The role of ownership structure, board, and audit committee in corporate social responsibility disclosure: Jordanian evidence
Hanady Bataineh
Accounting Department, Al-Balqa Applied University, Salt, Jordan
Amneh Alkurdi
Accounting Department, Aqaba University of Technology, Aqaba, Jordan
Ala ’ a Adden Abuhommous
Finance and Banking Department, Mutah University, Karak, Jordan, and
Mohammad Abdel Latif
Independent Researcher, Amman, Jordan
Abstract
Purpose–This paper aims to explore the extent of corporate social responsibility disclosure (hereafter CSRD) in Jordan and also examine whether ownership structure, board of directors and audit committee characteristics influence CSRD.
Design/methodology/approach–The extent of CSRD is measured by constructing a CSRD index for industrialfirms listed on the Amman Stock Exchange from 2016 to 2021. Panel regression analysis is used to examine the potential effect of ownership structure, board of directors and audit committee on the level of CSRD.
Findings–This study provides empirical evidence that diverse groups of shareholders have different effects on CSR engagement, and board characteristics (board size, board independence and gender diversity) play a vital role in increasing voluntary disclosure, including CSR information. There is no evidence to support that CSRD is influenced by audit committee characteristics.
Practical implications – This study recommends that corporate regulators and policymakers can improve CSRD practices by expanding the scope of existing disclosure requirements related to CSR and developing a structured CSRD index to measure the degree of CSRD practices for comparative purposes.
Encouragefirms to actively participate in social responsibility programs by granting tax incentives and government facilities tofirms with the best CSR reports. Policymakers should introduce initiatives that support female’s representation on board. Finally,firms should restructure their boards by increasing board size and the percentage of independent directors to enhance their effectiveness to support CSRD.
Originality/value–This paper contributes further insights into the literature on CSRD practices and disclosure by analyzing data from developing market contexts.
Keywords Corporate social responsibility disclosure, Ownership, Board of directors, Audit committee, Jordan
Paper typeResearch paper
Introduction
Corporate social responsibility disclosure (hereafter CSRD) has grown expeditiously and received significant interest from academic researchers, practitioners, investors and other stakeholders. Firms are expected to not only deliverfinancial performance but also take into
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Received 24 March 2023 Revised 21 August 2023 Accepted 13 September 2023
Journal of Islamic Accounting and Business Research
© Emerald Publishing Limited 1759-0817 DOI10.1108/JIABR-03-2023-0102
The current issue and full text archive of this journal is available on Emerald Insight at:
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account their social, environmental and ethical impact. As a result, CSRD has become a popular way for firms to communicate their nonfinancial performance to stakeholders, including investors, customers, employees and communities.Saidet al.(2017)stated that CSR is defined as an accounting framework rooted in social values. Numerous prior research studies conducted in developed countries have strongly asserted thatfirms should not be evaluated solely based on theirfinancial performance and economic growth; rather, they are also expected to demonstrate higher levels of accountability and social responsibility.
Mohammadiet al.(2021)indicated that there is a growing interest in investing in socially responsiblefirms, and therefore the disclosure of CSR has become very important in preparing financial reports.Herzig and Schaltegger (2006) revealed that reporting on sustainability performance will help thefirm gain legitimacy, increase transparency, enhance the firm’s image and reputation, achieve competitive advantage and motivate employees. Furthermore, participation in CSR projects has the potential to attract socially responsible investors, resulting in cheaper capital costs and improved access to funding (Chouaibiet al., 2021).
Firms seeking for continuous success and a better reputation among their competitors should prioritize CSR in their agenda and actively seek to engage in CSR practices as part of their corporate governance strategy. Therefore, a regulatory mechanism is required to enhance the CSRD infirms, such as through ownership structure that acts as an internal governance mechanism through its effective oversight role, leading the firm to make corporate decisions in line with the interests of shareholders (Bataineh, 2021). The board of directors are responsible for setting the corporate social agenda, allocatingfirm resources, controlling theflow of information in thefirms, and responsible for setting up thefirm’s disclosure and transparency policies (Jizi, 2017). The audit committee is expected to enhance board oversight, improve the quality of financial and nonfinancial reports and reduce information asymmetry among managers and stakeholders. Therefore, the various shareholders, the board of directors and the audit committee, in light of their duties, may influence the firm’s decision-making, including decisions related to CSR activities, and improve the level of voluntary disclosure.
Hence, this study aims to explore the extent of CSRD in thefinancial reports of Jordanian industrialfirms listed on the Amman Stock Exchange (ASE) for the period 2016–2021 and examine the effect of ownership structure, board of directors and audit committee on CSRD in Jordanian industrial listedfirms. Thus, the study aims to make the following contributions:
First, it promotes and supports the systematic connection between ownership structure, board of directors and audit committee with CSRD in Jordan. Second, it provides additional insights into CSR practice and disclosure literature by analyzing data from a developing market context. Finally, the results of this study provide important implications for Jordanian policymakers and governing parties about the extent to which Jordanian listedfirms take their social responsibility role seriously to decide on the adequacy of existing regulations or broaden their listing requirements by paying more attention to CSRD performance.
This paper is structured as follows: Thefirst section presents the introduction and objective of the study. The second section reviews the literature and develops hypotheses.
The third section describes the study methodology and data collection method, while the fourth section discusses and analyzes the result. Finally, the last section offers the conclusions, recommendations and some suggestions for future studies.
Literature review and hypothesis development Definition of corporate social responsibility
The literature shows that there is no clear consensus on the definition of corporate social responsibility (hereafter CSR), with various scholars offering different interpretations
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(Navickaset al., 2021).Bowen (1953)defined CSR as a commitment to follow policies and actions that align with societal goals and values. This was confirmed by Murray and Montanari (1986) who stated that a socially responsible firm is one that fulfills moral, economic, legal, ethical and discretionary expectations of society.Woodward (1999)defined CSR as a contract between business and society, in which thefirm is given a license to operate in return for fulfilling certain obligations and behaving acceptably. TheWorld Bank (2005) defined CSR as a business commitment to contribute to sustainable economic development that benefits both the business and society. Furthermore,Khanet al.(2012) defined CSR as a firm’s ethical or responsible approach to dealing with stakeholders.
