Corporate Social Responsibility and Environmental Management

Corp. Soc. Responsib. Environ. Mgmt. 2017

Published online in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/csr.1428

Corporate Social Responsibility and Governance:

Information Disclosure in Multinational Corporations
Turhan Kaymak1* and Eralp Bektas2
1
Department of Business, Faculty of Business and Economics, Eastern Mediterranean University Famagusta, North Cyprus,
Via Mersin 10Turkey
2
Department of Banking and Finance, Faculty of Business and Economics, Eastern Mediterranean University, Famagusta,
North Cyprus, Via Mersin 10Turkey

ABSTRACT
Multinational corporations (MNCs) are facing increasing pressure on two fronts – the demand for
more transparency and disclosure and the need to implement good corporate governance
practices. This paper develops several testable hypotheses that address these issues based on
agency theory and stakeholder management approach arguments. As such, the relationship
between corporate social responsibility (CSR) programs and firm-level governance structures
are discussed. CSR is measured using Transparency International’s study on the disclosure
practices of the world’s largest MNCs. Links between board size, board independence, and duality
are explored. The results indicate that board independence and board size are strongly and
positively related to several CSR practices. In addition, extractive industries have a significant
and positive impact on the level of CSR activities. Policy and managerial implications related
to these findings are also discussed. Copyright © 2017 John Wiley & Sons, Ltd and ERP
Environment

Received 12 October 2016; revised 27 March 2017; accepted 11 April 2017

Keywords: governance; corporate social responsibility; board structure; stakeholder engagement; disclosure; MNCs

Introduction

A
LTHOUGH THEY HAVE ORIGINATED FROM DISTINCT ACADEMIC STRAINS OF THOUGHT, THE CONCERNS AND PROBLEMS ADDRESSED BY
corporate social responsibility (CSR) and corporate governance (CG) are converging, as issues related to
ethics, accountability, transparency, and disclosure now regularly influence business decisions. CSR is
usually analyzed through the lens of the stakeholder management approach (Freeman, 1984), which
stresses the importance of identifying and satisfying different groups that place divergent and sometimes
contradictory demands on a firm. Hence, managers should not simply focus on maximizing the gains of one
important group – the shareholder – at the expense of other stakeholders. On the other hand, CG issues are often

*Correspondence to: Turhan Kaymak, Department of Business, Faculty of Business and Economics, Eastern Mediterranean University, Famagusta, North
Cyprus, Via Mersin 10, Turkey.
E-mail: [email protected]

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 T. Kaymak and E. Bektas

tackled with the agency theory approach (Jensen & Meckling, 1976) which stipulates that to protect shareholders’
interests, a firm must establish several viable internal (e.g. board composition, independence, and size) and external
mechanisms (e.g. takeover threats, vibrant labor markets) to oversee managerial decisions and align their interests
with those of shareholders. As such, CG deals greatly with internal board structure issues in an ongoing effort to
monitor managerial behavior to maximize shareholder gains, while CSR adopts more of an overarching public
policy approach. Despite these differences, there are several trends leading to a convergence between CSR and CG.
CG was founded on a legal basis that stressed the importance of managerial fiduciary duty towards shareholders,
while CSR has its roots more in fluid socioeconomic and cultural processes. With the advent of numerous corporate
scandals, the growing awareness of the impact firms have on the environment, and with the rise of pressure groups
such as non-governmental organizations (NGOs) and civil society groups, we are witnessing a profound change in
CG practices. Now CG encompasses not just the rules and regulations that are used for monitoring managerial
behavior, but also considers issues related to ethics, accountability, and disclosure (Lerach, 2002). In short, this
new CG regime places greater emphasis on transparency and a commitment to fairness, and hence leads to greater
disclosure of internal and external company practices. Thus, we see that the CSR approach, which balances the
needs of disparate groups with the goals of shareholders, has been incorporated into a CG framework that now
addresses the concerns of the social, environmental, and public arena (McBarnet 2007).Today, many large firms
have developed several self-regulatory devices on a voluntary basis which include corporate codes of conduct,
non-financial reporting practices, and the creation of institutional channels to establish a dialogue with stakeholders.
We now observe interactions between institutional investors and NGOs with firms, as these organizations assist the
firms in improving their self-regulation efforts. This is leading to CG practices that address many of the issues
traditionally found within the realm of CSR (Rahim & Alam, 2013).
Indeed, alongside CG issues, CSR is increasingly being linked to business strategy as managers realize that
competitive advantages can be obtained by engaging with different groups while making important decisions and
appreciating that performance is a multifaceted concept. A growing body of CSR research looks at strategic issues
that range from environmental sustainability to firm-level competitiveness, and from supply chain management
to corporate reputation. The environmental sustainability perspective is perhaps the most well researched as it
argues that sound environmental management, besides having an ethical and legal component, also can help build
firm value (Eccles et al., 2014). Several findings indicate a positive relationship between environmental management
and superior performance (Florida & Davison, 2001; Nollet et al., 2016). Likewise, from a competitiveness
perspective, CSR has been analyzed in both large (Melé et al., 2006) and small firms (Baumann-Pauly et al.,
2013), and in different sectors (Alcaraz & Rodenas, 2013) such as in technology firms (Bernal-Conesa et al., 2017).
CSR has been found to be associated with competitiveness in firms that follow a proactive approach in engaging
with stakeholders (Marín et al., 2012). In addition, supply chain management activities have recently received more
attention from CSR scholars, as the sophistication and global reach of the modern supply chain offers firms many
areas to reduce waste and meet customer expectations in offering a green product (Carter et al., 2000; Harms et al.,
2013; Lintukangas et al., 2015). Last, from a corporate reputation perspective, we see that higher quality sustainability
reporting is associated with relevant stakeholders having a higher opinion of a firm (Clarke & Gibson-Sweet, 1999;
Odriozola & Baraibar-Diez, 2017) leading to enhanced legitimacy and easier acquisition of resources. In this broad
field of research, we decided to analyze CSR through the theoretical lenses of the agency model and stakeholder
management approach.
As such, this study attempts to further unravel the growing interconnectedness between CG practices and CSR
efforts. Several board characteristics – board size, board independence, and duality – are considered when exploring
CG’s relationship with CSR practices. As CSR covers many dimensions, ranging from employee rights to customer
service to paying taxes, large firms need a formal approach to respond to these different and sometimes conflicting
demands. The rise of the Internet, social media, and international pressure groups has placed the actions of
companies firmly in the spotlight, and negative publicity may lead to enhanced government scrutiny and
regulations. Transparency International (TI), a Berlin-based NGO, is a leading force that measures national levels
of corruption. However, it has recently focused its efforts on multinational corporations (MNCs) to establish a
dialogue with these global players and enhance their accountability toward society. As such, TI has developed a scale
that measures the level of company efforts in anti-corruption efforts, organizational practices, and degree of
transparency in identifying sources of revenue. This is an effort to entice MNCs to enhance their disclosure

Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment
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CSR, governance, and disclosure in MNCs

practices and can be considered to be a measure of CSR for these firms. MNCs are believed to be one of the main
beneficiaries of globalization and are mostly enjoying expanding sales and growing profits. While pursuing profits
these firms may be gaining undue influence over regulators and government officials through corrupt practices (e.g.
bribery, tax evasion, environmental degradation). This conduct is mostly to the detriment of stakeholders outside of
shareholders (Adeyeye, 2012). Growing scrutiny from the media and international organizations like the United
Nations Convention against Corruption and labor groups such as the International Trade Union Federation has
compelled many MNCs to upgrade their CSR efforts.
CSR can be reflected in sustainability reporting programs that cover social, environmental, and economic activities
(Michelon & Parbonetti, 2012). In this paper, CSR is measured by the degree of voluntary disclosure exhibited by
MNCs – namely the level of transparency on corporation shows on issues related to society, the legal environment,
and revenue generation. We maintain that transparency and disclosure can be considered as a measure of CSR, as
the latter is a fluid concept embracing activities that satisfy different interest groups. As such, we examine the
relationship of board characteristics (which is an indicator of CG) with CSR, by controlling for performance,
company size, and the national origin of the firms. Basically, do MNCs that exhibit high levels of CSR have different
board profiles than firms that have low levels of CSR? MNCs are important international actors and each faces unique
institutional and regulatory pressures that emanate from their country of origin or sectors of operation. We look at the
world’s largest 105 firms as measured by market capitalization that have been identified by TI to uncover issues
connected to transparency and corporate disclosure. The paper is structured as follows. We first review the literature
on board structure from the agency theory and stakeholder management approaches to uncover any associations
between CG and CSR. The TI disclosure system is also discussed. Next, we present our data and methodology, to
be followed by a presentation of the empirical results. The last section provides our discussion and conclusion.

Stakeholder Management Theory, Agency Theory, and Hypotheses Development

CSR and the Stakeholder Management Approach
CSR is based on the theoretical foundation laid by the stakeholder management approach. Stakeholder management
theory has recently witnessed a convergence with CG as now in many organizations CG procedures also require
managers to consider their stakeholders (Spitzeck, 2009). As such, an effective CG approach can also support
CSR efforts by promoting sound business practices that meet enhance accountability, transparency, and disclosure
expectations of all interested parties.
In this light, Freeman (1984) maintains that managers should facilitate the establishment of links with
participants in the social and political process, and focus on building coalitions with external stakeholders. Freeman
(1984) also puts forward that managers must be cognizant of the organization’s mission, and play an active role in
maintaining the organizational processes and the set of transactions that occur among the organizations and their
stakeholders. Thus, a firm’s stakeholders include the government, the community, customers, competitors, NGOs,
the media, besides others. This can lead to a delicate balancing act, as myriad stakeholders place divergent and
conflicting demands on the firm. Wood (1991) builds on this, and maintains that managers have a moral duty to
pursue socially beneficial actions. Similarly, Donaldson and Preston (1995) develop a model to assist managers in
balancing the need for profitability with the demands of stakeholders. In sum, stakeholder management theory
posits that managers develop CSR programs to simultaneously fulfill their moral, ethical, and social duties, while
also addressing shareholder expectations regarding financial goals.

CG and Agency Theory

Agency theory is at the heart of many discussions on CG issues. It addresses the problems that occur when one
party (the principal or shareholder) delegates work to another party (the agent or manager). If the principals and
agents have divergent goals and different risk preferences, conflict may arise. Thus, the principal must devise a
structure to monitor the actions of the agent since the agents may benefit from information asymmetries that accrue

Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment
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DOI: 10.1002/csr
 T. Kaymak and E. Bektas

due to their intricate knowledge of running the firm. Hence, the principal must either have a system that provides
for active monitoring of the managers and/or a mechanism that aligns the interests of the managers with those of
shareholders. One solution to the agency problem resulting from managerial opportunism is through the effective
use of board of directors (Fama & Jensen, 1983).
The board of directors is the main decision-making group in an organization. The board’s composition and
structure reflects the level of good governance practices in a corporation. The board develops the company mission
and oversees company strategy and investments. The board also has a fiduciary duty to protect shareholder
investments, and accordingly must fire/hire managers and monitor executive behavior vigilantly. As such, the board
sits at the crux of CG, as it sets broad company policy, including how to deal with stakeholders and subsequently
decides on the levels of corporate transparency and disclosure. Hence the board, along with top management, is
at the forefront of CSR issues. There is an extensive body of research that looks at board structure and composition
(board independence, board size, duality, internal committees) and how it relates to performance. Here, as we
search for links between CSR and CG, we assume that a firm following prescribed CG practices regarding its board
structure will be associated with higher levels of CSR by displaying greater transparency and disclosure.

