Board diversity, company’s financial performance and corporate social responsibility information disclosure in Malaysia

  • Lily Suriana Hassan Kolej Universiti Polytech MARA, Kuala Lumpur, Malaysia
  • Norman Mohd Saleh Faculty of Economics & Management, Universiti Kebangsaan Malaysia, Bangi, Malaysia
  • Izani Ibrahim Department of Finance, Prince Sultan University, Riyadh, Saudi Arabia
Keywords: Board diversity, company’s financial performance, corporate social responsibility, information disclosure

Abstract

The aim of this study is to investigate the relationship between board diversity, financial performance and disclosure of corporate social responsibility (CSR) information of the Malaysian listed companies. Different from prior literature, board diversity is viewed from the perspective of gender, age, tenure, educational level, professional membership and functional background. We used one explanation i.e. diversity as variety, out of three explanations from a typology in social psychological and organizational management fields. The sample consists of 205 companies listed on Bursa Malaysia. Using regression analysis, a significant positive relationship was noted between the functional backgrounds of directors and the companies’ financial performance. The result shows that boards should have diversity in their functional background. The other forms of board diversity such as gender, age, tenure, educational level and professional membership have been found not to influence companies’ financial performance. Board professional membership diversity was found to significantly increase the CSR information disclosure. However, other forms of board diversity were found not to influence the CSR information disclosure. These findings may suggest that corporate boards should have diversity in their functional background and professional membership in order to enhance companies’ financial performance and CSR information disclosure.

References

Abdullah, S.N. and Ku Ismail, K.N. (2013), "Gender, ethnic and age diversity of the boards of large Malaysian firms and performance", Jurnal Pengurusan, Vol. 38, pp. 27-40.

Abdul Rashid, M.Z. and Ibrahim, S. (2002), "Executive and management attitudes towards corporate social responsibility in Malaysia", Corporate Governance, Vol. 2 No. 4, pp. 10-16.

Abdul Wahab, N.S ., Ntim, C.G., Mohd Adnan, M.M., Ling, T.Y. (2018). Top management team heterogeneity, governance changes and book-tax differences. Journal of International Accounting, Auditing and Taxation, Vol. 32, pp. 32-46.

Adams, C.A. (2002), "Internal organisational factors influencing corporate social and ethical reporting", Accounting, Auditing & Accountability Journal, Vol. 15 No. 2, pp. 223-250.

Adams, J. S. (1963), "Toward an understanding of inequity", Journal of Abnormal and Social Psychology, Vol. 67 No. 5, pp. 422-436.

Adams, R.B. and Ferreira, D. (2009), "Women in the boardroom and their impact on governance and performance", Journal of Financial Economics, Vol. 94 No. 2, pp. 291-309.

Ahmed Haji, A. and Mohd Ghazali, N.A. (2013), "Factors influencing corporate voluntary disclosures in Malaysia", International Journal of Managerial and Financial Accounting, Vol. 5 No. 4, pp. 327-349.

Anthony, R.N. and Govindarajan, V. (2007), Management Control System, Twelfth Edition, McGraw-Hill, New York.

Arora, P. and Dharwadkar, R. (2011), "Corporate governance and corporate social responsibility (CSR): The moderating roles of attainment discrepancy and organization slack", Corporate Governance: An International Review, Vol. 19 No. 2, pp. 136-152.

Ashby, W. R. 1956, An Introduction to Cybernetics, Wiley, New York.

Barako, D.G. and Brown, A.M. (2008), "Corporate social reporting and board representation : evidence from the Kenyan banking sector", Journal of Management & Governance, Vol. 12 No. 4, pp. 309-324.

Barringer, B.R., Jones, F.F. and Neubaum, D.O. (2005). "A quantitative content analysis of the characteristics of rapid-growth firms and their founders", Journal of Business Venturing, Vol. 20 No. 5, pp. 663-687.

Bear, S., Rahman, N. and Post, C. (2010), "The impact of board diversity and gender composition on corporate social responsibility and firm reputation", Journal of Business Ethics, Vol. 97 No. 2, pp. 207-221.

Belkaoui, A. and Karpik, G.P. (1989), "Determinants of the corporate decision to disclose social information", Accounting, Auditing & Accountability Journal, Vol. 2 No. 1, pp. 36-51.

Bennour, M. and Crestani, D. (2007), "Using competencies in performance estimation: From the activity to the process", Computers in Industry, Vol. 58 No. 2, pp. 151-163.

Blau, P. M. (1960), Patterns of deviation in work groups, Sociometry, Vol. 23 No. 3, pp. 245-261.