Eberhardt-Toth and Wasieleski (2013, p. 737) defined CSR as“The ethical behavior of afirm toward society; includes social impacts but also environmental ones and stresses more precisely the non-economic responsibilities.”Sheehy (2015)defined CSR as a type of social phenomenon that consists of a form of international private self-regulation that aims to minimize industrial damage and promote the common good.Riano and Yakovleva (2019) defined CSR as the responsibility of both profit and nonprofit organizations to stakeholders, the environment and society, with a focus on transparency and accountability of corporate actions that include social, environmental, ethical and economic efforts, which are often voluntary. Based on this review of the literature, it can be concluded that CSR encompasses a wide range of activities that aim to benefit society, stakeholders and the environment, and that there is no one-size-fits-all definition of the concept. Firms are expected to go beyond theirfinancial performance and consider their responsibilities toward various stakeholders and society as a whole.
Corporate social responsibility disclosure in Jordan
Despite the regulatory requirements for disclosure, the level of CSRD in Jordanianfirms remains relatively low compared to developed countries. The Environmental Protection Act (1996) and its amendments (2006) were enacted to ensure that firms comply with environmental control standards. Then, in 1998, the Jordan Securities Commission (JSC) mandated all listed Jordanian firms to disclose information related to their social and environmental issues in their annual reports. Another progressive step was taken with regard to disclosure when, in 2004, the JSC issued the Instructions and Guides that require all listed Jordanianfirms to disclose in their annual reports their policy regarding thefirm’s contribution to the local community services and the environmental protection, and any noncompliance must be clearly stated in thefirms’annual report without justifying the reasons for noncompliance (Ibrahim and Hanefah, 2016;Haddadet al., 2017). Then, in 2009, the JSC issued the Corporate Governance Code forfirms listed on the ASE, which requires firms to disclose their policy related to serving the local community and the environment.
However, CSRD in Jordan remains voluntary, and firms may use it to legitimize their existence and operational activities.
Hypotheses development
Ownership structure and corporate social responsibility
Managerial ownership Management ownership refers to the percentage of outstanding shares owned by executives who are actively involved in the firm’s decision-making.
According toJensen and Meckling (1976), management ownership can be a successful tool in mitigating agency problems by aligning the interests of the managers and owners. As stated byOliveira and Ferreira (2011), managers have an incentive to voluntarily disclose private information, as with signal theory, thefirm expects this information will be interpreted as a positive signal about the firm’s performance, subsequently reducing information
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asymmetry. Thus, higher managerial ownership results in a higher volume of CSR disclosure by thefirm. With higher managerial ownership, executives are more aware of the direct impact of their decisions and are more likely to avoid risky actions that may result in asset loss (Nurleni and Bandang, 2018). This can lead to a greater focus on value- maximizing activities such as CSR. However, sometimes management can also be responsible for the decline in CSR investments because management may want to avoid expenditures that reduce their short-term income (Lin and Nguyen, 2022), and they often avoid substantial investments in socially responsible activities due to their inclination toward prioritizing short-term strategies that aim to maximize their own interests (Dakhli, 2021). According toOngsakulet al.(2021),firms with stronger management ownership tend to invest more in CSR during periods of increased economic policy uncertainty. This is consistent with the risk mitigation hypothesis, which views CSR as a type of insurance-like against adverse events. Managers with higher ownership holdings invest less in CSR when economic policy uncertainty is not an issue, implying that CSR participation is driven by agency conflict. Previous literature indicates mixed relationships between managerial ownership and CSRD. While some studies have found a positive relationship between the two (Cho and Ryu, 2022), others have reported a negative association between higher managerial ownership and engagement in CSR (Dakhli, 2021). However, Razak and Mustapha (2013)found no relationship between managerial ownership and CSR initiatives.
Based on thesefindings, we propose the following hypothesis:
H1. There is a significant relationship between managerial ownership and CSRD in Jordanian industrial listedfirms.
Institutional ownership.Institutional ownership refers to the ownership of shares in afirm by institutional investors such as banks, insurancefirms, investmentfirms, mutual funds and pension funds. These investors can play an influential role in promoting good corporate governance by effectively overseeing their investments and protecting shareholder value (Tan and Keeper, 2008). Prior research on the relationship between institutional ownership and CSRD produced contradictory results. Some studies, such asNurleni and Bandang (2018)andSoliman et al. (2013), indicated that institutional ownership has a significant positive impact on CSRD. The presence of foreign institutional investors in afirm can be a driving force behind CSRD since they may have more influence on management and require legitimate activities such as CSR (Wang and Chen, 2017). High institutional ownership in a particular firm is likely to motivate its management to make additional voluntary disclosures to maintain stakeholder confidence (El-Gazzar, 1998) and tend to engage more in environmental management practices (Changet al., 2015).Harjoto and Jo (2011)found that institutional ownership contributes to increased CSR initiatives. In addition, firms exhibiting elevated levels of CSR activities and institutional ownership tend to have superior financial performance. In contrast, others, likeAbu Qa’dan and Suwaidan (2019), have found a negative relationship between the two variables. Moreover, Maranjoori and Alikhani (2014) andSalehi et al. (2017) revealed that there is no significant correlation between institutional investors and CSRD. The absence of such connection suggests that institutional investors make their investment choices independently of thefirm’s environmental and social activities. Therefore, to further examine this relationship in Jordanian industrial listed firms, we propose the following hypothesis:
H2. There is a significant relationship between institutional ownership and CSRD in Jordanian industrial listedfirms.
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Ownership concentration. Previous research found mixed evidence about whether ownership concentration affects CSRD. According to agency theory, ownership concentration can have contradictory effects on social and environmental issues. When a few large owners hold a significant percentage of a firm’s shares, they may be better equipped to monitor management and ensure that CSR activities are undertaken in the best interest of thefirm and its shareholders. This would suggest a positive relationship between ownership concentration and CSRD (Lin and Nguyen, 2022).Aboud and Yang (2022)found that a higher concentration of ownership has a positive effect on CSR performance, indicating that concentration of ownership enhances afirm’s capabilities to fulfill its CSR.
According toCrisostomo and Freire (2015), higher ownership concentration in Brazil leads to more investment in CSR activities. They reported that the concentration of ownership held by a small number of controlling shareholders is often associated with a long-term ownership perspective, which contrasts with the potential short-term interests of directors and minority shareholders. A small number of controlling shareholders are seen as the true owners of thefirm and place more emphasis on long-term benefits, such as enhancing the firm’s reputation and image. As a result, this approach will maximize thefirm’s economic, social and environmental practices to maintain a positive reputation among stakeholders.