Board Structure Issues: Independent Boards, Board Size, and Duality

A copious amount of research has been conducted on the relationship between board independence and corporate
performance (Daily & Dalton, 1993; Rhoades et al., 2000; Nicholson & Kiel, 2007). In its simplest form, we have
two groups of directors – insiders and outsiders. Insiders are current or former employees of the firm who may have
privileged access to special information. Outsiders are directors with no known direct links to the firm and thus may
be more objective and benefit from a divergent viewpoint. Agency theory points to the benefits of having outsider
board members who can question managerial decisions and conduct more thorough monitoring activities (Dalton
et al., 1998). However, these outsiders should have the knowledge, the background, and the capacity to monitor
effectively. An opposing view states that an insider dominated board is preferred due to its more cohesive nature,
better access to information, and quicker decision-making potential (Fama & Jensen, 1983).
Agency theory posits that information asymmetries that inherently reside in organizations due to managers
having more information than the shareholders can be mitigated by an active board which guards against
managerial concealment and distortion. One would expect an independent board to question management more
rigorously and promote the disclosure of information. Regarding studies conducted on the relationship between
board independence and transparency there are conflicting findings. For instance, Donnelly and Mulcahy (2008),
Lim et al. (2007), and Cheng and Courtenay (2006) uncover a positive association between board independence
and voluntary disclosure. Likewise, Ferrero-Ferrero et al. (2015) uncover that board diversity is associated with
CSR management and quality in listed European firms. On the other hand, Eng and Mak (2003), Barako et al.
(2006), and Gul and Leung (2004) find voluntary disclosure to have a significant negative relationship with the
number of outside directors sitting on the board.
Stakeholder management theory posits that independent members (outsiders) will be in a better position to
represent stakeholders and not be beholden to dominant groups and vested interests in the organization. Outsiders
will have a better dialogue with groups outside the organization, and this should reflect in greater transparency and
disclosure (Carroll, 2000). Stakeholder management is built on the premise that firms should reach out to their
different constituencies to address their demands (Freeman, 1984). Having outsiders allows a firm to engage in
more boundary spanning activities (Thompson, 1967) and this may be reflected in greater transparency and
disclosure, and thus represent a higher degree of CSR. The diverse institutional environments that MNCs occupy,
and the increased media scrutiny that they face should compel these firms to seek better linkages with their
stakeholders and enhance their CSR efforts. As such, we have developed the following hypothesis:

H1: An independent board (a higher outsider/insider ratio) is associated with higher levels of CSR in MNCs.

Agency theory presents two diverging views on the presence and efficacy of large boards. On a positive stance,
greater membership may increase the board’s monitoring capabilities, but this may be offset by the slower
communication needs and less efficient decision-making process associated with large groups. A lack of a cohesive

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DOI: 10.1002/csr
CSR, governance, and disclosure in MNCs

framework may actually cause conflict in the group, and thus diminish the board’s monitoring capacity. Research by
Lipton and Lorsch (1992) and Jensen (1993) have uncovered such problems. Likewise, Yermack’s (1996) study
found firm valuation to be negatively related to board size.
However, there is a dearth of studies conducted on the relationship between board size and transparency. In Irish
companies, Donnelly and Mulcahy (2008) found a positive relationship between board size and the level of
voluntary disclosure, while Cheng and Courtenay (2006) failed to find a relationship in Singapore. In contrast,
Byard et al. (2006) uncovered a negative relationship between board size and the accuracy of voluntary earnings
forecasts in US corporations.
Stakeholder management theory implies that a greater board size will indicate an organization’s need to link
itself to the outside environment (Pfeffer & Salancik, 1978). More members on a board representing different
groups will potentially enable the firm to reach out to its different stakeholders. Indeed, in their study on publicly
traded US firms Luoma and Goodstein (1999) uncovered that larger firms placed a greater number of stakeholders
on their boards. Similarly, when looking at the dissemination of corporate social reporting in numerous countries
Frias-Aceituno et al. (2013) find that board size is positively related to the spreading of information. These findings
support the position that firms try to accommodate divergent claims by expanding board membership and may
hence promote transparency and disclosure. However, the issue of the relationship between transparency and board
size has not been fully resolved and it in need of further empirical investigation. Additionally, board size is related to
industry (financial firms tend to have large boards) and a firm’s national origin (some government dictate the
minimum and maximum board size and the number of outsiders on the board). Again, this paper assumes that
higher levels of transparency and disclosure to be indicative of greater CSR.
Hence, we state the following hypothesis:

H2: There is a positive association between board size and levels of CSR in MNCs.

