Is corporate governance relevant to the quality of corporate social responsibility disclosure in large European companies?

Abstract

This paper reports on the quality of Corporate Social Responsibility (CSR) disclosure in S&P Europe 350 companies. The paper also examines the impact of corporate governance structure and other firm specific characteristics on the quality of CSR disclosure in European companies. The paper uses a disclosure index adopted from Jizi et al. (2014). Moreover, the paper contributes to the CSR disclosure literature by developing a new index that includes all the aspects introduced by the GRI version 4.The data of CSR reporting is manually collected from the said firms’ reports. The population and sample of this study is related to 350 companies operating in 16 European countries. Tobit regression analysis is used to test the hypotheses. The results reveal that directors’ ownership, the presence of a CSR committee and firm size positively affect the quality of CSR reporting. Further testing of the independent variables on each CSR sub-category is made. CSR sub-categories used are: community involvement, employees, environment, social product & service quality, supply chain sustainability and business ethics. The presence of a sustainability committee inside the company is the only factor that shows a strong positive effect on the disclosure of every CSR sub-category and the CSR inclusive index.quality, supply chain sustainability and business ethics. The limitations of this research is that it focuses exclusively on the effect of the internal corporate mechanisms on the quality of CSR reporting; disregarding the economic, institutional, political and cultural factors that can play a role in influencing sustainability reporting of the companies. Better CSR disclosure leads to the firm having better image in the society, this in turn has implications on firm performance, attracting funds, as well as recruiting and retaining high profile employees. Stakeholders are placing cumulative significance to corporate transparency particularly in the area of CSR. Managers should exert more efforts into not only improving the disclosure of the various facts of CSR but also into utilizing the various media available for disclosure. Companies should take initiative of establishing a CSR committee to ensure effective formation & implementation of CSR policies and disclosure of CSR activities. This paper contributes to the CSR disclosure literature by developing a new index that includes all the aspects of CSR and exploring the relation between the rarely explored ‘presence of sustainability committee’ and CSR disclosure, as well as testing vast number of CSR sub-categories that is not extensively covered in previous studies. Moreover, the paper covers a large sample of companies across 16 European countries in terms of their stand-alone sustainability reports, dedicated chapters of CSR in annual reports, integrated reports, website CSR information and any attachments/links provided on the websites for further CSR documents, brochures or data sheets.