On the other hand, ownership concentration is likely to lead to agency conflicts between controlling shareholders and minority shareholders, and divergence of interests between them may cause the controlling shareholders to abuse their entrusted power to extract private gain by discouraging managers from investing in CSR activities and forcing them to concentrate on improving current profits. Therefore, firms with concentrated ownership may pay less attention to CSR issues (Chenet al., 2021). Moreover, other studies, such as Diaset al.(2017)andAlkayed and Omar (2022), revealed that ownership concentration has an insignificant effect on CSR performance. This suggests that the high percentage of shares held by a small number of controlling shareholders does not affect the level of CSR.
Accordingly, the following hypothesis has been suggested:
H3. There is a significant relationship between ownership concentration and CSRD in Jordanian industrial listedfirms.
Board of directors and corporate social responsibility disclosure
Board size. Based on previous literature, different opinions were found regarding the relationship between board size and CSRD. On one hand, a larger board size may increase the board’s ability to monitor and evaluate management. A larger board of directors devotes greater energy and resources to effectively performing their roles in social activity and performance (Liaoet al., 2018). This assertion is confirmed byJiziet al.(2014)andSiregar and Bachtiar (2010), who report that firms with larger boards are more likely to show transparency in their operations and disclose more information related to their CSR activities. Large boards with more experienced and diverse backgrounds play an important role in encouraging thefirm to contribute effectively to matters related to society (Al Amosh and Khatib, 2021;Luiet al., 2021). In addition,Sadouet al.(2017)andAlabdullahet al.(2019) found a significant positive relationship between board size and environmental disclosure.
On the other hand, excessive board size can lead to a decrease in the quality offinancial disclosures as the board of directors is unable to perform its roles effectively and efficiently (Saidet al., 2009). Some studies have argued that smaller boards are more effective and less susceptible to management influence (Effahet al., 2022).Oseiet al.(2019),Aliyu (2019)and Aboud and Yang (2022)have argued that smaller board sizes can effectively perform better
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in CSRD. However,Sufian and Zahan (2013)found no association between board size and CSRD. Based on the above discussion, the following hypothesis has been speculated:
H4. There is a significant relationship between board size and CSRD in Jordanian industrial listedfirms.
Board independence.Board independence is considered to be a crucial element of effective corporate governance, as it can help to monitor management and act in the best interests of shareholders (Fama and Jensen, 1983). The nonexecutive directors are supposed to carry out their responsibilities as independent members and maintain the correct conduct of thefirm.
As a result, they strive to pursue the legitimacy of the organization by ensuring compliance with the rules and meeting the expectations of the external environment (Pfeffer and Salancik, 1978). They also play a role in promoting greater transparency and disclosure of information, which may influence other directors to disclose more information voluntarily (Aliyu, 2019). The relationship between board independence and CSR is complex and not yet fully understood. According toZubeltzu-Jakaet al.(2020), boards with higher independence are more effective at representing stakeholder interests and allowfirms to accomplish their social goals. Empirical research has revealed that independent directors are more supportive of companies investing in CSR activities. Furthermore, research byLin and Nguyen (2022), Colakogluet al.(2021)andOrtaset al.(2017)showed that the independence of the board of directors has a positive impact on CSR performance. In contrast,Naciti (2019)found that higher board independence resulted in decreased sustainability performance. Similarly, Sundarasen et al. (2016) noted a significant negative relationship between board independence and the level of CSRD and argued that independent directors may not have enough knowledge, experience and skills to enhance the level of CSR. Whereas,Al Amosh and Khatib (2021)failed to support the influence of nonexecutive directors on environmental, social and governance disclosure. Therefore, the following hypothesis has been proposed:
H5. There is a significant relationship between board independence and CSRD in Jordanian industrial listedfirms.
Cross directorship.Cross-directorship refers to a director who serves on multiple boards (Razek, 2014). According to Raman and Bukair (2013), cross-directorships can improve information openness and foster experience exchange. Busy members have a better understanding of the work environment and may make better decisions based on their board meeting experience (Elsakit and Worthington, 2014). Cross-directorships potentially provide valuable resources to the board of directors to enhance CSR reporting, which is critical in mitigating environmental uncertainty and thus gaining a competitive advantage (Reguera-Alvarado and Bravo-Urquiza, 2022).Rao and Tilt (2016)indicated that directors who possess expertise, knowledge and information from serving on multiple boards may be better able to make decisions that are beneficial to stakeholders and may have the potential to influence CSR disclosure. When directors hold multiple directorships in variousfirms, they are more concerned about human resources, environmental sustainability and ethical practices (Bejiet al., 2021). Many previous studies suggest a positive relationship between multiple directorships and CSR reporting (Barka and Dardour, 2015;Al-Dah, 2019;Reguera- Alvarado and Bravo-Urquiza, 2022). In addition,Haniffa and Cooke (2005)found a positive relationship between CSR reporting and the number of board memberships held by the chairman of the board. On the other hand, some studies indicated that due to their busy schedules and lack of time, they may be unable to perform essential communication, which can reduce their understanding of the firm’s situation, attention to CSR and related
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disclosures (Alfraih and Almutawa, 2017). Based on this discussion, the following hypothesis can be proposed:
H6. There is a significant relationship between cross-directorship and CSRD in Jordanian industrial listedfirms.
Director’s gender.Several previous studies have documented evidence that gender diversity is associated with higher levels of CSR reporting (Fernandez-Feijooet al., 2012;Hyunet al., 2016; andRao and Tilt, 2016). According to agency theory, including a higher proportion of women in board positions could serve as a mechanism for improving the quality of monitoring as well as enhancing the ability to evaluate business strategies (Gaio and Gonçalves, 2022;Abedet al., 2020). In line with stakeholder theory, when a board of directors is more diverse, it has a greater ability to engage in dialogue with a diverse group of stakeholders (Ntim and Soobaroyen, 2013). Female directors, unlike their male counterparts, are more likely to support the social practices of their business due to psychological qualities that may make them more sensitive to stakeholder interests (Zhanget al., 2013; Jain and Jamali, 2016). Women’s decisions are usually more socially oriented than men’s, enabling them to more effectively address CSR challenges and stakeholder needs (Bearet al., 2010).
