Examining the social pressures on voluntary CSR reporting: the roles of interlocking directors

Purpose Corporate social responsibility (CSR) reporting is a widely accepted procedure for firms to disclose their performance in multiple domains, including environmental protection, labour welfare, protection of human rights, community services, contribution to society and pursuit of product safety. This study aims to investigate whether and how board interlocks affect firms’ decisions with respect to CSR reporting. This study argues that board interlocks act as an important source of social pressure and firms are influenced by their peer firms to adopt CSR reporting. Design/methodology/approach This paper sampled listed companies on China’s Shanghai and Shenzhen Stock Exchanges from 2009 to 2015. The data were collected from Runling database and China Stock Market and Accounting Research database. A multi-period logit model was used to conduct the main regression analysis and the propensity score matching method was used in the robustness checks. Findings A study based on a sample of Chinese publicly listed firms from 2009 to 2015 confirms the argument and shows that sharing a common director on the board with a previous CSR reporter facilitates the firm’s engagement in CSR reporting. Furthermore, this study shows that the influence of board interlocks on CSR reporting depends on the following three characteristics: status of the interlocking director, size of the linked CSR reporter and performance implications of previous CSR activities. Research limitations/implications The interpretation of the current findings should be considered in light of these limitations. First, while board interlocks are an important social aspect of institutional pressure, other types of social pressure exist. Second, the focus is on CSR reporting decisions. However, CSR reporting can also be symbolic, with little substantive quality to improve CSR-related activities. Third, this study argues that both regulatory and social pressures influence the decision to report on CSR. However, this study was unable to determine the weight of each pressure. Future research should follow this direction. Finally, the influence of certain behaviours through interlocks is stronger in the initial stage of the institutionalisation process. Practical implications The findings of this study have important implications for practitioners. First, the messaging role of interlocking directors suggests that director selection should consider the effectiveness of information transfer. Knowing and analysing specific interlock and its links with the firm’s strategy is very important. Meanwhile, firms should be vigilant that the balance between the access to information and loss of autonomy because searching for information related to firms’ strategic decisions might challenge current strategy. Second, the results of the study suggest that to effectively urge companies to engage in CSR reporting, government and policy makers should consider beyond institutional pressure, but also be sensitive to the social pressure exerted upon the companies. Social implications The positive role of board interlocks on corporate voluntary CSR reporting can not only make valuable contributions to the Chinese society but also, as an important participant of global economy and trade, the Chinese interlocking directors’ contribution to CSR reporting have global benefits. Originality/value This study extends the institutional perspective on CSR reporting by uncovering the effect of social pressure. It advances the literature on the antecedents of CSR reporting by linking board interlocks to CSR reporting. Finally, the study enriches the broader interlock literature by delineating three specific characteristics of interlocks that influence CSR reporting.

Measuring the efficacy of board governance: Empirical evidence from Italian publicly listed companies

Recent progress in the literature shows that board efficacy might be signaled by lower firm performance variability in a firm’s income, since the board has a fiduciary duty to protect shareholder investments that may be affected when performance is variable. Our analysis is an attempt to contribute to this debate by extending it to include family firms. In particular, we detect appointments of directors to family firm boards within a sample of 483 observations (year/firm) regarding Italian publicly listed companies. Sampled family firms have one of the family members as CEO and/or chairman (in cases of non-CEO duality) of the firm’s board. The aim is to test predictions which suggest that the presence of independent (Agency Theory), on the one hand, and interlocking directors (Resource Dependence theory), on the other, have a significant impact on performance stability. Unlike agency theory, which affirms that independents are efficient, our findings suggest that the number of independents on the board of a family firm has no impact on performance stability. Instead, we find that interlocking directors can provide a significant contribution to the achieving of lower performance variability.

Do Supply Chain Auditors Compromise? Evidence From the Association of Supplier Aggressive Revenue Management and Major Customer Dependence

Our study examines whether aggressive revenue management by a supplier is greater when the supplier and their major customer engage the same office-level auditor and when significant purchases are made by the major customer from the supplier. We posit that the auditor is more accommodating to clients who are jointly audited by the same office-level auditor because of the implicit threat of losing not just the supplier client but also the major customer client. The threat arises from the potential loss of synergies of a jointly planned audit engagement when significant purchases are made by the major customer. We find that income-increasing discretionary revenue is positively associated with the major customer’s percentage of purchases from the supplier when the same office-level auditor is engaged by the supplier and their major customer. We fail to find a statistically significant association when they engage a different office-level auditor or a different audit firm. Our findings provide evidence that office-level auditors tolerate greater aggressive revenue management when they have clients who are partners in the same supply chain and when greater audit synergies are at stake. In addition, our results are partly explained by supplier clients who have interlocking directors with major customers and significant influence.

Related party transactions and finance company failure: New Zealand evidence

Purpose This paper aims to examine the existence of related party transactions (RPTs) in failed financial companies in New Zealand when firms have interlocking directors on the board. We also examine the role of auditors in the review of RPTs. We anticipate that inter-company director relationships promote RPTs, while reputable large auditors (i.e. Big4) restrict the practice. Design/methodology/approach This study uses multivariate analysis to examine the determinants of RPTs. We use an unique, hand-collected database of New Zealand finance companies all of which collapsed during the years 2006-2011. Findings Using a sample of 65 firms (including 38 failed finance firms) and 219 firm-year observations, we found that almost half of the failed finance firms were engaged in RPTs. For the failed firms, those that were engaged in RPTs were mostly represented by interlocking directors and were audited by non-Big4 auditors, implying lower monitoring quality may facilitate RPTs. Using a sub-sample, we also found evidence that firms engaged in RPTs were later convicted of questionable accounting and disclosure practices. Practical implications This research is beneficial to regulators and audit professionals in understanding the potential for adverse outcomes associated with interlocking directors and undisclosed RPTs. While interlocking directors could enrich the external connections of a firm which might facilitate capital resourcing, this study suggests regulators might encourage firms to disclose RPTs when the firm has higher interlocked directors. Originality/value This study is the first to examine the association between RPTs and interlocking directors using a sample of failed finance companies. RPTs and lack of disclosure were widely attributed with being the determinants of corporate failure in the finance sector. However, failed finance firms remain widely under-researched because of a lack of available data. This study circumvent this limitation by using print media and business news portals to collate information on RPTs and interlocking directors. While prior research indicates that weak corporate governance leads to poor accounting practice, using the interlocking board as a proxy for weak corporate governance, this study is the first to substantiate the adverse effect of interlocking boards and undisclosed RPTs with corporate failure.