Agency theory suggests that increased ESRP practices reduce the agency problem between managers and foreign shareholders, as they hold a high proportion of shares and possess different values and knowledge (Jensen and Meckling 1976; Harjoto and Jo 2011; Khan et al. 2013; Oh et al. 2011). The resource dependency theory also posits that foreign shareowners with diversified experience form different cultures to play pivotal roles in nominating board representatives, and thus, require more information disclosure (Khan et al. 2013; Oh et al. 2011). As an influential group of diverse shareholder groups, foreign investors also act as company watchdogs and maintain relationships with national and international environmental activist groups. Moreover, home (or foreign) countries’ legal and ethical regulations also influence their legitimization with foreign (or home) countries’ social values and expectations (Faller and Zu Knyphausen-Aufseß 2016). Additionally, foreign investors concerned with environmental issues will influence domestic companies’ management to comply with environmental regulations and disclose more ESRP information to minimize political costs (Gamerschlag et al. 2011; Delgado-Márquez et al. 2016).
Prior researchers have also discovered a positive, significant relationship between foreign ownership and disclosure (Jeon et al. 2011; Haniffa and Cooke 2005; Oh et al. 2011; Khan et al. 2013). Further, Khan et al. (2013) and Khan (2010) discovered a positive relationship between foreign ownership and the CSR disclosure of listed companies in Bangladesh, and concluded that foreign owners are more proactive in their CSR disclosure and the study is consistent to Ganapathy and Kabra 2017 (India). Prior literature indicates that foreign investors can force domestic companies to establish and maintain transparent, strong corporate governance codes of conducts, and push them to disclose ESRP information (Oh et al. 2011; Khan et al. 2013; Katmon et al. 2017; Sharif and Rashid 2014). Moreover, prior literature also documents that foreign investors compel management to invest in socially responsible projects and disclose all related environmental information to avoid the risk of losing—or to attain—profit maximization (Oh et al. 2011; Haniffa and Cooke 2005; Harjoto and Jo 2011). Based on the above discussion, we anticipate foreign ownership’s significant relationship with ESRP in SA countries. Therefore, we hypothesize:
Institutional shareholders are considered powerful stakeholders because they generally hold large shares, and thus, large voting rights. Agency theory suggests that an institutional owner can closely monitor management and encourage them to disclose more information, including environmental information (Ntim et al. 2013). An institutional owner’s increased power characteristics influence the board’s decision-making from an environmental perspective, as any disclaimer against such a perspective may destroy firms’ investment opportunities and increase operating expenses, such as Exxon’s 1989 oil spill and BP’s 2010 spill in the Gulf of Mexico (de Villiers et al. 2011). Institutional investors can control the board and appoint experienced, resource-based directors to be more attentive to the organization’s strategic decisions regarding its environmental policies and strategies. Shareholders pressure institutional owners to increase the value of their shares; consequently, they are keenly interested to participate in management and reduce political costs by issuing more and comprehensive CSR and ESRP information. We considered mutual fund, financial companies fund, venture capital and central government investment as institutional ownership.
Many researchers suggest that institutional owners significantly influence organizational decisions with social and environmental impacts, and find a significant, positive relationship among institutional ownership, voluntary CSR, and corporate risk disclosures (Oh et al. 2011; Harjoto and Jo 2011). Further, Oh et al. (2011) found a positive, significant relationship between institutional ownership and CSR disclosure in Korean companies. Institutional shareholders consider ESRP disclosures as they increase long-term reputation and corporate image, protect against loss and damage, and reduce potential risk and mitigate pressures from external activist groups (Faller and Zu Knyphausen-Aufseß 2016; Oh et al. 2011). They consider risk and return trade-offs in their investments, and disclose more information on the environment because they believe low disclosure may increase investment risks. Additionally, Ganapathy and Kabra 2017 document no relationship between institutional ownership and environmental reporting of Indian Companies, whereas Majeed et al. 2015 finds positive relationship of Pakistani Companies. Therefore, we anticipate institutional ownership’s significant relationship with ESRP due to revised corporate governance rules and environmental reporting initiatives in SA countries. Hence, our second hypothesis is:
The agency problem can be reduced by directors’ shareholdings, as they consider themselves the company’s owners and try to maximize the firm’s long-term value. Prior literature posits that shareholding directors tend to make CSR-friendly decisions to demonstrate their contribution to societal and environmental issues, and to gain different stakeholders’ attentions (Khan et al. 2013). Further, they delegate power to resourceful personnel (Oh et al. 2011). Directors provide information on social and environmental performance to attempt to legitimize their policies and strategies with society’s norms and expectations. Moreover, directors in a complex political climate are influenced by institutions, activist groups, and governments. Thus, they are likely to disclose more CSR and environmental information to mitigate political costs (Shirodkar et al. 2016).