The participation of women on boards can improve stakeholder management effectiveness (Zhang et al., 2013; Pucheta-Martínez et al., 2018). Stakeholder theory proposes several explanations for this possibility. For example, female directors may possess more communal traits than males, such as love, helpfulness, compassion, personal sensitivity, nurturing and caring for the well-being of others. These traits may make it easier for them to hear specific stakeholders’demands (Eaglyet al., 2003). Women’s communal features may inspire the board of directors to consider a broader spectrum of stakeholders and think more widely about socially responsible corporate practices (Krüger, 2009; Tourignyet al., 2017). This is confirmed byGalbreath (2011), who emphasized that due to women’s relational abilities, they are more effective in dealing with multiple stakeholders and responding to their requirements, which indicates the achievement of CSR. In contrast, some studies have indicated opposite relationships between female board representation on the board and CSRD (Shamilet al., 2014;Majeedet al., 2015;Fahad and Rahman, 2020). Therefore, it is reasonable to predict that having women on boards will have a beneficial impact on the level of CSRD.
Accordingly, the following hypothesis is proposed:
H7. There is a significant relationship between director’s gender and CSRD in Jordanian industrial listedfirms.
Audit committee and corporate social responsibility
Audit committee size. Audit committee size refers to the number of members in the committee. The Jordanian corporate governance instructions (2017)state that the audit committee must have at least three nonexecutive board members, two of whom must be independent. An audit committee is expected to enhance communication between management and owners, reduce information asymmetry and agency costs, improve disclosure quality and enhance market performance (Saidet al., 2009).Suryono and Prastiwi (2011) also demonstrated that the audit committee recognizes the strategic benefit of voluntary disclosure, leading to an increased focus on enhancing accountability in reporting.
The literature on the relationship between audit committee size and CSRD showed different points of view.Othmanet al.(2014)reported that a larger audit committee size monitors a firm more effectively, resulting in higher-quality disclosure because it is more likely to have
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the capacity, experience and skills to ensure proper oversight over the extent of voluntary disclosure. Appuhami and Tashakor (2017) emphasized that the audit committee is responsible for supporting long-term operations goals from different dimensions: social, environmental and economic dimensions.Buallay and Al-Ajmi (2020)also indicated that there is a significant positive relationship between the size of the audit committee and the level of sustainability reports in the Gulf Cooperation Council banks. In contrast, some studies have indicated that larger audit committees may suffer from the free-rider problem and scattered responsibilities, which can impair CSRD policies (Mangena and Pike, 2005).
Hermawan and Gunardi (2019)concluded thatfirms with large size of audit committees tend to have less CSR disclosure. Others have found no significant relationship between audit committee size and CSRD (Jiziet al., 2014;Budiharta and Kacaribu, 2020). Based on the above arguments, we propose the following hypothesis:
H8. There is a significant relationship between audit committee size and CSRD in Jordanian industrial listedfirms.
Audit committee independence.The independence of the audit committee is often seen as a key feature that affects the effectiveness of the audit committee in thefinancial reporting oversight process. Audit committees comprising nonexecutive and independent board members contribute to enhancing accountability and transparency, thereby fostering greater reliability offinancial statements (Mohammadiet al., 2021). Nevertheless, empirical evidence regarding the relationship between audit committee independence and CSRD is mixed. Some studies have found that the degree of independence of the audit committee is positively associated with CSR.Mangena and Pike (2005)andPucheta-Martínez and De Fuentes (2007) indicated that a higher proportion of independent directors in audit committees are the most successful in enhancing the credibility offinancial and nonfinancial reports such as CSRD because they are free from the influence of management.Qaderiet al.
(2020)andGaras and ElMassah (2018) reported that the presence of independent audit committee members has a positive effect on CSRD because they are a key factor in enhancing information transparency for the benefit of all stakeholders. On the other hand, Rahman and Ali (2006)revealed an inverse relationship between the independence of the audit committee and the CSRD, suggesting that the independent members may play an ineffective supervisory role due to the dominance of management over board affairs, excessive workload and limited experience in the industry. However,Othmanet al.(2014) found no significant relationship between audit committee independence and CSR reporting.
Given the previous discussion, the following hypothesis has been proposed:
H9. There is a significant relationship between audit committee independence and CSRD in Jordanian industrial listedfirms.
Audit committee financial expertise. Audit committee financial expertise refers to the presence of members withfinancial expertise, such as accounting orfinance professionals or those holding specialized certifications. Audit committees’financial expertise and auditing knowledge increase the reliability offinancial reporting and the quality of disclosure (Salehi and Shirazi, 2016).Bedard and Gendron (2010)suggested thatfinancial expertise enables audit committee members to ask probing questions and conduct more thorough investigations, leading to greater transparency infinancial reporting and reduced agency conflicts.Ryuet al.
(2021)stated thatfirms with diversefinancial expertise on their audit committees tend to have higher qualityfinancial reporting and stronger CSR practices, as they have a better ability to monitor and control management. According toShaukatet al.(2016), the presence offinancial
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experts on audit committees is associated with a more proactive and integrated CSR strategy and higher social and environmental initiatives and can assist management in developing effective strategies for managing and reporting CSR-related risk. Moreover,financial expertise provides committee members with more experience and capabilities to ensure adherence to internal rules and regulations, thus enhancing their effectiveness in ensuring compliance with CSR policies (Yuet al., 2016). Previous studies have investigated and stated mixed evidence concerning whether audit committeefinancial expertise has an impact on CSRD.Jiziet al.
(2014)and Mohammadiet al. (2021)found that audit committeefinancial expertise has a positive significant effect on CSRD. On the contrary,Buallay and Al-Ajmi (2020)reported that thefinancial expertise of the audit committee has a negative significant relationship with CSRD. Appuhami and Tashakor (2017) and Qaderi et al. (2020) found no significant relationship between audit committeefinancial expertise and CSRD. In line with the above discussion, the following hypothesis has been proposed:
H10. There is a significant relationship between audit committeefinancial expertise and CSRD in Jordanian industrial listedfirms.
Research methodology Population and sample
This study focuses on all Jordanian industrialfirms that are listed on the ASE between 2016 and 2021. There were 53 firms at the end of 2021, but firms with incomplete data are excluded. Thefinal sample used in this study includes 38firms, with a total of 228firm-year observations. The data needed for this study was gathered from the annualfinancial reports of thefirms, which are available on the ASE website. To extract the CSR data from the firms’annual reports, content analysis was used. Panel regression analysis using STATA was performed to test the proposed hypotheses.