Duality is a situation where the Chairperson of the Board is also the CEO, leading to a consolidation of power in
one individual. Here we have a peculiar situation where the agent (the CEO) is being monitored by themself (the
Chairperson). Also, this arrangement is believed to lead to less adaptability and flexibility in responding to
organizational challenges. Despite the potential negative ramifications of duality there is little empirical evidence
regarding its effect on financial performance.
Proponents of this unitary leadership system point to its benefits – more decisive action, quicker decision
making, and greater responsiveness to changing market conditions. Also, this structure may help retain individuals
with unique talents and ability who are attracted to such a demanding position (Donaldson & Davis, 1991). On the
other hand, duality goes against the prescriptions provided by agency theory. A dominant figure may emerge,
leading to opportunistic behavior. The possibility of collusion between top management and board members may
arise, and generally the monitoring and disciplining capacity of the board may be degraded. Numerous studies have
uncovered the negative relationship between duality and performance (Yermack, 1996; Fosberg, 2004; Lakhal,
2005). Indeed, in a cross-national study of stakeholder-centric governance, Shahzad et al. (2016) found a positive
relationship between lack of duality and corporate social performance.
Likewise, in a study conducted on the relationship between duality and financial transparency and disclosure as
Forker (1992) reports a positive relationship between duality and transparency. However, the findings on duality are
equivocal, as Donnelly and Mulcahy (2008), Cheng and Courtenay (2006), and Barako et al. (2006) fail to find a
relationship between duality and voluntary disclosure.
Stakeholder management theory supports the separation of these roles in the corporation. An individual holding
these two key positions can lead to an excessive consolidation of power and shut out diverging views that represent
different groups and their interests. A submissive board that does not question managerial behavior adequately
would lead to diminished transparency and disclosure as the concerns of different stakeholders would not be
considered in depth, resulting in diminished CSR efforts. In MNCs, which have an even wider group of
stakeholders than their domestic counterparts, this situation would be exasperated.
Hence, we have our final hypothesis:

H3: Duality is associated with lower levels of CSR in MNCs.

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DOI: 10.1002/csr
 T. Kaymak and E. Bektas

Data and Methodology

In this section, we present the employed variables in the study and discuss the multivariate ordinary least squares
(OLS) model used to examine the relationship between CSR and the explanatory variables.

Transparency and Corporate Disclosure: A CSR Framework

The extensive media coverage of corporate scandals and the advent of more intrusive government regulation have
placed the issue of transparency and voluntary disclosure near the top of the agenda for large firms, especially
MNCs. However, this topic has been closely examined by scholars for decades. Cerf’s (1961) seminal work provides
us with an early effort to analyze firm disclosure by analyzing quantitative and qualitative information released in
annual reports, and seeking to uncover any relationship with corporate specific attributes. Most information
released by firms generally targets the investment community, which includes financial analysts, creditors,
investors, and government regulators. The information released is generally mandatory, which is imposed by
regulatory bodies.
We have two types of disclosure – mandatory and voluntary. The information released under mandatory
disclosure is set and governed by regulatory agencies, while voluntary disclosure happens when firms provide more
information than required as they believe there are benefits from doing so. These benefits associated with reducing
information asymmetry include an enhanced reputation, less government regulation, and easier access to capital
(Entwistle, 1997). This study considers both types of disclosure efforts.
Studies on the relationship between corporate disclosure and CSR have used myriad sources. Li et al. (2013)
utilize the Blue Book of Corporate Social Responsibility Reporting by A-Share Listed Firms, while Willis (2003) uses
The Global Reporting Initiative Sustainable Disclosure Database, and Hoje and Harjoto (2011) employ the Investor
Responsibility Research Center, Inc., and Kinder, Lydendenberg, and Domini’s Stats Database to measure the
degree of CSR. To the best of our knowledge there are no studies that utilize TI’s project on corporate disclosure.
The TI project Transparency in Reporting on Anti-corruption and Promoting Revenue Transparency covers both
voluntary and mandatory disclosure to assess the prevalence of corruption-relevant measures in 105 of the world’s
largest publicly traded firms based on their market value at the end of 2010. This study does not include financial
firms in the analysis as they tend to have much larger board sizes, face more restrictive regulatory environments,
and were facing an industry-wide crisis during this period. Hence, the final sample size included a total of 80 firms.
Data on these firms were collected from publicly available information sources and company websites, and was
complemented with consultations with the firms under study, civil society, and TI’s network of national chapters.
There are three dimensions examined – reporting on anti-corruption programs (ACPs), organizational transparency
(OT), and country-by-country (CBC) reporting – which have been measured with 26 questions that can be found in
Table 1. Each firm also receives an overall score ranging from 0 to 10 on this index based on an aggregate measure of
the three dimensions, with higher marks indicating superior disclosure. For further details, refer to www.
transparency.org. This study uses this index and its components as a proxy for CSR since transparency and
disclosure on issues related to corruption in society influence numerous stakeholders. As corruption leads to lower
economic growth, inequality in society, environmental degradation, and poor government services (Aidt, 2009),
MNCs that acknowledge the importance of transparency are acting as good global citizens.
On the corporate governance front, we measure board size, board independence, and duality by using
information provided by Bloomberg’s businessweek.com for the 80 non-financial MNCs that were included in
the TI study. For each company, the names of board members were identified and members have been
subsequently classified as being ‘insiders’ or ‘other’. Here, we assume that members of the ‘other’ group are
‘outsiders’. Board size is measured with the logarithm of a simple head count, while board independence is
measured by dividing the number of outsiders with the total board size. Also, board members who also hold
executive positions are identified, enabling us to determine cases of duality. In cases where there were missing data,
we utilized the Financial Times Market Watch database as it provides similar information.
Several control measures are also included in the analysis that in prior research have been found to be associated
with CSR (Eng & Mak, 2003). Specifically, we control for firm size, profitability, industry, and the institutional

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CSR, governance, and disclosure in MNCs

I. Disclosed anti-corruption programs

1. Does the company have a publicly stated commitment to anti-corruption?
2. Does the company publicly commit to be in compliance with all relevant laws,
including anti-corruption laws?
3. Does the company leadership demonstrate support for anti-corruption, e.g. is
there a statement in a corporate citizenship report or in public pronouncements
on integrity?
4. Does the company’s code of conduct/anti-corruption policy explicitly apply to all
employees?
5. Does the company’s code of conduct/anti-corruption policy explicitly apply to all
agents and other intermediaries?
6. Does the company’s code of conduct/anti-corruption policy explicitly apply to
contractors, subcontractors, and suppliers?
7. Does the company have an anti-corruption training program for its employees
in place?
8. Does the company have a policy defining appropriate/inappropriate gifts,
hospitality and travel expenses?
9. Is there a policy that explicitly forbids facilitation payments?
10. Does the company prohibit retaliation for reporting the violation of a policy?
11. Does the company provide channels through which employees can report
potential violations of policy or seek advice (e.g. whistleblowing) in confidence?
12. Does the company carry out regular monitoring of its anti-corruption
program?
13. Does the company have a policy prohibiting political contributions or if it does
make such contributions, are they fully disclosed?

