Strengthen the role of institutional investors

Oct 13, 2025 by vinooalluri.com 18 views

The Effect of Corporate Governance and Profitability on Disclosure of Corporate Social Responsibility

Introduction

In today's business landscape, corporate social responsibility (CSR) has become a crucial aspect of good corporate governance. Companies are expected to not only generate profits but also contribute to the well-being of society and the environment. The disclosure of CSR information is essential in maintaining transparency and trust among stakeholders, including investors, customers, and the general public. This study aims to analyze the effect of corporate governance and profitability on the disclosure of CSR with company size as a moderation variable in the consumer goods industry companies listed on the Indonesia Stock Exchange (IDX).

Background

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a market capitalization of over $1 trillion. The consumer goods industry is a significant sector in the IDX, with companies such as Unilever Indonesia, Indofood, and PT. Sampoerna. These companies are not only responsible for generating profits but also for contributing to the well-being of society and the environment. The disclosure of CSR information is essential in maintaining transparency and trust among stakeholders.

Methodology

This study uses a panel data approach, combining time series and cross-sectional data from 25 consumer goods industry companies listed on the IDX during the 2013 to 2017 period. The data is analyzed using e-views software, which is a powerful tool for data analysis and modeling. The study uses a regression analysis to examine the relationship between corporate governance, profitability, and CSR disclosure.

Results

The results of the study show that the independent board of commissioners and managerial ownership do not have a significant influence on CSR disclosure. Conversely, institutional ownership is proven to have a significant influence in this regard. This suggests that institutional investors play a crucial role in encouraging CSR disclosure. The size of the Board of Commissioners, Audit Committees, and Profitability also do not show an effect on CSR disclosure. Interestingly, the company's size is unable to moderate the relationship between corporate governance and profitability with CSR disclosure.

Additional Analysis and Explanation

The Role of Institutional Ownership

Institutional ownership has a significant role in encouraging CSR disclosure. This may be caused by the fact that institutional investors tend to be more concerned with social and environmental issues, and they can put pressure on companies to be more transparent about their CSR initiatives. In this context, companies that have many institutional shareholders may be more encouraged to express information related to social responsibility, in order to maintain the reputation and trust of investors.

Company Size and Its Impact

The size of the company is often assumed to be an important factor that affects CSR disclosure. However, in this study, the company's size is unable to moderate the effect of corporate governance and profitability on CSR disclosure. This shows that even though the company's size is related to the capacity to conduct CSR, the existence of good governance structures and positive financial performance does not always guarantee better disclosure regarding social responsibility.

Implications for the Company

For companies operating in the consumer goods industry, it is essential to pay attention to the composition of the Board of Commissioners and consider the impact of institutional ownership in making decisions related to CSR disclosure. Strengthening the role of institutional investors by involving them in CSR strategies can be an effective step to increase transparency.

Conclusion

This research provides valuable insight into the relationship between corporate governance, profitability, and disclosure of CSR. Although some hypotheses are not proven, this information can be used as a reference for companies that want to improve the practice of CSR disclosure in the future. In a world that is increasingly concerned with social and environmental issues, good disclosures can be the key to company sustainability and growth.

Recommendations

Based on the findings of this study, the following recommendations are made:

Strengthen the role of institutional investors: Companies should involve institutional investors in CSR strategies to increase transparency and encourage CSR disclosure.
Pay attention to the composition of the Board of Commissioners: Companies should ensure that the Board of Commissioners is composed of independent and experienced members who can make informed decisions regarding CSR disclosure.
Improve CSR disclosure practices: Companies should improve their CSR disclosure practices by providing more detailed and transparent information about their CSR initiatives and performance.
Conduct regular CSR audits: Companies should conduct regular CSR audits to ensure that their CSR practices are aligned with their stated policies and values.

Limitations

This study has several limitations that should be noted. Firstly, the study only examines the relationship between corporate governance, profitability, and CSR disclosure in the consumer goods industry companies listed on the IDX. Secondly, the study uses a panel data approach, which may not capture the complexity of CSR disclosure practices in companies. Finally, the study only examines the effect of institutional ownership on CSR disclosure, and does not consider other factors that may influence CSR disclosure.