Variables definition
The dependent variable: corporate social responsibility disclosure. To assess the level of CSRD, the CSRD index was constructed. For this purpose, the checklist of 36 CSR items was created and developed through an extensive and careful review of three major sources. First:
the CSR literature and the selection of elements relevant to the Jordanian context [Haniffa and Cooke (2005),Matuszaket al.(2019),Abu Qa’dan and Suwaidan (2019),Ananzehet al.
(2022)]. Second: global reporting initiative–sustainability reporting standards (G4) that are issued to helpfirms understand and integrate sustainability issues (environmental, social and economic) into their policies and activities (Global Reporting Initiative, 2023). Third:
The legal and regulatory reporting requirements for the companies listed on the ASE, such as the Companies Law No. 22 for the year 1997 and its amendments, the Securities Law for the year 2002 and its amendments and Instructions of Issuing Companies’ Disclosure, Accounting and Auditing Standards for the year 2004 and its amendments.
We use the content analysis to extract CSR data fromfirms’annual reports (Kiliçet al., 2015). The checklist consists of four categories (environmental, community, human resource and products and consumers) covering an inventory of 36 items as shown inTable 3. A dichotomous approach is used to calculate the CSR index for each firm, if an item is disclosed it is given 1, and 0 if not disclosed. The total number of items disclosed is then summed up and then divided by the total number of items included in the checklist which is 36. Thus, afirm that discloses all items is awarded 100%, and afirm that does not disclose any item is awarded 0%. The CSRD index for eachfirm is calculated as follows:
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CSRD index i;t¼
X
361
di;t
36 where:
di¼is 1 if the item i is disclosed and 0 otherwise; and t ¼represents the years.
Independent and control variables and their measurements.Table 1lists the independent variables that represent ownership structure, board of directors and audit committee characteristics and their measurements. It also includes control variables and their measurements.
Regression model
To examine the effect of ownership structure, board of directors and audit committee on CSRD in Jordanian industrialfirms listed on the ASE during the period 2016–2021, this study estimated the model as follows:
CSRDi;t ¼ b0þ b1MANOi;tþb2 INSOi;tþb3OWCOi;tþb4BSIZ i;tþb5BINDi;t þb6CRODi;tþb7DGENi;tþb8ACSIZi;tþb9ACINDi;tþb10ACEXPi;t
þb12FSIZi;tþb12FPROi;tþb13FAGEi;tþ«i;t (1)
Analysis and results
Corporate social responsibility disclosure index
Table 2summarizes the CSRD index during the period 2016–2021. As shown in the table below, the highest CSRD (65.63%) was reported in 2020 and 2021, and the lowest CSRD (3.13%) was reported during the period 2016–2021. The average value of CSR from 2016 to 2021 was 31.10%. This means that thefirm disclosed on average (31.10%) out of the 36 items included in the CSRD index. As seen from the table, there were no significant changes infirms’disclosure during the period 2016–2021.
Evaluation of corporate social responsibility disclosure practice
Table 3displays the extent of disclosure of the items included in the CSRD index. Column (2) of the table represents four categories of CSR information, and each category is divided into a group of items. The table below shows that on average, two items were disclosed by more than 90% offirms in the sample, and both related to the disclosure of human resource information. These items are programs for employees’welfare (housing, transportation and meals) and the number of employees. Four items were disclosed by more than 70% and less than 90% of thefirms in the sample. These items are environmental policy, including any programs related to environmental protection and pollution control (water, air, noise and land), employee training programs,firm contribution to employees’social security, and any information related to the quality of products and services provided to customers. Seven items were disclosed by more than 40% and less than 70% of thefirms in the sample. These items are research and development programs related to thefirm’s products and services, employee health insurance and safety, firm’s recruitment, appointment and promotion policy, using equipment that reduces environmental pollution (such as solar panels and air filters), providing training programs for students, reducing and disposing of waste in ways
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that do not harm the environment (disposal of industrial waste and water in the right way) and end-of-service benefits. Six items were disclosed by more than 20% and less than 40%
of thefirms in the sample. These items are donations to government and public institutions, reducing pollution, donations to charitable organizations and nonprofit organizations, recycling activities, donations to public health institutions and health programs and donations to public educational institutions and any educational programs. Six items were disclosed by more than 5% and less than 20% of thefirms in the sample. These items are:
responding to customer complaints and focusing on customer satisfaction, tree planting and
Table 1.
Independent and control variable measurement
Variable Abbreviation Measurement Previous literature
Managerial ownership
MANO The number of shares owned by the executive management to the total number of outstanding shares
Al Maeeniet al.(2022),Dakhli (2021);Budiharta and Kacaribu (2020) Institutional
ownership
INSO The number of shares owned by the institutions to the total number of outstanding shares
Bataineh (2021),Nurleni and Bandang (2018);Salehiet al.
(2017),Majeedet al.(2015) Ownership
concentration
The percentage of shares held by the largest shareholders, who own 5% of thefirm’s shares
Lin and Nguyen (2022), Alkayed and Omar (2022);Al Farooqueet al.(2020) Board size BSIZ The number of directors on the board Ananzehet al.(2022),Effah
et al.(2022);Al Amosh and Khatib (2021),Batainehet al.