In contrast, some prior studies find a negative relationship between director ownership and disclosure practices (Khan et al. 2013). Generally, non-western countries’ stakeholders may not be able to influence directors as in western countries, in which case directors are more likely to engage in short-term decisions to increase their own benefits and compensation (Faller and Zu Knyphausen-Aufseß 2016; Oh et al. 2011). A lack of transparency and accountability also make directors more powerful than stakeholders. Previous studies find that directors’ larger shareholding encourages them to exercise greater power for their own financial benefits and interests, rather than to maximize shareholder wealth. Oh et al. (2011) found a significant negative relationship between managerial ownership and CSR in Korean companies. This indicates that managers are not interested in providing more disclosure on environmental issues, as this negatively affects their compensation and benefits. Moreover, Khan et al. (2013) found a negative, significant relationship between director ownership and CSR disclosure in Bangladeshi-listed companies. Directors may be reluctant to disclose social and environmental information because it may reduce their stock value (Wang and Coffey 1992). As an insider part of management directors has conflicts with different stakeholders that lead for information asymmetry and ESRP can reduce the gap providing credible environmental information. Based on the above discussion, we anticipate that director ownership in SA countries has a negative relationship with ESRP. Therefore, our hypothesis is
Decisions in a family-owned organization come from its central family members. No dominating group exists on the board, and family members are keenly interested in enhancing financial performance rather than considering the environmental impacts of their decisions (Faller and Zu Knyphausen-Aufseß 2016; Oh et al. 2011; Nekhili et al. 2016). Agency conflicts may decrease as family members focus on the family’s long-term reputation and social engagement with different stakeholders, in which they tend to disclose more environmental information (Ding and Wu 2014). Moreover, family members as stakeholders are concerned with long-term financial and non-financial opportunities based on their family ties, long-term orientation, and market visibility (Bingham et al. 2011). Family ownership influences long-term decision making and supports social values and norms in the family’s decision to legitimize with social and ethical awareness. Thus, they are motivated to disclose more information to reduce potential political and socio-emotional costs (Ding and Wu 2014).
Generally, a family-dominated management exhibits mixed behavior regarding disclosures, as CSR and environmental expenditures and investments consider long-term motivations. On the one hand, Bingham et al. (2011) discovered a positive relationship between CSR and family ownership, and attributed their findings to the enhancing of the company’s image and reputation. Block (2010) and McGuire et al. (2012) also support this result. On the other hand, Shaukat et al. (2016) noted a negative association between family ownership and social and environmental performance, interpreting the result to determine that family ownership holding more power were only influenced by self-interests rather than pressure from outside stakeholders. Moreover, Atkinson and Galaskiewicz (1988) did not find any relationship between social and environmental disclosures and family ownership and the findings is consistent with Majeed et al. 2015 (Pakistan). Most SA companies are family-owned, and management decisions are controlled by the family’s elders. Consequently, these companies lack public accountability and visibility, and tend to be relatively less active in social and environmental activities (Khan et al. 2013) like to believe us that;
Independent directors are generally treated as experts to monitor, control, and supervise management, and provide effective suggestions and advice for management’s decisions on environmental performance (de Villiers et al. 2011; Chang et al. 2017; Oh et al. 2011). They play a moderating role between management and different stakeholders to solve agency conflicts. As experts and resourceful representatives, other stakeholders have significant expectations and trust because of their personal reputation and engagement (Ntim et al. 2013). The presence of more independent directors on the board reduces the gap of legitimacy between the firm and society as they work for corporate stakeholders (Freeman and Reed 1983; Ntim et al. 2013). Independent directors work on behalf of all stakeholders and for their own reputations, engagement, and acceptance in society, as they attempt to disclose and provide more information about the organization’s environmental strategies to reduce costs, both agency and political (Desender and Epure 2015; Ioannou and Serafeim 2012; El Ghoul et al. 2017).