II. Organisational transparency

(disclosure of subsidiaries)
14. Does the company disclose the full list of its fully consolidated material subsidiaries?
15. Does the company disclose percentages owned in its fully consolidated material subsidiaries?
16. Does the company disclose countries of incorporation of its fully consolidated material subsidiaries?
17. Does the company disclose countries of operations of its fully consolidated material subsidiaries?
18. Does the company disclose the full list of its non-fully consolidated material subsidiaries?
19. Does the company disclose percentages owned in its non-fully consolidated material subsidiaries?
20. Does the company disclose countries of incorporation of its non-fully consolidated material subsidiaries?
21. Does the company disclose countries of operations of its non-fully consolidated material subsidiaries
III. Country -by-country disclosure
In our study, ‘countries of operations’ are those countries in which a company is present either directly or through one of its consolidated
subsidiaries. The relevant list of countries of operations is based on the company’s own reporting.
For each country of the company’s operations the following set of questions has been asked:
22. Does the company disclose its revenues/sales in country X?
23. Does the company disclose its capital expenditure in country X?
24. Does the company disclose its pre-tax income in country X?
25. Does the company disclose its income tax in country X?
26. Does the company disclose its community contribution in country X?

Table 1. Questionnaire on transparency in reporting on anti-corruption and promoting revenue transparency

environment. Size is measured using the logarithm of total revenue, and profitability with return on assets (ROA).
This information was provided by either the businessweek.com or Market Watch databases. The TI index identifies
the national origin and industry where each firm operates. The institutional environment is a multidimensional
construct that we account for with two measures that may affect both CSR practices and governance structures
(North, 1991). First, the legal environment is measured with a dummy variable, with MNCs hailing from either a
common-law system or civil code legal system. Second, the national level of corruption prevailing in the MNCs’
home country is measured by a logarithm of TI’s Corruption Perceptions Index and it is included as a control variable

Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment
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DOI: 10.1002/csr
 T. Kaymak and E. Bektas

in the model. Finally, to uncover any industry effects on CSR, another dummy variable is used to separate firms that
operate in extractive (materials, oil and gas, and industrials) and non-extractive (technology and consumer goods and
services) industries.

The Model
The OLS technique is employed to test the hypotheses for the cross-section data after specifying the following
model:

CSR ¼ α þ β1 INDP þ β2 LBS þ β3 DUAL þ β4 LREV þ β5 ROA þ β6 LAW þ β7 LNCOR þ β8 INDUSTRY þ

Though our main motivation is to examine the effect of firm and country-level governance factors on CSR, as
documented in previous literature (Husted & Allen, 2006), industry differences can also affect CSR. Therefore,
we also employ an industry dummy variable, and subsequently run four separate regression models on the
dependent variable CSR as the TI index has three components (ACP, OT, and CBC) and an overall index score
(INDEX).
The model variables are defined as follows:
ACP: anti-corruption programs

OT: organizational transparency

CBC: country-by-country reporting

INDEX: overall composite score for CSR

INDP: proportion of independent directors on the board

LBS: logarithm of the board size

DUAL: dummy variable equal to 1 if CEO is also the chairman, 0 if otherwise

LREV: logarithm of total annual revenue

ROA: return on assets

LAW: dummy variable equal to 1 if company is based in a common-law country, 0 if otherwise

LNCOR: logarithm of the national corruption score

INDUSTRY: dummy variable equal to 1 if company is operating in technology and consumer goods and services, 0
if it is in materials, oil and gas

Empirical Results
Descriptive Statistics
We calculated the descriptive statistics and conducted a bivariate correlation analysis on the independent and
dependent variables employed in the study (Tables 2 and 3). By analyzing the descriptive statistics, we can see that
the mean CSR INDEX score is 4.97 out of a possible 10. The ACP and OT mean scores are similar respectively, 72%

Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment
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DOI: 10.1002/csr
CSR, governance, and disclosure in MNCs

Variable Obs Mean Std. Dev. Min Max

ACP 80 .717875 .214887 0 1

OT 80 .730625 .2753793 .25 1
CBC 80 .0403875 .0810459 0 .5
INDEX 80 .49675 .1344541 .19 .83
INDP 80 .8121595 .1363285 .4210526 1
LBS 80 1.129098 .104703 .90309 1.39794
DUAL 80 .5375 .5017375 0 1
LREV 80 1.85662 .3311217 1.260071 2.677881
ROA 80 .0723958 .0394686 .00846 .2278
LAW 80 .55 .5006325 0 1
LNCOR 80 1.833967 .1003953 1.447158 1.934498
INDUSTRY 80 .6375 .4837551 0 1