(2018) Board
independence
BIND Percentage of nonexecutive members to the total members of the Board of directors
Aboud and Yang (2022), Colakogluet al.(2021);Aliyu (2019),Diaset al.(2017) Cross directorship CROD Percentage of directors holding three
or more memberships on otherfirms’ boards compared to the total members of the board of directors
Soobaroyenet al.(2023),Rao and Tilt (2016)
Director’s gender DGEN If the board of directors has female directors, it takes one, otherwise zero
Alkayed and Omar (2022), Rezaei Pitenoeiet al.(2022);
Abedet al.(2020) Audit committee
size
ACSIZ The number of audit committee members
Buallay and Al-Ajmi (2020);
Abu Qa’dan and Suwaidan (2019);Salehi and Shirazi (2016)
Audit committee independence
ACIND Percentage of nonexecutive audit committee members to the total members of the audit committee
Qaderiet al.(2020),Othman et al.(2014)
Audit committee financial expertise
ACEXP If the committee includes at least one member with accounting orfinancial experience or a specialized professional certificate, it takes one;
otherwise, it is zero
Ryuet al.(2021),Mohammadi et al.(2021);Appuhami and Tashakor (2017),Mangena and Pike (2005)
Firm size FSIZ Natural logarithm (total assets) Aboud and Yang (2022), Bataineh (2021);Ongsakul et al.(2021)
Firm profitability FPRO Net income/total assets Aliyu (2019),Liaoet al.(2018);
Ibrahim and Hanefah (2016) Firm age FAGE The number of years since the
inception of thefirm
Ananzehet al.(2022),Al Amosh and Khatib (2021) Source:Elaborated by authors
Jordanian
evidence
landscaping projects, environmental research and development, disclosure of consumer safety practices, providing loans to employees and sustainability (any mention of sustainable development). Six items were disclosed as less than 5% of thefirms in the sample. These items are environmental awards and certificates, women’s employment, different activities to promote environmental awareness about environmental protection, employing women, minorities and people with special needs, sponsorship of various activities (sports, cultural, artistic and recreational) and youth empowerment. Five items were never disclosed by anyfirm during the period (2016–2021). Three of them relate to the disclosure of product/service information. These items are protecting consumer data and privacy, after-sales customer service (product warranty), providing awards for consumers, blood donation and employee study scheme.
Descriptive statistics
Table 4provides descriptive statistics for the study variables. The average value of CSRD is 31.10%, with a wide range of 3.1–60.4%, which indicates a large variation in the practices of CSRD within Jordanian industrial listedfirms. Thisfinding matches those ofAbu Qa’dan and Suwaidan (2019)andQaderiet al.(2020). In terms of the ownership structure, the results show that executives own on average only (2.3%) of the shares, ranging from (0%) to (40%), while (41.7%) of ownership is in the hands of institutional shareholders, ranging from (0%) to (97%), and the controlling shareholders own on average 26.6% of the shares. The average number of board members in a Jordanian industrialfirm is 7.54, with a minimum number of five members and a maximum number of 13 members, which is in line with Jordanian Corporate Governance Instructions (2017), which recommend a board of directors with a number of members ranging from 5 to 13. The mean value of the board independence is 93.20%, with a minimum of 60% and a maximum of 100%. Implying that, on average, 93.20% of board members were independent. In addition, the diversity of the board has a mean value of 12.5%, which indicates that the number of females out of the total board members was low compared to other countries. The mean value of the board directorship is 23.2%, which means that 23.2% of the board members in Jordanian industrialfirms hold three or more memberships on the boards of otherfirms.
Regarding the audit committee variables, Table 4 also shows that the number of directors on the audit committee ranges from two to seven, with a mean of 3.33 members.
The average audit committee member’s independence value is around 99.2%. This indicates that mostfirms have audit committees with independent directors. On average, 94.33% of audit committee members have financial expertise. Moreover, the average firm size is Jordanian dinar (JD) 105,858,523 with a minimum of JD 3,140,137 and a maximum of JD 1,505,176,000. The profitability of thefirm is measured by return on assets, which varies
Table 2.
Summary offirm’ CSRD index
Year # of observations Mean (%) S.D. (%) Min. (%) Max. (%)
2016 38 30.76 12.42 3.13 56.25
2017 38 31.06 12.57 3.13 56.25
2018 38 30.76 12.64 3.13 56.25
2019 38 31.22 13.48 3.13 62.50
2020 38 31.86 13.43 3.13 65.63
2021 38 30.96 13.49 3.13 65.63
Overall 228 31.10 13.01 3.13 60.42
Source:Elaborated by authors
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from85.71% to 36.07% with an average of 1.32%. It also appears that the majority of firms have, on average, 31.84 years of experience in the market.
Validity of data
Table 5reports the Pearson correlation matrix among all the independent variables and control variables involved in this study. As shown, the correlation coefficients between any two
Table 3.
CSRD checklist
No. Disclosure item Overall (%)
Disclosures of environmental information
1 Using equipment that reduces environmental pollution (such as solar panels and airfilters) 54.80
2 Recycling activities 29.2
3 Environmental awards and certificates 1.6
4 Environmental policy including any programs related to environmental protection and pollution control (water, air, noise, land)
70.3
5 Tree planting and landscaping projects 14.6
6 Different activities to promote environmental awareness about environmental protection 3.7 7 Reducing and disposing of waste in ways that do not harm the environment (disposal of
industrial waste and water in the right way.)
49.8
8 Reducing pollution 34.4
9 Environmental research and development 11.2
10 Sustainability (any mention of sustainable development) 7.8
Disclosures of community involvement information
11 Donations to charitable organizations and nonprofit organizations 29.5 12 Donations to public health institutions and health programs 21.4 13 Donations to public educational institutions and any educational programs 21.4
14 Donations to government and public institutions 38.0
15 Blood donation 0.0
16 Providing training programs for students 44.8
17 Sponsorship of various activities (sports, cultural, artistic and recreational) 3.1 18 Employing women, minorities and people with special needs 4.7
19 Youth empowerment 3.1
Disclosures of human resources information
20 Employees health insurance and safety 50.0
21 Women employment 4.7
22 Programs for employees’welfare (housing, transportation and meals) 90.6
23 Firm contribution to employees’social security 86.0
24 Employee training programs 76.0
25 End of service benefits 43.8
26 Providing loans to employees 14.0
27 Firm’s recruitment, appointment and promotion policy 46.9
28 Number of employees 93.8
29 Employee study scheme 0.0
Disclosures of products/services information
30 Any Information related to the quality of products and services provided to customers 77.1 31 Research and development programs related tofirm’s products and services 63.5
32 Protecting consumer data and privacy 0.0
33 Responding to customer complaints and focus on customer satisfaction 14.1
34 After-sales customer service (product warranty) 0.0
35 Disclosure of consumer safety practices 15.7
36 Providing awards for consumers 0.0
Source:Elaborated by authors
Jordanian
evidence
variables in the study are smaller than 0.8, which confirms the absence of multicollinearity (Gujaratiet al., 2017).
In addition, another test is conducted to test for the multicollinearity problem, as shown inTable 6. This test includes the use of the variance inflation factor (VIF) and tolerance (calculated as 1/VIF) to verify the degree of multicollinearity. If the VIF values are greater than 10 and tolerance values are less than 0.1, this indicates a potential multicollinearity problem between variables. As shown in the table, the VIF values are less than 10, and the tolerance values are not less than 0.1 as well. Therefore, there is no multicollinearity problem in our model (Hairet al., 2018).