Blau, P.M. (1977), Inequality and heterogeneity: a primitive theory of social structure, Free Press, New York.

Bursa Malaysia CSR 2007 status report, available at: http://www.bursamalaysia.com (accessed 25 June 2011).

Byrne, D. E. (1971), The attraction paradigm, Academic Press, New York.

Campbell, D. T. (1960), "Blind variation and selective retention in creative thought as in other knowledge processes", Psychological Review, Vol. 67 No. 6, pp. 380-400.

Carter, D.A., D'Souza, F.P., Simkins, B.J. and Simpson, W.G. (2007), "The diversity of corporate board committees and firm financial performance", Social Science Research Network, available at: http://ssrn.com/abstract=972763 (accessed 22 May 2010).

Chau, G. and Gray, J.S. (2010), "Family ownership, board independence and voluntary disclosure: Evidence from Hong Kong", Journal of International Accounting, Auditing and Taxation, Vol. 19 No. 2, pp. 93-109.
Cheng, L.T.W., Chan, R.Y.K. and Leung, T.Y. (2010), "Management demography and corporate performance: Evidence from China", International Business Review, Vol. 19 No. 3, pp. 261-275.

Chobpichien, J., Haron, H. and Ibrahim, D.N. (2008), "Corporate governance, executive directors and level of voluntary disclosure: The case of public listed companies in Thailand", Malaysian Management Journal, Vol. 12 No. 1&2, pp. 17-70.

Deutsch, M. 1985. Distributive justice: A social psychological perspective, Yale University Press, New Haven.

Dusuki, A.W. and T.M. Yusof, T.F.M. (2008), "The pyramid of corporate social responsibility model: Empirical evidence from Malaysian stakeholder perspectives", Malaysian Accounting Review, Vol. 7 No. 2, pp. 29-54.

Elias, R.Z. (2004), "An examination of business students' perception of corporate social responsibilities before and after bankruptcies", Journal of Business Ethics, Vol. 52 No.3, pp. 267-281.

Faes, W., Swinnen, G. and Snellinx, R. (2010), "Gender influences on purchasing negotiation
objectives, outcomes and communication patterns", Journal of Purchasing and Supply Management, Vol. 16 No. 2, pp. 88-98.

Fauzi, H. and Idris, K. M. (2009), "The relationship of CSR and financial performance: New evidence from Indonesian companies", Issues in Social and Environmental Accounting, Vol. 3 No. 1, pp. 66-87.

Finkelstein, S. and Hambrick, D.C. (1990), "Top-management-team tenure and organizational outcomes: The moderating role of managerial discretion", Administrative Science Quarterly, Vol. 35 No. 3, pp. 484-503.

Galbreath, J. (2009), "Building corporate social responsibility into strategy", European Business Review, Vol. 21 No. 2, pp. 109-127.

Gul, F.A. and Leung, S. (2004), "Board leadership, outside directors' expertise and voluntary corporate disclosures", Journal of Accounting and Public Policy, Vol. 23 No. 5, pp. 351-379.

Godden, B. (2004), Sample Size Formula, available at: http://williamgodden.com/samplesizeformula.pdf (accessed 8 March 2011).

Hair, J., Money, A., Page, M. and Samouel, P. (2007), Research Methods For Business. Wiley, USA.

Harjoto, M., Laksmana, I. and Lee, R. (2015), "Board diversity and corporate social responsibility", Journal of Business Ethics, Vol. 132 No. 4, pp. 641-660.

Harjoto,M. A., and Rossi, F. (2019). "Religiosity, female directors, and corporate social responsibility for Italian listed companies." Journal of Business Researh, Vol. 95 No. 1. pp. 338-346.

Hassan, R. and Marimuthu, M. (2016), "Corporate governance, board diversity, and firm value: Examining large companies using a panel data approach", Economics Bulletin, Vol. 36 No. 3, pp. 1737-1750.

Hambrick, D.C. and Mason, P.A. (1984), "Upper echelons: The organization as a reflection of its top managers", Academy of Management Review, Vol. 9 No. 2, pp. 193-206.

Haniffa, R.M. and Cooke, T.E. (2005), "The impact of culture and governance on corporate social reporting", Journal of Accounting and Public Policy, Vol. 24 No. 5, pp. 391-430.

He, L. (2008), "Do founders matter? A study of executive compensation, governance structure and firm performance", Journal of Business Venturing, Vol. 23 No. 3, pp. 257-279.

