The Influence of Board Structure and Ownership Concentration on GRI Reporting.
| Autor | de Mascena, Keysa Manuela Cunha |
1 Introduction
The relationship between corporate governance and performance is an important topic in corporate finance research and practice. Many studies have analysed the influence of the characteristics of corporate governance structure on financial performance (Bhagat & Bolton, 2008; Core, Holthausen & Larcker, 1999; Dalton & Dalton, 2011; Paniagua, Rivelles & Sapena, 2018; Zahra & Pearce, 1989). The relationship is complex and a large amount of empirical evidence is presented in the literature (Paniagua et al., 2018).
Considering the relevance ofunderstanding this relationship, studies have been concerned with analysing corporate performance in a broader way, by including a larger number of stakeholders that are also affected by the corporate governance structure. From this perspective, some recent studies have focused on the relationship between corporate governance structure and corporate social performance (CSP) (Bachiller & Garcia-Lacalle, 2018; Ducassy & Montandrau, 2015; Ortas, Alvarez & Zubeltzu, 2017; Peng & Yang, 2014).
CSP can be defined as the broad set of strategies and practices that a company develops to create and maintain relationships with its stakeholders and with the environment (Waddock, 2004). Firms' activities related to social and stakeholder interests have received attention in the finance research (Liang & Renneboog, 2017). Corporate financial performance (CFP) is the most common variable considered as both a consequence and an antecedent of CSP (Margolis & Walsh, 2003; Orlitzky, Schmidt & Rynes, 2003). However, corporate governance structure is also a variable that could explain the CSP level of firms. Surprisingly, this variable receives comparatively less attention in the literature.
The corporate governance structure influences the main strategic decisions of a company, which are driven by the values and motivations of its managers. Corporate governance mechanisms can offer legitimacy to company actions and activities, as they establish rules and norms that serve as a basis for decisions (Khan, Muttakin & Siddiqui, 2013). In this sense, corporate governance mechanisms can influence the values and motivations of managers regarding investment in strategies and practices related to CSP, including the disclosure of the company's activities to create and maintain relationships with its stakeholders and with the environment (Waddock, 2004), in other words, the corporate social disclosure (CSD).
Despite the corporate governance structure potentially affecting a company's involvement in social issues and its relationships with stakeholders, the relationship between governance and CSD is underexplored (Khan, et al., 2013; Mohd-Ghazali, 2007). In addition, such studies are almost exclusively focused on the Anglo-Saxon context. Considering that the corporate governance structure is different according to the country context (Cunha & Rodrigues, 2018) as well the corporate social responsibility activities (Liang & Renneboog, 2017), it is also important to investigate the relationship between corporate governance and CSD in other contexts
To fill this gap, this paper has the objective of analysing the relationship between CSD and corporate governance structures, in a non-Anglo-Saxon country, more specifically in Brazilian firms. Although companies can use several channels for CSD strategies, the Global Reporting Initiative (GRI) framework is considered one of the most trusted and widely used CSD tools adopted by companies worldwide (Alonso-Almeida, Llach & Marimon, 2014; Grushina, 2017; Weber, 2018). Also, because of its standards and guidelines, the GRI framework allows for comparisons among different companies (Marimon, Alonso-Almeida, Rodriguez & Cortez Alejandro, 2012).
In order to meet its objective, this study specifically seeks to: (i) analyse the relationship between board independence and GRI reporting; (ii) analyse the relationship between board size and GRI reporting; (iii) examine the relationship between ownership concentration and GRI reporting.
For this, we considered the following governance structure variables: board independence, i.e. the presence of independent directors on the board; board size, i.e. the number of directors on the board; and ownership concentration, i.e. the concentration of majority shareholders who are entitled to vote. We analysed 287 Brazilian companies listed on the Brazilian stock exchange, which together held R$ 23,711,716.2 in assets in 2013. The data on those companies are taken from the Econoinfo and GRI databases.
This article contributes to the discussion about corporate governance and its relationship with a broader approach to corporate performance, by including a social perspective that emphasises the disclosure of relevant information to a more comprehensive set of stakeholders.