Prior studies suggest that the presence of higher independent directors on the board ensures management’s higher effective monitoring, controlling, and disclosing of environmental initiatives. This is because a board dominated by more independent directors reduces the power of top management, such as CEOs, as independent board members’ recruitment and benefits do not depend on the CEO (de Villiers et al. 2011). Prior research finds a significant, positive relationship between board independence and social and environmental disclosures (Khan et al. 2013; Sharif and Rashid 2014; de Villiers et al. 2011; Ntim et al. 2013; Chang et al. 2017). The management of companies in SA countries is controlled by different factors, including majority share ownership. Consequently, family-nominated independent directors more often occur in SA companies’ management, in which they favor all the board’s decisions, rather than argue (Sobhan and Werner 2003). Independent directors tend to be appointed based on personal and family connections, and political and bureaucratic affiliations, rather than skills and experience (Khan et al. 2013; Sobhan and Werner 2003). Further, Khan et al. (2013) find a positive, significant relationship between independent directors and CSR reporting in Bangladeshi-listed companies, the result supported by Mahmood et al. 2018; Sharif and Rashid (2014) Pakistan and Shaukat et al. (2016) India. Based on the above discussion and empirical results, we anticipate a positive, significant relationship between independent directors and ESRP:
A strong, effective, and efficient board will enhance an organization’s resources, reputation, and performance by decreasing risk and opportunism. Thus, a board with active experts may lead to proactive managerial behavior regarding social and environmental issues, and reduce managerial risk and opportunism by disclosing more information. A large board may help management by ensuring its access to skills, experiences, and resources in specific areas, and by better advising management (Katmon et al. 2017; Khan et al. 2013; Amran et al. 2014). A large board can also reduce agency conflicts (Ntim et al. 2013; de Villiers et al. 2011), as more directors can work for the interests of different stakeholders. Additionally, a larger board offers greater access with diverse stakeholders, and reduces risks and uncertainties by facilitating the better disclosure of financial, social, and environmental information (Chang et al. 2017). Moreover, more members on a board ensures greater diversity and resources (Katmon et al. 2017) to fit with social norms, expectations, and values, thereby enhancing legitimacy (Suchman 1995; Ntim et al. 2013). Finally, a large board is likely to have more experienced members who can easily handle many critical issues, such as pollution, biodiversity, and media exposure; and communicate with various stakeholders, including activist groups and regulators. For example, lobbying with the government for any breach of regulations may mitigate political costs and pressures. Prior literature indicates that board size is positively associated with social and environmental performance and disclosure (de Villiers et al. 2011; Nitm et al. 2013; Kiliç et al. 2015; Lu et al. 2015). A large board can mitigate agency conflicts as well as information asymmetry. The most recent study of Mahmood et al. 2018 found positive and significant relationship between board size and total sustainability disclosure of Pakistan and the finding is also consistent to Ganapathy and Kabra 2017 (Inida); and Shamil et al. 2014 (Sri Lanka). Prior evidence also documents that more directors on a board may create problems of management relative to communications and coordination in decision-making due to a lack of unanimity and director independence, and lower-quality financial disclosures (Amran et al. 2014; Kiliç et al. 2015). Based on the above discussion and empirical results, we anticipate a positive, significant relationship between board size and ESRP.