Huse, M., Nielsen, S.T. and Hagen, I.M. (2009), "Women and employee-elected board members, and their contributions to board control tasks", Journal of Business Ethics, Vol. 89 No. 4, pp. 581-597.

Janggu, T., Joseph, C. and Madi, N. (2007), "The current state of corporate social responsibility among industrial companies in Malaysia", Social Responsibility Journal, Vol. 3 No. 3, pp. 9-18.

Janggu, T., Darus, F., Mohamed Zain, M. and Sawani, Y. (2014), "Does good corporate governance lead to better sustainability reporting? An analysis using structural equation modeling", Procedia-Social and Behavioral Sciences, Vol. 145, pp. 138-145.

Jenkins, H. and Yakovleva, N. (2006), "Corporate social responsibility in the mining industry: Exploring trends in social and environmental disclosure", Journal of Cleaner Production, Vol. 14 No. 3-4, pp. 271-284.

Jensen, M.C. and Meckling, W.H. (1976), "Theory of the firm: Managerial behavior, agency costs and ownership structure", Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360.

Jiang, X. and Li, Y. (2008), "The relationship between organizational learning and firms' financial performance in strategic alliances: A contingency approach", Journal of World Business, Vol. 43 No. 3, pp. 365-379.

Jiménez-Jiménez, D. and Sanz-Valle, R. (2011), "Innovation, organizational learning, and performance", Journal of Business Research, Vol. 64 No. 4, pp. 408-417.

Joecks, J., Pull, K. and Vetter, K. (2013), "Gender diversity in the boardroom and firm performance: What exactly constitutes a "Critical Mass?", Journal of Business Ethics, Vol. 118 No. 1, pp. 61-72.

Kang, E., Ding, D. K. and Charoenwong, C. (2010), "Investor reaction to women directors", Journal of Business Research, Vol. 63 No. 8, pp. 888-894.

Kaymak, T., and Bektas, E. (2017), "Corporate social responsibility and governance: Information disclosure in multinational corporations", Corporate Social Responsibility and Environmental Management, Vol. 24 No. 6, pp. 555-569.

Kent Baker, H., Pandey, N., Kumar, S., and Haldar, A. (2020). "A bibliometric analysis of board diversity: Current status, development, and future research directions," Journal of Business Research Vol. 108, pp. 232-246.

Kim, H. and Lim, C. (2010), "Diversity, outside directors and firm valuation: Korean evidence", Journal of Business Research, Vol. 63 No. 3, pp. 284-291.

Kim, S. and Reber, B. H. (2009), "How public relations professionalism influences corporate social responsibility: A survey of practitioners", Journalism & Mass Communication Quarterly, Vol. 86 No. 1, pp. 157-174.

Kruger, P. (2010), "Corporate social responsibility and the board of directors", Working Paper (Job Market Paper), Toulouse School of Economics, Toulouse, 31 May 2010.

Lazear, E.P. and Rosen, S. (1981), "Rank-order tournaments as optimum labor contracts", Journal of Political Economy, Vol. 89 No. 5, pp. 841-864.

Lepine, J.A., Hollenbeck, J.R., Ilgen, D.R., Colquitt, J. A. and Ellis, A. (2002), "Gender composition, situational strength, and team decision-making accuracy: A criterion decomposition approach", Organizational Behavior and Human Decision Processes, Vol. 88 No. 1, pp. 445-475.

Li, J., Meyer, B., Shemla, M., and Wegge, J. (2018), "From being diverse to becoming diverse: A dynamic team diversity theory", Journal of Organizational Behavior, Vol. 39 No. 8, pp. 956-970.

Lo, Y.P. (2018). CSR and the Sustainability reporting landscape of Malaysia Accessed 16 December 2019.

Low, D.C.M., Roberts, H. and Whiting, H. (2015). "Board gender diversity nad firm performance: Evidence from Hong Kong, South Korea, Malaysia and Singapore." Pacific Basin Finance Journal 35: 381-401.

Madi, H.K., Ishak, Z. and Abdul Manaf, N.A. (2013), "Audit committee characteristics and voluntary disclosure: Evidence from Malaysian listed firms", Terengganu International Finance and Economics Journal, Vol. 3 No. 1, pp. 14-21.

Marinova, J., Plantenga, J. and Remery, C. (2016), "Gender diversity and firm performance: evidence from Dutch and Danish boardrooms", The International Journal of Human Resource Management, Vol. 27 No.15, pp. 1777-1790.

