Institutional shareholding and corporate social responsibility reporting: evidence from Bangladesh
| Pages | 153-173 |
| DOI | https://doi.org/10.1108/JABS-09-2019-0285 |
| Date | 14 July 2020 |
| Published date | 14 July 2020 |
| Subject Matter | International business,Strategy |
| Author | Afzalur Rashid |
Institutional shareholding and corporate
social responsibility reporting: evidence
from Bangladesh
Afzalur Rashid
Abstract
Purpose –This study aims to examine the influence of institutional shareholding on a firm’s corporate
social responsibility(CSR) practices inBangladesh.
Design/methodology/approach –This study uses a contentanalysis to capture a firm’s CSR practices,
based on various attributes of social and environmental reporting made by the firm. Based on these
attributes, a corporatesocial responsibility reporting index(CSRI) is constructed. To examine the causal
relationship between institutional shareholding and firm CSR practices, this study uses a simultaneous
equationsapproach to control the endogeneity problem.
Findings –The finding of this study is thatboth CSR reporting and institutional shareholding negatively
influenceeach other.
Research limitations/implications –This study is subjectto some limitations such as the subjectivityor
judgementassociated in the coding process.
Practical implications –If the institutional investors are not concerned with its environmental and
societal issues, there will be a sustainability issue for the business because companies will continue
ignoring the employee health and hygiene, education, training and welfare. Their ignorance of these
societal issues will lead to compromising the quality of living for important stakeholders within the
society.
Originality/value –This studycontributes the literature on CSRreporting.
Keywords Bangladesh, Corporate social responsibility, Corporate governance,
Institutional shareholding
Paper type Research paper
1. Introduction
Company’s involvement in social responsibility (SR) activities is not necessarily
philanthropic in nature. Companies are involved in corporate social responsibility (CSR)
activities to meet the stakeholders’ expectations. Researchers over the past few decades
have vigorously examined what motivates a company to be involved in CSR activities and
related reporting. Some earlier studies noted that companies are involved in CSR activities
as part of their belief that such activities bring some anticipated benefit (long-term value) to
the firm (Baron, 2001;McWilliams and Siegel, 2000, 2001; Bagnoli and Watts, 2003;
Mackey et al.,2007;Siegel and Vitaliano, 2007). Companies are also involved in CSR
activities because they have never operated under such tough competitive conditions, and
this has put pressure on them to examine their philanthropy and other social responsibility
activities (Burke and Logsdon,1996).
From a self-interest point of view,Harjoto and Jo (2011) suggest the companies’ motivations
for engaging with CSR activities as summarized by Dam and Scholtens (2012) could
include:
Afzalur Rashid is based at
the School of Commerce,
University of Southern
Queensland, Toowoomba,
Australia.
Received 17 September 2019
Revised 27 March 2020
16 June 2020
Accepted 20 June 2020
DOI 10.1108/JABS-09-2019-0285 VOL. 15 NO. 1 2021, pp. 153-173, ©Emerald Publishing Limited, ISSN 1558-7894 jJOURNAL OF ASIA BUSINESS STUDIES jPAGE 153
䊏management willingness to build their reputation as a good global citizen (Barnea and
Rubin, 2010);
䊏the strategic choice by CEOs to generate support from stakeholders to reduce the
probability of CEO turnover in the future (Cespa and Cestone, 2007);
䊏signalling quality in the broadest sense of the word (Siegel and Vitaliano, 2007); and
䊏to reduce conflicts of interest between managers and stakeholders (Calton and Payne,
2003).
Because corporate social and environmental costs are significant business expenses and
greater attention to CSR matters may lead to a significant investment of resources (increase
in cost) by companies, thereby leading to an adverse effect on short-term profitability, the
shareholders’ attitude towards CSR may not be necessarily the same across all the
constituencies. The managers’ motivations towards the involvement in CSR activities may
be influenced by shareholders attitude, and they will be interested in investing in CSR
activities only if there is a private gain. Managers’ motivationtowards CSR activities may be
influenced by prevailing institutional arrangements, such as the regulatory regime, state
policy, political practices, rules of negotiation and bargaining power (implicit and explicit
negotiation and contracting processes), and a culture of consumption and social
expectations (Amin, 1994,p.8).
In Anglo-American countries, there is an active pressure group that exerts pressure on
companies to operate in a responsible manner. In addition to regulatory pressure, the
presence of external board members (outside directors), financial analysts and financial
press and media, have a huge role in inducing involvement in CSR activities. Furthermore,
because of the existence of the “property conception” of the corporation, which assumes
individualism, property rights and free markets (Rubach and Sebora, 1998), participants in
the market (shareholders, both individual and institutional) demand strong firm
performance. Institutionalinvestors are the dominant owners in these countries because the
growing amount of national wealth is held by institutions such as banks, insurance
companies, mutual and pension funds (Rubach and Sebora, 1998). Managers will tend to
do so as satisfaction of various stakeholdergroups and good stakeholder management has
clear instrumental value to firms (Berman et al., 1999). These responsible activities will
ultimately lead to shareholders’ wealth maximization (maximizationof share price). Because
CSR is a value enhancing activity, institutional shareholders demand strong social and
environmental performance because these activities may give a good rating to the firm
(increase share price). The firm’s managers will tend to follow this predominant norm of
shareholder wealth maximization (maximize the return for its shareholders) because
unsatisfactory firm performance may end up with shareholders selling shares “do ‘the Wall
Street Walk’ - sell the shares and get out” (Rubach and Sebora, 1998, p. 171). When this
happens in large numbers, it weakens the stockprice and the company becomes the target
for disciplinary or hostile takeovers (commonly known as external market for corporate
control. Moreover, with large voting rights, institutional shareholders have the ability to
influence firms’ decisionsin these countries.
Dyck et al. (2019) find that institutional shareholding drive the social responsibility
performance of firms worldwide in general, and that these investors increase firms’ social
responsibility performancewhen they come from countries with a strong communitybelief in
the importance of social responsibility issues, but not otherwise. Revisiting the case of US
institutional investors Cahan et al. (2020) find that local environmental and social (E&S)
norms do matter for US institutional investors.It is relatively unexplored and unknown, as to
the institutional investors’ position on social responsibility issues, where the community
belief is very low. The investors in these constituencies may have less incentive to make
equitable distributions, including repairs for externalities. Do local social norms affect
investors’ involvement in social activism? This study aims to fill this gap by examining the
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