Table 2. Descriptive statistics (number of observations, mean, standard deviation, minimum and maximum) of the dependent and
explanatory variables. The dependent variables ACP, OT, CBC, and INDEX represent anti-corruption programs, organizational
transparency, and country-by-country reporting and index, respectively. The explanatory variables are the board independence (INDP),
logarithm of the board size (LBS), duality of the general manager (DUAL), logarithm of revenue (LREV), return on assets (ROA), legal
origin of the corporation (LAW), logarithm of national corruption score (LNCOR), and type of INDUSTRY (INDUSTRY)

ACP OT CBC INDEX INDP LBS DUAL LREV ROA LAW LTICOR INDUSTRY

ACP 1
OT 0.1139 1
CBC 0.1182 0.3790* 1
INDEX 0.6338* 0.8178* 0.5211* 1
INDP 0.4751* 0.0266 0.1083 0.2143 1
LBS -0.0543 0.3327* 0.137 0.1729 0.2002 1
DUAL 0.0213 0.1555 0.0678 0.1126 0.1299 0.0453 1
LREV -0.0936 0.1995 0.0578 0.1042 0.1291 0.1016 0.1218 1
ROA 0.0954 0.2658* 0.0715 0.1486 0.0485 0.3728* 0.059 0.2737* 1
LAW 0.2463* 0.3377* 0.0106 0.1029 0.1454 0.3695* 0.2192 0.2095 0.3124* 1
LTICOR 0.4737* 0.0804 0.0535 0.2068 0.2546* 0.015 0.0333 0.1045 0.0588 0.2201* 1
INDUSTRY -0.1037 0.2102 0.2427* 0.2460* 0.0603 0.0464 0.1258 0.1836 0.1624 0.1019 0.2666* 1

Table 3. Correlation matrix

*indicates p < 0.05 significance level.
The dependent variables ACP, OT, CBC, and INDEX represent Anti-Corruption Programs, Organizational Transparency, and Country by
Country Reporting and Index respectively. The explanatory variables are the board independence (INDP), logarithm of the board size
(LBS), duality of the general manager (DUAL), logarithm of revenue (LREV), return on assets (ROA), legal origin of the corporation (LAW),
logarithm of national corruption score (LNCOR), and type of industry (INDUSTRY).

and 73% out of a possible 100%, while the CBC mean score is only 4%. The last result indicates that most firms in
the sample do not engage in onerous CBC reporting practices as requested by TI and this casts doubt on whether
this measure should be considered in future studies. We also see that 54% of the firms exhibit duality, while
56% hail from countries which use a common-law system.
From Table 3, we can see that several variables exhibit significant correlations with one another. ACP is
significantly related to INDP and common law countries (LAW) at the 5% significance level. However, OT is
negatively related to common law countries (i.e., it is positively associated with the use of a civil code system) but
is negatively related to ROA at the 5% significance level. On the other hand, we see that BS is negatively related
to INDP, LAW, and ROA. Not surprisingly, the independent variables of ACP, OT, and CBC are significantly related
to the composite corporate responsibility measure, INDEX.

Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment
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DOI: 10.1002/csr
 T. Kaymak and E. Bektas

Multivariate Analysis
Table 4 provides the results for the multivariate regression models which are robust for possible heteroscedasticity
problem. To check for multicollinearity a variance inflation factor test was also conducted and the result (1.55)
indicates that this is not a problem in the data. In sum, to segregate the industry factor from the firm base and
country base institutional factors, four regression equations are estimated to test our hypotheses.
In the first model (ACP), both firm- and country-specific governance variables together with industry dummy and
control variables are regressed on the anti-corruption program variable. Among the firm specific governance
variables, INDP takes on a positive and statistically significant value (p < .01). The positive and high coefficient value
of this variable suggests that, as boards become more independent, firms increase their CSR efforts. Hence, when
countries demand that MNCs design a more independent board we witness less corrupt and more socially
responsible multinationals. This finding also supports the stakeholder management view where outsiders play a
vigilant role to the benefit of other stakeholders. The significance of INDP also supports the new CG regime that
delegates substantial role to CSR (Lerach, 2002; McBarnet, 2007; Rahim & Alam, 2013). Corruption variables that
represent the institutional environment in the country are also significant and positive (p < .01). These findings
show that in addition to firm specific governance, aspects of the institutional environment are also important. As
such, if countries improve their institutional environments these conditions will entice MNCs to behave in a more

VARIABLES ACP OT CBC INDEX

Constant 1.610*** 0.0928 0.0995 0.536*
(0.557) (0.647) (0.197) (0.294)
INDP 0.624*** 0.187 0.0962 0.242
(0.236) (0.262) (0.0677) (0.166)
LBS 0.249 0.675** 0.159 0.255
(0.241) (0.333) (0.146) (0.172)
DUAL -0.0469 0.0772 0.0171 0.0478
(0.0407) (0.0584) (0.0183) (0.0292)
LREV -0.0141 0.0626 0.00436 0.0169
(0.0485) (0.0923) (0.0226) (0.0439)
ROA 0.434 0.544 0.245 0.124
(0.609) (0.897) (0.250) (0.442)
LAW 0.0720* 0.0905 0.000489 0.00706
(0.0420) (0.0678) (0.0295) (0.0345)
LNCOR 0.873*** 0.00191 0.143 0.336**
(0.283) (0.284) (0.150) (0.158)
INDUSTRY -0.129*** 0.115* 0.0449* 0.0954***
(0.0405) (0.0586) (0.0265) (0.0320)
R-squared 0.454 0.239 0.135 0.256
F-test (Prob.) 6.01 (0.00) 3.22 (0.00) 1.08 (0.38) 4.40 (0.00)
No. obs. 80 80 80 80

Table 4. Empirical results for each CSR measure

The dependent variables ACP, OT, CBC, and INDEX represent Anti-Corruption Programs, Organizational Transparency, and Country-by-
Country Reporting and Index, respectively. The explanatory variables are the board independence (INDP), logarithm of the board size
(LBS), duality of the general manager (DUAL), logarithm of revenue (LREV), return on assets (ROA), legal origin of the corporation (LAW),
logarithm of national corruption score (LNCOR), and type of industry (INDUSTRY). The values of R2 and F statistics and their respective p-
values, as well as number of observations are presented in the table.
Standard error in parentheses.
*,
**and
***represent significance levels at 1%, 5% and 10%, respectively.

Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment
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DOI: 10.1002/csr
CSR, governance, and disclosure in MNCs

socially responsible manner. In addition, the industry variable reveals that extractive industries are more inclined to
have and disclose their anti-corruption programs compared to technology and consumer services oriented
corporations. This can be explained by stakeholder theory (Donaldson & Preston, 1995; Waddock & Graves, 1997)
or the demand-driven (Lyon & Maxwell, 2008) behavior approach which posit that outside pressure compels
corporations to be more informative towards society. According to this view, stakeholders play crucial role in
determination of CSR by exerting pressures from various aspects on firms (Swanson, 1995). Lastly, the results reveal
that ACP is significantly related to LAW (p < .10). This latter finding implies that leading MNCs originating from
common law countries display higher levels of anti-corruption practices. Henceforth, pertinent regulatory changes
can contribute to CSR developments.
Organizational transparency is very crucial for the stakeholders in a sense that it provides access to corporate
information. As Firth (1979) asserts, the public care more about this in large corporations. This motive encourages
stakeholders to demand more information and improve the control mechanism over the corporation from the CSR
perspective. In the second model (OT), though the explanatory power is lower relative to ACP models, the industry
variable and board size variable (LBS) take on statistically significant values (p < .10 and p < .05), respectively.
Nevertheless, the lower coefficient value and significance of the industry variable, suggest a weaker role for it in
the determination of organizational transparency among industries. On the other hand, a positive and high
coefficient of LBS suggests that board size is important in determining organizational transparency. In other words,
larger boards make multinational corporations more transparent as they represent a more diverse set of
stakeholders. As such, our findings suggest that larger boards are better for CSR activities.
As it can be seen from Table 1, the CBC disclosure section (section III), is composed of accounting disclosure
type questions. As such, the third model (CBC) can be used to understand and evaluate the determinants of
accounting disclosure and accountability behavior of MNCs. Though the role of accountability and accounting is
shifting from ownership to a stakeholder approach due to greater accountability demands by stakeholders (Gray
et al., 1987; Bushman & Smith, 2001), our CBC model fails to support this policy. Also, it has been documented
in the literature that managers may have various motives, such as impeding the market’s monitoring mechanism
(Karamanou & Vafeas, 2005) and maintaining managerial benefits (Owen et al., 2000), to not disclose corporate
information to the public. And these may be among the reasons leading to an insignificant model. As Table 1
indicates, the fact that only a few companies in the sample engage in CBC disclosure (a 4-point average score out
of a possible 100) makes the findings here tenuous at best.
The fourth model, the overall INDEX model, investigates the relationships between the level of CSR displayed by
the firms and the variables of interest, namely ACP, OT, and CBC. The model reaches significance (F test = 4.40,
p < 0.00; R2 = 0.256). Pertaining to the variables studied it appears that industry and national corruption levels have
an influence on CSR at a statistically significant level. The negative coefficient of the industry variable suggests that
greener industries (technology, consumer, and services) are less socially responsible than the extractive businesses.
The national corruption variable, which is statistically significant at the 5% level, supports the idea that in a less
corrupt environment CSR activities are enhanced. Concerning the firm based governance variables (LBS, DUAL,
and INDP), none of them reach significance in the model, unlike in models 1 and 2. This is mostly due to the
CBC variable that is included in the INDEX model. Last, as in the other models the control variables (ROA and
LREV) also fail to reach significance, and do not exhibit any relationship with CSRs.
In sum, our findings show that different aspects of corporate social responsibility are determined by different
factors. Nevertheless, the industry type is the most prominent variable in all models. Our findings also produce
statistically significant values for INDP, LNCOR, LBS and provide some support for the hypotheses developed in
this study. Concerning the explanatory power of the models, the anti-corruption program (model 1) stands out.

Conclusion and Discussion

This study utilizes TI’s data to examine the level of transparency and disclosure that leading MNCs exhibit on three
different dimensions, making it a suitable proxy for a measurement of CSR. Our findings point to several major
issues as we seek to uncover the relationship between CSR and governance practices. First, we uncover the

Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment
Corp. Soc. Responsib. Environ. Mgmt. 2017
DOI: 10.1002/csr
 T. Kaymak and E. Bektas

important role played by independent boards. As theory and good management practices suggest, CSR (in the form
of having anti-corruption programs) is associated with boards that have a higher proportion of external members,
which boosts board independence and decision-making capacity. This result is in line with agency theory and the
stakeholder management approach. Agency theory focuses on the deleterious effect of information asymmetries
and postulates that this problem can partially be mitigated using objective and unbiased external board members
(Dalton et al., 1998). Likewise, the stakeholder management approach maintains that the representation of diverse
groups on the board will enhance firm performance in the long run, as it leads to sustainable strategies (Freeman,
1984). Here, we find evidence supporting the above as MNCs with more external members serving on their boards
exhibit higher levels of CSR reporting.
We also find that larger boards are associated with more CSR (in the forms of enhanced organizational
transparency) in MNCs. The presence of a greater number of board members allows for the presence of a more
diverse group who represent different sets of stakeholders. This leads multinational firms to become more
transparent in an effort to communicate with these groups and attempt to satisfy their demands.
Divergence surfaced between firms based in civil code versus common law legal systems – namely that firms
originating from common law systems are associated with greater reporting of accountability and anticorruption
practices. This different orientation may stem from the more litigious environment found in common law systems,
which compels firms to engage in such activities to preclude lawsuits. Mio and Venturelli (2013) found similar
results when comparing the use of sustainability programs in a common law (UK) and civil code system country
(Italy). However, these very tentative findings are open to further debate and investigation.
The incorporation of industry effects and the level of national corruption existing in home countries also
produced significant results. In line with Alberici and Querci (2016), we see that ‘suspect’ industries (e.g. extractive
industries) engage in greater levels of CSR – this can be to ward off attention and scrutiny from action groups and
governmental regulators. Thus, MNCs operating in extractive industries tend to develop CSR programs based on
‘image management’ that signals that firms are engaging in socially desirable activities. The presence of NGOs like
Publish What You Pay and the Extractive Industries Transparency Initiative which demand more accountability in
the extractive industry may contribute to this increased level of transparency uncovered here. Although we excluded
financial firms from the analysis, in the USA the Dodd-Frank Act compels financial firms to disclosure more
information as banks’ risky behavior and questionable practices. Similar to the extractive sector, the financial sector
has a negative reputation regarding its treatment of some stakeholders although it exhibits high disclosure levels.
On the other hand, we see that home country features also influence CSR. Here we uncover that lower national
corruption scores are associated with greater CSR activity, as such societies tend to have a benefit from robust legal
systems, stronger democratic traditions, and a more participating civil society that makes MNCs more accountable
for their behavior. These conditions all facilitate the development of CSR programs in multinational firms.
We proposed that CEO duality would hinder CSR efforts. However, no relationship was found between duality
and CSR reporting in the MNCs. Over the decades, a copious amount of research has been conducted on the
advantages and drawbacks of this system, with little consensus emerging. Possibly, scholars should omit studying
the duality condition, as it seems to have limited impact on governance-related issues.
Governance practices can be improved with wider stakeholder participation (Donaldson, 2002). As such, input
from a tripartite partnership consisting of public, private, and non-profit actors should be considered when
developing policy recommendations. Accordingly, it is advisable for MNCs to develop a platform that incorporates
the views of advocacy non-governmental organizations such as TI and the Institute for Global Labor and Human
Rights, as this would help bridge some of the trust issues that bedevil these international entities (Kolk & Lenfart,
2013). Enhanced and relevant information disclosure policies that are jointly developed could lead to greater
legitimacy and help these firms address relevant issues related to their CSR activities. More generally, today MNCs
are facing challenges and expectations that are commensurate with their status and visibility. Recent public debates
about their extensive use of tax loopholes points to an issue that is closely connected to transparency and disclosure.
One might surmise that the 14 billion USD tax bill imposed on (and contested by) Apple by the European
Commission for diverting its European sales to Ireland could have been avoided had a more stakeholder-oriented
approach been employed. Alongside better cooperation at the national government level, an approach that also
incorporates and includes transnational organizations would help in the dissemination of good practices. For
instance, the OECD Guidelines for Multinational Enterprises on CSR can be enhanced and strengthened regarding

Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment
Corp. Soc. Responsib. Environ. Mgmt. 2017
DOI: 10.1002/csr
CSR, governance, and disclosure in MNCs

identifying elements to be included in effective corporate governance codes. Similarly, the UN Global Compact
strategic policy initiative for businesses can be expanded to include specific recommendations on how MNCs
respond to stakeholder needs. More specifically, these prescriptions should identify stakeholders and subsequently
address the board structure and composition findings uncovered in this study. Finally, fully incorporating the CBC
reporting aspect of TI’s survey is especially promising as it offers an opportunity for MNCs to provide transparency
levels that go far and beyond legal financial disclosure requirements.
Thus, from a managerial and policy perspective, regulators should continue with the trend to force publicly
traded companies to include more external members on their boards and encourage the formation of larger boards.
Our findings suggest that independent boards enhance transparency and disclosure. Firms that display such board
compositions will contribute in fighting corruption, a problem that leads to considerable social, environmental, and
economic losses. MNCs are at the forefront of globalization and should be encouraged to take an unequivocal public
stance on issues related to graft. We also advocate that larger boards should be formed to promote stakeholder
participation and lead to greater levels of organizational transparency.
This study does have several weaknesses. First, we rely on the secondary measures developed by TI, whose survey
includes a limited sample of MNCs covering only a single point in time. TI does not provide us with a theoretical
underpinning behind the inclusion and development of the items included in the survey, raising reliability and
validity issues. Second, after removing financial firms we have included only 80 MNCs in our analysis, and this
may not be representative of the total population of leading firms. Third, a regression analysis does not measure
for causality, and thus we cannot address the ultimate question – Do board structure variables lead directly to greater
CSR efforts? In this light, the low explanatory of some of our models suggests that other environmental factors
besides corporate governance issues are related to CSR.
However, there are areas of opportunity for future research, especially by expanding the variables in the models
tested here and incorporating additional national and international institutional factors (North, 1991) and cultural
norms that may more fully explain CSR activity in MNCs. Another area worthy of further investigation is a
comparative analysis between these leading MNCs and MNCs from emerging markets on board structure and
transparency and disclosure activities.
Globalization and the unhindered spread of information are placing additional demands and expectations on the
world’s largest commercial entities. As such, the importance of following a business model that both incorporates
diverse issues and interest groups, and which also more readily accounts for company behavior is becoming a topic
of consequence in the confines of the boardroom. This study adds to this growing realization that CSR issues will
demand more attention from managers and board members in the years to come.

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