The impact of corporate governance on corporate social responsibility disclosure : empirical evidence from GCC countries

Abstract

Although the recent years have witnessed several corporate governance reform initiatives in the Arabian Gulf Cooperate Council Countries (GCC), corporate governance structure is not yet well established in that region. Moreover, lack of transparency and disclosure in areas like corporate social responsibility is prevalent among the Islamic banking practitioners in those countries. Hence, it is believed that regulators and industry players should work together in enhancing corporate governance practices and level of disclosure. This research examines whether there is an impact of corporate governance mechanisms on corporate social responsibility disclosure in the Islamic banks of GCC countries. To achieve this objective, an empirical approach was adopted by conducting descriptive statistics tests, correlation test, and regression analysis. In addition, a corporate social responsibility disclosure index was developed based mainly on the AAOIFI corporate governance standards for Islamic financial institutions and corporate social responsibility conduct and disclosure for Islamic financial institutions, OECD principles for corporate governance, Basel principles for enhancing corporate governance, and ten related articles that have developed social and environmental disclosure indexes. The empirical results of this study indicate that out of the five variables three only was found to have a significant impact on CSR disclosure which are: board leadership structure, board composition, and firm size. Board size and leverage did not have a significant impact on CSR disclosure. As a result, it could be viable if more binding in nature and flexible corporate governance framework is developed by regulators in GCC to allow the industry players to enhance their corporate governance structure and disclosure practices. In future, more in-depth research could be undertaken by analyzing other corporate governance mechanism.