Discussion of the regression results
Table 6reports the results of the estimation model investigating the effect of ownership structure, board of directors and audit committee characteristics on the level of CSRD. As shown inTable 6, the model is significant and reliable (F¼13.91, significance level¼0.000).
Table 4.
Descriptive statistics
Variable Observations Mean S.D. Min. Max.
CSR 228 0.311 0.129 0.031 0.604
Managerial ownership 228 0.023 0.073 0 0.40
Institutional ownership 228 0.417 0.283 0 0.97
Ownership concentration 228 0.612 0.266 0 1
Board size 228 7.540 2.294 5 13
Board independence 228 0.932 0.083 0.6 1
Cross directorship 228 0.232 0.190 0 0.78
Director’s gender 228 0.125 0.331 0 1
Audit committee size 228 3.332 0.800 2 7
Audit committee independence 228 0.992 0.080 0 100
Audit committeefinancial expertise 228 0.943 0.156 0 1
Firm size 228 105,858,523 270,042,197 3,140,137 1,505,176,000
Firm profitability 228 1.326 9.523 85.71 36.07
Firm age 228 31.843 18.111 8 68
Source:Elaborated by authors
Table 5.
Pearson correlation matrix
Variable MANO INSO OWCO BSIZ BIND CROD DGEN ACSIZ ACIND ACEX FSIZ FPRO FAGE MANO 1.000
INSO 0.0001 1.0000 OWCO 0.1502 0.5284 1.0000 BSIZ 0.11700.36740.1415 1.0000 BIND 0.1674 0.0702 0.2021 0.1288 1.0000 CROD 0.05100.20010.1957 0.2037 0.1038 1.0000 DGEN 0.20330.2716 0.0825 0.22020.03010.1672 1.0000 ACSIZ 0.02240.1258 0.0044 0.37310.0765 0.0169 0.2195 1.0000 ACIND 0.03060.10880.0443 0.03720.00150.00060.0613 0.0806 1.0000 ACEX 0.0180 0.0137 0.1650 0.0720 0.1406 0.09650.0302 0.01460.0353 1.0000 FSIZ 0.18220.0520 0.3965 0.3097 0.13910.0660 0.2135 0.2898 0.0531 0.2042 1.0000 FPRO 0.12520.0227 0.2812 0.1622 0.14590.0624 0.2448 0.0737 0.0236 0.0158 0.0997 1.0000 FAGE 0.1271 0.2335 0.1456 0.1996 0.24370.28820.0490 0.1903 0.00810.1535 0.2969 0.0429 1.0000 Source:Elaborated by authors
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The adjusted R-squared equals 0.467, which implies that 46.7% of the variation in the CSRD can be explained by the explanatory variables incorporated in this model.
The regression results show the different effects of ownership structure on CSRD; there is a significant positive relationship between managerial ownership and CSRD at a significance level (b ¼ 0.3462; p < 0.01). Therefore, the H1 is accepted. This result is supported by the agency theory, which argues that the higher the managerial ownership, the lower agency costs by aligning the interest of management and owners, they together act more cautiously in makingfirm decisions that increase shareholder value. Managers are implementing high-quality CSR activities, which improve thefirm’s image and reputation and ultimately enhance thefirm’s value and performance (Cho and Ryu, 2022). This result is in line with (Cho and Ryu, 2022) and in contrast withSolimanet al.(2013),Ullahet al.(2019) and Dakhli (2021), who found thatfirms with higher managerial ownership are less likely to engage in CSR activities.
The results further indicate a significant negative relationship between institutional ownership and CSRD at a significance level (b¼ 0.0745;p<0.05). Based on this result,H2 is accepted. Thisfinding means that a higher percentage of institutional ownership leads to lower levels of CSRD. One possible explanation for this relationship is that institutional investors are mostly short-term investors and are only interested in current income from their investments over future income due to uncertainty (Bataineh, 2021). This result is in contrast withHussainey and Aljifri (2012)andNurleni and Bandang (2018). In the case of ownership concentration, the study shows a significant and positive relationship with CSR performance at a significance level (b ¼0.0721; P < 0.10). Based on this result, H3is accepted. One possible justification for this relationship is that major shareholders may place more emphasis on CSR practices due to their social reputation and the long-term development of thefirm.
Regarding the board characteristics, the results reveal that board size has a positive effect on CSRD at a significance level (b¼0.0085;p<0.05). Therefore, theH4is accepted,
Table 6.
Regression results
CSR Coef. Std. err. t P>t VIF 1/VIF
Managerial ownership 0.3462 0.1081 3.20 0.002*** 1.37 0.730
Institutional ownership 0.0745 0.0352 2.12 0.036** 2.13 0.469
Ownership concentration 0.0721 0.0414 1.74 0.083* 2.61 0.383
Board size 0.0085 0.0039 2.15 0.033** 1.79 0.559
Board independence 0.4106 0.0932 4.40 0.000*** 1.31 0.764
Cross directorship 0.0305 0.0417 0.73 0.466 1.35 0.742
Director’s gender 0.0763 0.0246 3.10 0.002*** 1.42 0.702
Audit committee size 0.0065 0.0097 0.67 0.503 1.30 0.767
Audit committee independence 0.0016 0.0869 0.02 0.985 1.05 0.955
Audit committeefinancial expertise 0.0087 0.0472 0.19 0.853 1.17 0.852
Firm size 0.0459 0.0173 2.65 0.009*** 2.06 0.485
Firm profitability 0.0025 0.0007 3.16 0.002*** 1.24 0.808
Firm age 0.0001 0.0004 0.02 0.982 1.67 0.598
Constant 0.5411 0.1618 3.34 0.001
R-squared 0.504
Adj R-squared 0.467
F 13.91
Sig. 0.0000
Notes:***Significant at 1% level; **significant at 5% level; *significant at 10% level, Sig.¼significance level Source:Elaborated by authors
Jordanian
evidence
which suggests that larger boards tend to correlate with higher levels of CSRD. This result lends further support for the agency argument and stakeholder theory, which suggest that a larger board size helps to enhance the monitoring of management and stakeholder presentation on the board. Since they possess a diverse range of knowledge and experience, this makes them more efficient (in terms of workload and responsibility distribution) in setting the CSR agenda and promoting the communication of CSR information (Jizi, 2017).
This result is consistent with (Ananzehet al., 2022;Lin and Nguyen, 2022;Mohammadi et al., 2021;Zaidet al., 2019;Kiliçet al., 2015) and contradicts with (Aboud and Yang, 2022;
Matuszaket al., 2019). The results also indicate a significant positive relationship between board independence and CSRD at a significance level (b¼0.4106;p<0.01). Based on this result,H5is accepted. Thisfinding means that a higher percentage of independent members leads to higher levels of CSRD. This positive relationship is in line with the agency and stakeholder theory explanation that boards with relatively higher independence are presumed to help monitor management practices, encourage them to invest in long-term value-maximizing activities such as CSR projects and increase the level of transparency.
This result is consistent with (Zaidet al., 2019; Garas and Elmassah, 2018;Ibrahim and Hanefah, 2016; Zulkiflee, 2016) and in contrast (Abu Qa’dan and Suwaidan, 2019;
Sundarasenet al., 2016). With respect to the director’s gender, the results of the regression analysis show a significant positive relationship between the director’s gender and CSRD at a significance level (b¼0.0763;p<0.01). Accordingly,H7is accepted. This result means that the presence of female directors on Jordanian boards seems to have a positive effect on CSRDs. In other words, female leaders pay more attention to the interests of their stakeholders than male leaders, particularly to social and environmental issues. This can be explained by the fact that women are generally seen as more interested in social issues. This is confirmed by Fernandez and Thams (2019), who provide evidence that increased participation of women on boards leads to enhanced stakeholder management, as female directors tend to steerfirms toward philanthropy and community relations. This result is in line with (Al Maeeniet al., 2022;Endrikatet al., 2021;Lin and Nguyen, 2022;Zaidet al., 2019;
Garas and Elmassah, 2018;Ibrahim and Hanefah, 2016;Zulkiflee, 2016) and is contrary to (Abu Qa’dan and Suwaidan, 2019).
Moreover, the results reveal that there is a negative but insignificant relationship between cross-directorships and CSRD. Thus,H6is rejected. This result can be explained by what is known as the“busyness”argument (Ahnet al., 2010), which states that because directors serve on many boards, they may have difficulty understanding the nature and activities of each firm and therefore do not contribute effectively to making strategic decisions and carrying out the tasks assigned to them, including engaging in CSR activities.
This result is consistent with (Colakogluet al., 2021;Rao and Tilt, 2016) and contradicts (Soobaroyenet al., 2023;Alfraih and Almutawa, 2017).
Our results do not support that audit committee characteristics can significantly influence the level of CSRD; the coefficients of these variables are not statistically significant. Thus,H8– H10 are rejected. With regard to the control variables,Table 6 shows thatfirm size andfirm profitability have a positive effect on CSRD at a significance level (b¼0.0459;p<0.01) (b¼0.0025;p<0.01), respectively. Whilefirm age has an insignificant negative effect on CSRD at a significance level (b¼ 0.0001;p>0.05).
Conclusions, recommendations and suggestions for future research
In summary, the study highlights the importance of ownership structure, board of directors and audit committee in promoting CSRD in Jordanian industrialfirms. Ourfindings reveal that there is a great deal of variation in the practices of CSRD among the sampledfirms. On
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average, thefirm disclosed 31.10% of the items included in the index, with a wide range of 3.13–60.42%. A comparison of disclosure indices among the six years covered by this study showed that there was a very slight improvement in CSRD during the study period. This indicates that there is an urgency to improve CSR reporting, and there is a great potential for improving the disclosure of CSR information in the annual reports of industrialfirms.
Our results provide important insights into the impact of different aspects of the ownership structure on CRSD. Consistent with the agency theory of ownership structure, we find that managerial ownership and ownership concentration have a positive impact on CRSD. When managers possess a substantial number offirm shares, they tend to work toward maximizing shareholder value. Thus, they are more inclined to support CSR engagement if such efforts contribute to enhancing the overall value of thefirm. Also, when a few large owners hold a significant percentage of afirm’s shares, they may be better equipped to monitor management and ensure that CSR activities are undertaken in the best interest of thefirm and its shareholders. In addition, the negative impact of institutional investors on CSRD may indicate that institutional investors in Jordan prioritize short-term profits, possibly without fully recognizing the significance of CSR, and are not inclined to involve themselves in control-related matters or to take an active role in corporate governance. Ourfindings, therefore, provide empirical evidence to suggest that different shareholder groups have distinct effects on CSR engagement.
Thesefindings underscore the importance of overseeing management and ensuring that CSR initiatives are carried out in the best interest of the firm and its shareholders.
Furthermore, the characteristics of the board of directors, such as board size, board independence and gender diversity, play a crucial role in enhancing voluntary disclosure, including CSR information. These results support our argument that effective corporate governance entails monitoring the activities of thefirm’s management and striving for the organization’s legitimacy by ensuring compliance with regulations and meeting external expectations. Thefindings of our study provide support for the notion that a larger board size improves the board’s capacity to monitor and evaluate management and brings more expertise and knowledge, leading to greater CSRD. In addition, the results demonstrate that board independence, particularly through the presence of nonexecutive directors, promotes greater transparency and information disclosure. This influence may also extend to other directors, encouraging them to voluntarily disclose more information. As well, boards with relatively higher independence help monitor management practices, encouraging them to invest in long-term activities that increase shareholder value. Moreover, our results confirm that gender diversity also influences CSRD, with female directors displaying greater support for social disclosure by addressing CSR challenges. This finding suggests that female directors exhibit a stronger inclination toward social orientation in addressing CSR concerns. On the other side, the present study failed to reveal any significant relationship between cross-directorship and CSR performance.
Moreover, contrary to our initial expectations, our study did not yield significant evidence to support the significant role of audit committee characteristics in disclosing CSR information. Thisfinding suggests that audit committees may have limited effectiveness in overseeing managerial behavior and decision-making regarding CSR. One possible explanation for the lack of significant impact is that auditors primarily focus on ensuring regulatory compliance and financial reporting accuracy in accordance with accounting standards. Consequently, their level of interest in and involvement in the corporate social activities of thefirm may be insufficient, as CSR disclosure falls outside their primary responsibilities. Therefore, audit committee characteristics are not a determining variable for CSR disclosure.