2 Theoretical Framework
This section presents concepts, frameworks and discussions in relevant literature and is divided into the following subsections: (i) corporate social performance (CSP), (ii) corporate social disclosure (CSD) and GRI reporting, and (iii) corporate governance structure.
2.1 Corporate social performance
The first CSP model was proposed by Carroll (1979), who defined it based on the concept of corporate social responsibility (CSR). According to the concept proposed by Carroll (1979), social responsibility involves four corporate performance perspectives: economic, legal, ethical and discretionary. From the economic perspective, a company has the responsibility to produce and sell goods and services desired by society and obtain a profit. The legal perspective involves contractual aspects that must comply with laws and regulations. The ethical perspective involves norms, behaviours and activities that, although not mentioned in laws, are expected by society. The discretionary approach involves voluntary actions such as charitable contributions. In addition to the four perspectives of performance, Carroll (1979) also includes social responsibility and social issues in the model, which refer to the philosophy or strategy that companies use to respond to these matters.
CSP can also be evaluated by addressing the relationship between corporate management and stakeholders, rather than using models and methodologies based on concepts of social responsibility. It is possible to distinguish stakeholder management from social issues, because organisations manage relationships with all their stakeholders and not only with society (Clarkson, 1995). In this sense, firms' practices for the benefit of their stakeholders are not an obligation but a way to create more value (Harrison, Freeman & Abreu, 2015).
The increasing amount of research about the relationship between CSP and CFP has encouraged the emergence of studies seeking to consolidate the empirical findings. For instance, Orlitzky et al. (2003) carried out a meta-analysis of 52 studies; Margolis and Walsh (2003) reviewed 127 studies from between 1972 and 2002; Boaventura, Silva and Bandeira (2012) analysed 58 articles from 1996 to 2010. According to Orlitzky et al. (2003), the results of the studies on the relationship between CSP and CFP are still inconclusive. They also noted that CSP seems to be more related to accounting-based measures of CFP, such as return on assets (ROA) and return on equity (ROE), than with market-based indicators of CSP, such as price per share and share price appreciation. While accounting-based measures capture a firm's internal efficiency, market-based indicators reflect external market responses to organizational actions (Orlitzky et al., 2003).
There are also different ways of measuring CSP. In a broad sense, there are four commonly accepted measurement strategies: (i) CSD; (ii) reputation ratings; (iii) social audits and observable CSP processes and outcomes; (iv) managerial principles and values (Orlitzky et al., 2003). In our study, we focus on the CSD dimension of CSP. That is, we seek to understand corporate decisions about reporting activities related to social issues and relationships with stakeholders, which is one of the dimensions related to CSP (Roberts, 1992).
2.2 Corporate social disclosure and GRI reporting
According to voluntary disclosure theory there is a positive relationship between CSP and CSD. The literature on voluntary disclosure was initially based on financial and accounting disclosures, but later was extended to the disclosure of social and environmental information (Guidry & Patten, 2012). For instance, Vurro and Perrini (2011) use the theory to investigate the relationship between CSD and CSP, and Guidry and Patten (2012) highlight that the main studies supporting the application of voluntary disclosure theory are undertaken in the environmental area (e.g. Dye, 1985; Lang & Lundholm, 1993; Verrecchia, 1983).
The main argument for the positive relationship between CSD and CSP, defended by Verrecchia (1983) and supported by Lang and Lundholm (1993), is that companies with superior environmental performance have a greater incentive to disclose their actions and commitments. Another argument is that companies seek disclosure to improve stakeholders' perceptions of the company, thus avoiding possible risks of adverse selection and exposure to future social costs (Dye, 1985). Regarding adverse selection, Dye (1985) explains that investors view the omission of information by managers as undesirable.
Moreover, the greater the dissemination of information, the greater the credibility of the company (Clarkson, Li, Richardson & Vasvari, 2008). Also, the greater the engagement with stakeholders, the greater the need for an organisation to disclose its performance, which has a positive impact on CSP (Vurro & Perrini, 2011). CSP and CSD have a strong association that could also be explained by the size of the firm and the company's visibility in society (Schreck & Raithel, 2018). Thus, decisions regarding CSD may be related to the search...
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