BOARD CAPITAL, CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE QUALITY, AND FIRM PERFORMANCE IN SAUDI ARABIA: DOES CEO POWER MATTER?

Abstract

Corporate social responsibility has become a hot topic of investigation among researchers and many empirical studies have been conducted on the determinants of corporate social responsibility and the role of corporate social responsibility in organizational performance. The current trend in corporate social responsibility research has shifted to the reporting quality of organizations. With the trend shifting in CSR literature toward the quantity and quality of corporate social responsibility disclosure, this research endeavors to use Agency Theory and Resource Dependence Theory to investigate the relationship between board capital (human and social capital) and corporate social responsibility (CSR) disclosure quality in the Saudi non-financial firms. It further investigates the relationship between corporate social responsibility disclosure quality and firm performance. Additionally, this research examines the moderating role of CEO power on the relationship between board capital and CSR disclosure quality. Given that influence of board capital is relatively low in Saudi firms, powerful CEOs seek to improve and sustain CSR disclosure quality. A total of 114 non-financial listed firms on the Saudi Stock Exchange for the year 2018 have been analyzed. The study finds that directors’ experience and directors’ interlocking have a positive significant impact on CSR disclosure quality in Saudi non-financial listed firms. It also finds that directors’ political ties negatively impact CSR disclosure quality. As well as finds that CEO power moderates the relationships between directors’ education, directors’ expertise, directors’ interlocking, and CSR disclosure quality in Saudi non-financial listed firms. Finally, the study reveals a positive significant relationship between CSR disclosure quality and firm performance in Saudi non-financial listed firms. Based on the results of this research, policy-makers might use the study’s findings to recognize the importance of both social and human capital attributes for board members in improving the low level of CSR disclosure quality in Saudi Arabia. In addition, the Capital Market Authority should also encourage companies to further address the quality of CSR disclosure, instead of solely focusing on quantity.