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The board of directors and corporate social performance under weak institutions

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Abstract

This study argues that in emerging economies where formal institutions are weak, firms pursuing shareholder value may decrease other stakeholders’ interests and corporate social performance (CSP). Using data from Taiwan, an Asian emerging economy, this study finds that board ownership – which aligns board members’ incentives with those of shareholders and increases board members’ incentives to pursue shareholder value – decreases CSP, suggesting that firms pursuing shareholder value may decrease CSP in an emerging economy. However, independent outside directors, not being large shareholders, may balance shareholders’ influence on the board and protect other stakeholders, which may increase CSP.

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Acknowledgements

The authors wish to thank Nahee Kang and two anonymous reviewers for their helpful comments. We are also grateful for comments and suggestions from participants at the 2013 Strategic Management Society Annual International Conference at Atlanta, Georgia.

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Authors and Affiliations

  1. Department of Business Administration, Aletheia University, 32, Chin Li Street, Tamsui, New Taipei, 251, Taiwan

    Chih-Pin Lin

  2. Department of International Business, Tunghai University, 1727, Sec.4, Taiwan Boulevard, Taichung, 40704, Xitun District, Taiwan

    Li-Ting Hsiao

  3. National Taiwan University, 1, Sec. 4, Roosevelt Road, Taipei, 106, Taiwan

    Cheng-Min Chuang

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Appendices

Appendix A

The selection process for corporate citizenship awards

Every year since 2008, CommonWealth Magazine has invited corporations listed on the Taiwan Stock Exchange or GreTai (over-the-counter) Securities Market and that have made positive profits continuously during the past three years to be candidates for Corporate Citizenship Awards. CommonWealth Magazine begins this process by mailing invitations and questionnaires to corporations meeting the above criteria. An invited corporation interested in being a candidate fills out and returns the application form and questionnaire, and pays a fee equal to US$330. The magazine then undertakes a primary election and rates each candidate firm. Data on firms that pass the primary election are mailed to reviewers, who then hold meetings to decide which firms win the award. The magazine then holds an awards ceremony and invites winning firms to participate in it.

According to the magazine, all the reviewers are experts who have a good reputation in related fields; they rate the candidate firms according to firm performance in corporate governance, corporate commitment, social engagement and environmental protection. In their definitions, the corporate governance dimension mainly measures board independence and firm transparency. Corporate commitment includes commitment to consumers; employee training, development and benefits; and investment in innovation and research and development. Social engagement measures the degree to which a firm continuously involves itself in certain social issues and contributes actively. Environmental protection involves the degree to which a firm has a clear objective and means with regard to environmental protection and energy-saving. The scores of the four dimensions range from 0 to 10; the higher the score, the higher the performance of the firm on the dimension. The scores of the four dimensions are then equally weighted to construct to the total (average) scores.

Appendix B

Table B1

Table B1 Results of regression analysis for CSP with clustered-adjusted standard errors
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Lin, CP., Hsiao, LT. & Chuang, CM. The board of directors and corporate social performance under weak institutions. Asian Bus Manage 14, 117–145 (2015). https://doi.org/10.1057/abm.2015.2

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