Board diversity refers to a diverse composition of board members, which can affect management’s decision-making process and contribute knowledge, skills, and experiences (Hoang et al. 2016; Nekhili et al. 2016; Katmon et al. 2017; Ntim et al. 2013). Variables measuring board diversity can be categorized into two groups: those that are directly observable (e.g., gender, age, and ethnicity) and less visible (e.g., occupation, education, religion, and work experience) (Katmon et al. 2017; Ntim et al. 2013). A diversified board encourages management to make quality decisions; and facilitates a quick problem-solving capacity, strong corporate competitive strategy, innovative social and environmental decisions, and social and environmental disclosures (Chang et al. 2017; Katmon et al. 2017; Ntim et al. 2013). Considering social norms and values, a diversified board displays its influence on and acceptance in the society that enhances an organization’s reputation, and can mitigate political pressure in any situation or political cost.
Prior studies suggest that female directors have a positive association with financial performance (Carter et al. 2003), as well as CSR and social disclosure (Katmon et al. 2017; Ntim et al. 2013). Further, Carter et al. (2003) discovered a positive relationship to argue that board diversity may help management’s decision-making, as heterogeneous board members will ask different types of questions. According to Huse and Solberg (2006), female directors on a board have more wisdom and capacity than male directors. Adams and Ferreira (2009) found that female directors’ increased participation on a board may increase the board’s effectiveness and competitiveness. Gul et al. (2011) assert that female directors not only influence by reducing risk and ethical behavior, but also support the disclosing of voluntary information, which may minimize information asymmetry between female directors and the remaining board members. Female directors can effectively manage the boardroom environment due to softer values and higher morality (Gul et al. 2011; Huse and Solberg 2006).
In contrast, prior research also notes mixed relationship between female directors and social, environmental, and sustainability reporting (Khan 2010; Amran et al. 2014). Khan (2010) finds no relationship between female directors and the CSR reporting of Bangladeshi-listed banks, and argues that female participation is new in the country’s executive environment and the finding is consistent to the most recent study of Mahmood et al. 2018 (Pakistan). Additionally, Majeed et al. 2015 (Pakistan) and Shamil et al. 2014 (Sri Lanka) documents negative relationship whereas, Lone et al. 2016 (Pakistan) documents positive relationship. Women in SA countries are less empowered economically and socially than those in western countries, and have very little room to participate in corporate management because of male dominance in economic resources, a lack of education and social awareness, and the inability to make decisions. Based on the above discussion and mixed empirical findings, we anticipate no significant relationship between gender diversity and ESRP in SA countries:
The establishing of independent board committees ensures a decentralization of power and responsibility, thereby reducing agency conflicts. Management may establish different types of committees to enhance board efficiency and effectiveness by appointing resourceful members equipped with skills, knowledge, experience, and reputation (Lu et al. 2015; Amran et al. 2014). A board committee is assigned to a specific task and objective that can enhance communication with diverse influential stakeholders (Subramaniam et al. 2017). A particular committee may work with a specific group of people to improve society and increase the organization’s reputation and legitimacy. Considering social value and expectations may create legitimate opportunities and reduce the gap between the organization and society (Lu et al. 2015; Amran et al. 2014). Moreover, special committees aiming to regulate and observe the organization’s financial and non-financial opportunities and barriers (i.e., carbon tax) can mitigate political costs.
Research has been limited on the relationship between CSR, environmental committees, and environmental reporting performance in developing countries (Amran et al. 2014). Prior research argues that CSR and environmental committees have a positive relationship with disclosure (Amran et al. 2014). Moreover, Amran et al. (2014) found a positive relationship between CSR committees and the quality of sustainability reporting in Asia-Pacific organizations, the result is also consistent to Mahmood et al. 2018. Additionally, CSR and environmental committees motivate management to inform the public, not only voluntarily, but also for greater visibility and reputation (Amran et al. 2014; Lu et al. 2015).
Alternatively, Lu et al. (2015) report that no relationship exists between the CSR committee and CSR reputation because of decreased stakeholder engagement. Environmental reporting is incredibly scarce in SA organizations because of the weak enforcement of laws; corruption; and a lack of experts, stakeholder pressure, and engagement (Subramaniam et al. 2017; Belal et al. 2015). Based on these mixed results, we test the following hypothesis: