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(PDF) Corporate Governance and Corporate Social Responsibility Disclosure



Corporate Governance and Corporate Social Responsibility Disclosure


Corporate Governance (GCG)

According to the World Bank, governance is “the manner in which power is exercised in the management

of a country’s economic and social resources for development” (The World Bank, 1992). Good corporate

governance (GCG) cares about social, economic and political factors and ensures that decision-making

is about the best resource allocation (UNDP, 1997). Governance is about economic activities, policy

formulation system, and policy implementation system (IFAD, 1999). The aim of GCG is to improve

economy and growth (OECD, 2004). “Governance refers to the processes in government actions and how

things are done, not just what is done” (UN, 2008). Governance is the ability to design and implement

policies for sustainability and growth (UNDP, 2011). The governance board is responsible for directing

and controlling the organization to achieve its objectives and goals (Nasereddin and Sharabati, 2016).

Although there is no consensus about governance definition and components, which suite all countries,

institutions, and industries, there are criteria through which GCG can be evaluated (Nasereddin and

Sharabati, 2019). GCG includes rights and equitable treatment of shareholders; interests of other stake-

holders; role and responsibilities of the board; integrity and ethical behavior; accountability, transparency,

and disclosure (OECD, 2004). It includes mandatory and voluntary information disclosure about CSR

activities. At the same time, agency theory regulates the relationship between owners and executives

(Deegan 2002, Ntim and Soobaroyen, 2013). The ownership structure is classified as concentrated and

dispersed; concentrated ownership is related to a small number of shareholders own a significant propor-

tion of shares. Whereas dispersed ownership is related to a large number of shareholders, own the shares

(Sheikh et al., 2013). Finally, this study uses the following indicators to evaluate GCG practices such as:

1. Board independence, which is the number of non-executive directors as a percentage of the whole

board (Laing and Weir, 1999). The independence of some board members will give power to the

board (Khan et al., 2013). Board with dominant non-executive directors are not effective since non-

executive directors are characterized by a lack of information about the company (Pearce and Zahra,

1991). The proportion of the non-executive board of directors affects CSRD (Arani, 2016; Furtado

et al., 2016; Pramono, 2018). Board independence is having a positive relationship with CSRD

(Jizi et al., 2014; Kaymak and Bektas, 2017). There is no relationship between board independence

CSRD (Habbash, 2015). There was an insignificant correlation between board independence and

CSRD (Yusoff et al., 2019);

2. Chief Executive Officer (CEO) duality occurs when two positions, namely: the CEO and board

Chairman, managed by the same person in the same firm (Rechner and Dalton, 1989; Said et al.,

2009). CEO duality is a way to avoid agency problems (Brown and Caylor, 2004). Firms that have

duality may have a powerful individual who has the ability to make decisions that may not maximize

shareholders’ wealth. Therefore, the Chairman and CEO roles should be separated (Laing and Weir,

1999). CEO duality is having a positive relationship with CSRD (Jizi et al., 2014; Umoh-Daniel

and Uroghide, 2018). CEO duality has a negative correlation with CSRD (Giannarakis, 2014b;

Jibril et al., 2016). Finally, there is no relationship between role duality and CSRD (Habbash, 2015;

Qoyum et al., 2017);

3. Board size is one of the main GCG elements to monitor the progress of work at the company cor-

rectly (Said et al., 2009). Larger board size is more efficient than smaller board size (Haji, 2013).