Future Research Directions

This study provides a foundation for future research on CSR disclosure practices in companies. Future studies should examine the relationship between CSR disclosure and other factors, such as company size, industry, and country. Additionally, future studies should investigate the impact of CSR disclosure on company performance and sustainability.

References

[List of references cited in the study]

Appendix

[Appendix containing additional tables and figures]

Conclusion

In conclusion, this study provides valuable insight into the relationship between corporate governance, profitability, and disclosure of CSR. The findings of this study suggest that institutional ownership has a significant influence on CSR disclosure, while the size of the company does not moderate the effect of corporate governance and profitability on CSR disclosure. The study provides recommendations for companies to improve their CSR disclosure practices and strengthen the role of institutional investors in CSR strategies.
Frequently Asked Questions (FAQs) on Corporate Governance and CSR Disclosure

Q: What is corporate governance, and how does it relate to CSR disclosure?

A: Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It involves the relationships among a company's management, board of directors, shareholders, and other stakeholders. CSR disclosure is an essential aspect of good corporate governance, as it provides stakeholders with information about a company's social and environmental performance.

Q: What is CSR disclosure, and why is it important?

A: CSR disclosure refers to the practice of providing stakeholders with information about a company's social and environmental performance. It is essential for maintaining transparency and trust among stakeholders, including investors, customers, and the general public. CSR disclosure helps stakeholders to understand a company's values, policies, and practices related to social and environmental issues.

Q: What are the benefits of CSR disclosure?

A: The benefits of CSR disclosure include:

Improved transparency and trust among stakeholders
Enhanced reputation and brand value
Increased investor confidence and loyalty
Better risk management and reduced regulatory risks
Improved social and environmental performance

Q: What are the challenges of CSR disclosure?

A: The challenges of CSR disclosure include:

Limited resources and capacity to disclose information
Complexity of CSR issues and data collection
Fear of negative publicity and reputational risks
Limited stakeholder engagement and participation
Difficulty in measuring and reporting CSR performance

Q: How can companies improve their CSR disclosure practices?

A: Companies can improve their CSR disclosure practices by:

Developing a clear CSR strategy and policy
Establishing a CSR committee and reporting structure
Collecting and analyzing CSR data and metrics
Engaging with stakeholders and incorporating their feedback
Providing transparent and regular CSR reporting

Q: What is the role of institutional investors in CSR disclosure?

A: Institutional investors play a crucial role in encouraging CSR disclosure by:

Engaging with companies on CSR issues and performance
Incorporating CSR considerations into investment decisions
Providing feedback and guidance on CSR reporting
Supporting companies that demonstrate strong CSR practices

Q: How can companies measure and report CSR performance?

A: Companies can measure and report CSR performance by:

Developing a CSR dashboard and metrics
Conducting regular CSR audits and assessments
Reporting CSR performance in annual reports and sustainability reports
Engaging with stakeholders and incorporating their feedback

Q: What are the implications of this study for companies and stakeholders?

A: The findings of this study suggest that institutional ownership has a significant influence on CSR disclosure, while the size of the company does not moderate the effect of corporate governance and profitability on CSR disclosure. Companies should pay attention to the composition of the Board of Commissioners and consider the impact of institutional ownership in making decisions related to CSR disclosure. Stakeholders should engage with companies and provide feedback on CSR performance to ensure that companies are transparent and accountable.

Q: What are the limitations of this study?

A: This study has several limitations, including:

The study only examines the relationship between corporate governance, profitability, and CSR disclosure in the consumer goods industry companies listed on the IDX.
The study uses a panel data approach, which may not capture the complexity of CSR disclosure practices in companies.
The study only examines the effect of institutional ownership on CSR disclosure, and does not consider other factors that may influence CSR disclosure.

Q: What are the future research directions?

A: Future research should examine the relationship between CSR disclosure and other factors, such as company size, industry, and country. Additionally, future research should investigate the impact of CSR disclosure on company performance and sustainability.