Brammer, S., Millington, A., & Rayton, B. (2007). The contribution of corporate social responsibility to organizational commitment. International Journal of Human Resource Management, 18(10), 1701–1719.
Brown, T. J., & Dacin, P. A. (1997). The company and the product: Corporate associations and consumer product responses. Journal of Marketing, 61(1), 68–84.
Chen, T., Dong, H., & Lin, C. (2020). Institutional shareholders and corporate social responsibility. Journal of Financial Economics, 135(2), 483–504.
Cochran, P., Wood, R., 1984. Corporate social responsibility and financial performance. Acad. Manag. J. 27, 42–56.
Deng, X., Kang, J.-K., & Low, B. S. (2013). Corporate social responsibility and stakeholder value maximization: Evidence from mergers. Journal of Financial Economics, 110(1), 87–109.
Dhaliwal, D., Li, Z., Tsang, A., Yang, G., 2011. Voluntary non-financial disclosure and the cost of equity capital: the case of corporate social responsibility reporting. Account. Rev. 87, 723–759.
Di Giuli, A., & Kostovetsky, L. (2014). Are red or blue companies more likely to go green? Politics and corporate social responsibility. Journal of Financial Economics, 111(1), 158–180.
Dittmar, A., & Mahrt-Smith, J. (2007). Corporate governance and the value of cash holdings. Journal of Financial Economics, 83(3), 599–634.
Edmans, A. (2011). Does the stock market fully value intangibles? Employee satisfaction and equity prices. Journal of Financial Economics, 101(3), 621–640.
El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking and Finance, 35(9), 2388–2406.
Gharbi, M., & Jarboui, A. (2024). The impact of corporate social responsibility on firm financial performance: does corporate governance matter. International Journal of Law and Management. ahead-of-print.
Heal, G. (2005). Corporate social responsibility: An economic and financial framework. Geneva Papers on Risk an insurance: Issues and Practice, 30(3), 387–409.
Hong, H., Kubik, J. D., & Scheinman, J. A. (2012). Financial constraints on corporate goodness (Working Paper).
Jawad, S., Shahzad, S., Ali, P., Ahmad, T., Ali, S., & Malaysia, S. (2015). Financial leverage and corporate performance: does financial crisis owe an explanation. Pakistan Journal of Statistics and Operation Research, 11(1), 67-90.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Jo, H., & Harjoto, M. A. (2012). The causal effect of corporate governance on corporate social responsibility. Journal of Business Ethics, 106(1), 53–72.
Johnson, R., Greening, D. (1999). The effects of corporate governance and institutional ownership types on corporate social performance. Acad. Manag. J. 42, 564–576.
Kamardin, H. and Hasnah, H. (2011). Internal corporate governance and board performance in monitoring roles. Journal of Financial Reporting and Accounting, 9(2), 119-140.
Karpoff, J., Lott, J., Wehrly, E. (2005). The reputational penalties for environmental violations: empirical evidence. J. Law Econ. 48, 653–675.
Kim, H. R., Lee, M., Lee, H. T., & Kim, N. M. (2010). Corporate social responsibility and employee-company identification. Journal of Business Ethics, 95(4), 557–569.
Laufer, W. S. (2003). Social accounting and corporate greenwashing. Journal of Business Ethics, 43(3), 253–261.
Long, W., Li, S., Wu, H., & Song, X. (2020). Corporate social responsibility and financial performance: The roles of government intervention and market competition. Corporate Social Responsibility and Environmental Management, 27(2), 525-541.
Lopatta, K., Cunitz, F., & Tideman, S. A. (2024). Abnormal CSR and financial performance. European Accounting Review, 33(1), 49-75.
Lu, J., Javeed, S., Jiang, T., & San, O. (2021). The moderating role of corporate social responsibility in the association of internal corporate governance and profitability; evidence from Pakistan. International Journal of Environmental Research and Public Health, 18(11), 5830.
Luo, X., & Bhattacharya, C. B. (2006). Corporate social responsibility, customer satisfaction, and market value. Journal of Marketing, 70(4), 1–18.
Lys, T., Naughton, J. P., & Wang, C. (2015). Signaling through corporate accountability reporting. Journal of accounting and economics, 60(1), 56-72.
Masulis, R. W., & Reza, S. W. (2014). Agency problems of corporate philanthropy. Review of Financial Studies, 28(2).
McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Journal, 26(1), 117–127.
Mishra, D, R., Sadok El Ghoul., Omran, G., Chuk C. Y. Kwok., (2011). Does Corporate Social Responsibility Affect the Cost of Capital. Journal of Banking & Finance, 35(9), 2388-2406.
Narayanan, M. P. (1985). Managerial incentives for short-term results. The Journal of Finance, 40(5), 1469–1484.
Poursoleyman, E., Joudi, S., Mansourfar, G., & Homayoun, S. (2023). The impact of corporate governance performance on the association between information asymmetry and opportunities' optimal levels: evidence from developed markets. Journal of Economic and Administrative Sciences, 39(4), 1241-1259.
Putri, R., Rokhmawati, A., & Fitri, F. (2022). The effect of firm size and leverage on financial performance with good corporate governance as a moderating variable (study on infrastructure, utilities, and transportation sector service companies listed on the indonesia stock exchange in 2018-2020). International Journal of Economics Business and Applications, 7(2), 37-52.
Renders, A., Gaeremynck, A., & Sercu, P. (2010). Corporate‐governance ratings and company performance: a cross‐European study. Corporate Governance an International Review, 18(2), 87-106.
Sarwar Uddin. A, Wali Ullah. G. M., Samiul Parvez. A, Ashikur. R. (2016). An Empirical Study on Corporate Governance and Islamic Bank Performance: A Case Study of Bangladesh. Journal of Finance & Banking Studies. 5(4), 2016: 103-116.
Servaes, H., & Tamayo, A. (2013). The impact of corporate social responsibility on firm value: The role of customer awareness. Management Science, 59(5), 1045–1061.
Umar, M., Syarief, M., & Kristianingsih, K. (2021). Corporate governance, financial leverage, and performance of sharia manufacturing companies on the Indonesia stock exchange. Amaluna Journal Ekonomi Dan Keeanga Syariah, 5(2), 255-272.
Wu, M. (2006). Corporate social performance, corporate financial performance, and firm size: a meta-analysis. J. Am. Acad. Bus. 8, 163–171.
Xiao, L., Chen, Z., Liu, G., & Sial, M. (2018). The effectiveness of internal control and corporate social responsibility: evidence from Chinese capital market. Sustainability, 10(11), 4006.
Journal of Accounting Advances
Volume 16, Issue 2
February 2024
Pages 211-242

Files

History

  • Receive Date: 21 July 2024
  • Revise Date: 03 February 2025
  • Accept Date: 05 February 2025

Share

How to cite

Statistics