TY - JOUR
T1 - The Influence of Corporate Governance and Shareholding Structure on Corporate Social Responsibility
T2 - The Key Role of Executive Compensation
AU - Sarhan, Ahmed A.
AU - Al-Najjar, Basil
PY - 2022/7/2
Y1 - 2022/7/2
N2 - This paper aims to contribute to the extant literature on corporate social responsibility and corporate governance by empirically examining the effect of firm governance and shareholding structure (and their interaction) on corporate social responsibility performance. Our study is conducted within a unique context of improving social responsibility policies, regulations, and management. In particular, we examine how corporate governance practices and both outside (institutional and pension) and inside (managerial) shareholdings impact corporate social responsibility activities. Using one of the largest UK data sets to date, consisting of FTSE 350 nonfinancial listed firms for the period from 2002 to 2016, our results provide evidence that corporate governance has a positive impact on corporate social responsibility. Institutional (indicating strong monitoring role) and managerial (proxy for alignment of interests between insiders and outsiders) shareholdings are negatively associated with corporate social responsibility performance. Our additional analyses provide empirical evidence that compensation structure, as a corporate governance tool, aligns management decisions toward engaging in corporate social responsibility activities and corporate strategic sustainable objectives. Additionally, our results suggest a substitutive relationship of institutional shareholding with corporate governance practices. There is a complementary relationship of managerial shareholding with corporate governance practices in influencing corporate social responsibility. Our evidence is robust after controlling for entrenched managerial shareholding, 2SLS and alternative measures of CSR performance. The findings provide empirical support for the UK Corporate Governance Code’s emphasis on designing effective remuneration policies and practices.
AB - This paper aims to contribute to the extant literature on corporate social responsibility and corporate governance by empirically examining the effect of firm governance and shareholding structure (and their interaction) on corporate social responsibility performance. Our study is conducted within a unique context of improving social responsibility policies, regulations, and management. In particular, we examine how corporate governance practices and both outside (institutional and pension) and inside (managerial) shareholdings impact corporate social responsibility activities. Using one of the largest UK data sets to date, consisting of FTSE 350 nonfinancial listed firms for the period from 2002 to 2016, our results provide evidence that corporate governance has a positive impact on corporate social responsibility. Institutional (indicating strong monitoring role) and managerial (proxy for alignment of interests between insiders and outsiders) shareholdings are negatively associated with corporate social responsibility performance. Our additional analyses provide empirical evidence that compensation structure, as a corporate governance tool, aligns management decisions toward engaging in corporate social responsibility activities and corporate strategic sustainable objectives. Additionally, our results suggest a substitutive relationship of institutional shareholding with corporate governance practices. There is a complementary relationship of managerial shareholding with corporate governance practices in influencing corporate social responsibility. Our evidence is robust after controlling for entrenched managerial shareholding, 2SLS and alternative measures of CSR performance. The findings provide empirical support for the UK Corporate Governance Code’s emphasis on designing effective remuneration policies and practices.
KW - compensation structure
KW - corporate governance
KW - corporate social responsibility
KW - institutional shareholding
KW - managerial shareholding
UR - http://www.scopus.com/inward/record.url?scp=85133186612&partnerID=8YFLogxK
U2 - 10.1002/ijfe.2663
DO - 10.1002/ijfe.2663
M3 - Article
SP - 1
EP - 25
JO - International Journal of Finance and Economics
JF - International Journal of Finance and Economics
SN - 1076-9307
ER -