Malaysian Code on Corporate Governance, revised (2007), available at: http://www.ecgi.org/codes/documents/cg_code_malaysia_2007_en.pdf (accessed 3 February 2011).

Malaysian Code on Corporate Governance (2016), available at: https://www.sc.com.my/wp-content/uploads/eng/html/consultation/160418_PublicConsultation_2.pdf (accessed 16 December 2016).

McColl-Kennedy, J.R. and Anderson, R.D. (2005), "Subordinate–manager gender combination and perceived leadership style influence on emotions, self-esteem and organizational commitment", Journal of Business Research, Vol. 58 No. 2, pp. 115-125.

McGrath, J., Arrow, H. and Berdahl, J. (2000), "The study of groups: Past, present and future", Personality and Social Psychology Review, Vol. 4 No. 1, pp. 95-105.

McLeod, P.L., Lobel, S.A. and Cox, T.H. (1996), "Ethnic diversity and creativity in small groups", Small Group Research, Vol. 27 No. 2, pp. 248-264.

Md Nor, H., Mohd Saleh, N., Jaffar, R. and Abdul Shukor, Z. (2010), "Corporate governance and R&D reporting in Malaysian MESDAQ market", Int. Journal of Economics and Management, Vol. 4 No. 2, pp. 350-372.
Menassa, E. (2010), "Corporate social responsibility. An exploratory study of the quality and extent commercial banks", Journal of Applied Accounting Research, Vol. 11 No. 1, pp. 4-23.

Meriac, J.P., Poling, T.L. and Woehr, D.J. (2009), "Are there gender differences in work ethic? An examination of the measurement equivalence of the multidimensional work ethic profile", Personality and Individual Differences, Vol. 47 No. 3, pp. 209-213.

Mohamed Zain, M. and Janggu, T. (2006), "Corporate social disclosure (CSD) of construction companies in Malaysia", Malaysian Accounting Review, Vol. 5 No. 1, pp. 85-114.

Mohd Ghazali, N.A. and Weetman, P. (2006), "Perpetuating traditional influences: Voluntary disclosure in Malaysia following the economic crisis", Journal of International Accounting, Auditing and Taxation, Vol. 15 No. 2, pp. 226-248.

Muhammad Jamil, C.Z., Alwi, K. and Mohamed, R. (2002), "Corporate social responsibilty disclosure in the annual reports of Malaysian companies: A longitudinal study", Social and Environmental Accounting Journal, Vol. 22 No. 2, pp. 5-9.

Mun, E., and Jung, J. (2018), "Change above the glass ceiling: Corporate social responsibility and gender diversity in Japanese firms", Administrative Science Quarterly, Vol. 63 No. 2, pp. 409-440.

Newson, M. and Deegan, C. (2002), "Global expectations and their association with corporate social disclosure practices in Australia, Singapore, and South Korea", International Journal of Accounting, Vol. 37 No. 2, pp. 183-213.

Nik Ahmad, N.N. and Sulaiman, M. (2004), "Environment disclosure in Malaysia annual reports: A legitimacy theory perspective", IIUM International Journal of Commerce and Management, Vol. 14 No. 1, pp. 44-58.

Orlitzky, M., Schmidt, F.L., and Rynes, S.L. (2003), "Corporate social and financial performance: A meta-analysis", Organization Studies, Vol. 24 No. 3, pp. 403-441.

Østergaard, C.R., Timmermans, B. and Kristinsson, K. (2011), "Does a different view create something new? The effect of employee diversity on innovation", Research Policy, Vol. 40 No. 3, pp. 500-509.

Post, C., Rahman, N. and Rubow, E. (2011), "Green governance: Boards of directors’ composition and environmental corporate social responsibility", Business & Society, Vol. 50 No. 1, pp. 189-223.

Rachagan, S., Tong, J.L.Y., Terpstra, R. and Mahenthiran, S. (2014), "CEOs organizational commitment and firm performance: Malaysian evidence", International Business and
Management, Vol. 8 No. 2, pp. 1-13.

Ramasamy, B. and Ting, H.W. (2004), "A comparative analysis of corporate social responsibility awareness: Malaysian and Singaporean firms", Journal of Corporate Citizenship, Vol. 13, pp. 109-123.

Richard, O.C., Barnett, T., Dwyer, S. and Chadwick, K. (2004), "Cultural diversity in management, firm performance, and the moderating role of entrepreneurial orientation dimensions", The Academy of Management Journal, Vol. 47 No. 2, pp. 255-266.

Rivas, J.L. (2012), "Diversity & internationalization: The case of boards and TMTs", International Business Review, Vol. 21 No. 1, pp. 1-12.

Said, R., Zainuddin, Y. and Haron, H. (2009), "The relationship between corporate social responsibility disclosure and corporate governance characteristics in Malaysian public listed companies", Social Responsibility Journal, Vol. 5 No. 2, pp. 212-226.

Saleh, M., Zulkifli, N. and Muhamad, R. (2010), "Corporate social responsibility disclosure and its relation on institutional ownership: Evidence from public listed companies in Malaysia", Managerial Auditing Journal, Vol. 25 No. 6, pp. 591-613.

Sambasivan, M., Abdul, M. and Yusop, Y. (2009), "Impact of personal qualities and management skills of entrepreneurs on venture performance in Malaysia: Opportunity recognition skills as a mediating factor", Technovation, Vol. 29 No. 11, pp. 798-805.

Scholtens, B. (2008), "A note on the interaction between corporate social responsibility and financial performance", Ecological Economics, Vol. 68 No. 1-2, pp. 46-55.

Singh, V. and Vinnicombe, S. (2000), "Gendered meanings of commitment from high technology engineering managers in the United Kingdom and Sweden", Gender, Work and Organization, Vol. 7 No. 1, pp. 1-19.

Tabachnick, B.G. and Fidell, L.S. (2007), Using Multivariate Statistics, Fifth Edition, Pearson Education Inc., USA.

Talke, K., Salomo, S. and Rost, K. (2010), "How top management team diversity affects innovativeness and performance via the strategic choice to focus on innovation fields", Research Policy, Vol. 39 No. 7, pp. 907-918.

Tseng, Y. and Lee, T. (2009), "Comparing appropriate decision support of human resource practices on organizational performance with DEA/AHP model", Expert Systems with Applications, Vol. 36 No. 3, pp. 6548-6558.

Turner, J. C. (1985), "Social categorization and the self-concept: A social cognitive theory of group behavior", In E.J. Lawler (Ed.), Advances in Group Processes: Theory and Research, Vol. 2, pp. 77-122, JAI Press, Greenwich, CT.
Van der Laan Smith, J., Adhikari, A., Tondkar, R.H. and Andrews, R. L. (2010), "The impact of corporate social disclosure on investment behavior: A cross-national study",
Journal of Accounting and Public Policy, Vol. 29 No. 2, pp. 177-192.

Van Ees, H., Van der Laan, G. and Postma, T.J.B.M. (2008), "Effective board behavior in the Netherlands", European Management Journal, Vol. 26 No.2, pp. 84-93.

Van Knippenberg, D., van Ginkel, W. P., and Homan, A. C. (2013), "Diversity mindsets and the performance of diverse teams", Organizational Behavior and Human Decision Processes, Vol. 121 No. 2, pp. 183-193.

Waddock, A.S. and Graves, B.S. (1997), "The corporate social performance financial performance link", Strategic Management Journal, Vol. 18 No. 4, pp. 303-319.

Wagner, T., Lutz, R.J. and Weitz, B.A. (2009), "Corporate hypocrisy: Overcoming the threat of inconsistent corporate social responsibility perceptions", Journal of Marketing, Vol. 73 No. 6, pp. 77-91.

Wallen, C. and Wasserfaller, M. (2008), "Internal organisationals factors influencing voluntary CSR disclosure-The case of three Swedish state-owned companies", Bachelor thesis, School of Business, Economics and Law, University of Gothenburg.

Wegge, J., Roth, C., Neubach, B., Schmidt, K., and Kanfer, R. (2008), "Age and gender diversity as determinants of performance and health in a public organization: The role of task complexity and group size", Journal of Applied Psychology, Vol. 93 No. 6, pp. 1301-1313.

Wu, W.L., Hsu, B.F. and Yeh, R.S. (2007), "Fostering the determinants of knowledge transfer: A team-level analysis", Journal of Information Science, Vol. 33 No. 3, pp. 326-339.

Yusoff, H., Mohamad, S.S. and Darus, F. (2013), "The influence of CSR disclosure structure on corporate financial performance: Evidence from stakeholders' perspectives", Procedia Economics and Finance, Vol. 7, pp. 213-220.
Published
2020-03-19
How to Cite
Hassan, L. S., Mohd Saleh, N., & Ibrahim, I. (2020). Board diversity, company’s financial performance and corporate social responsibility information disclosure in Malaysia. International Business Education Journal, 13(1), 23-49. Retrieved from http://ejournal.upsi.edu.my/index.php/IBEJ/article/view/3153