Examining the social pressures on voluntary CSR reporting: the roles of interlocking directors

Purpose Corporate social responsibility (CSR) reporting is a widely accepted procedure for firms to disclose their performance in multiple domains, including environmental protection, labour welfare, protection of human rights, community services, contribution to society and pursuit of product safety. This study aims to investigate whether and how board interlocks affect firms’ decisions with respect to CSR reporting. This study argues that board interlocks act as an important source of social pressure and firms are influenced by their peer firms to adopt CSR reporting. Design/methodology/approach This paper sampled listed companies on China’s Shanghai and Shenzhen Stock Exchanges from 2009 to 2015. The data were collected from Runling database and China Stock Market and Accounting Research database. A multi-period logit model was used to conduct the main regression analysis and the propensity score matching method was used in the robustness checks. Findings A study based on a sample of Chinese publicly listed firms from 2009 to 2015 confirms the argument and shows that sharing a common director on the board with a previous CSR reporter facilitates the firm’s engagement in CSR reporting. Furthermore, this study shows that the influence of board interlocks on CSR reporting depends on the following three characteristics: status of the interlocking director, size of the linked CSR reporter and performance implications of previous CSR activities. Research limitations/implications The interpretation of the current findings should be considered in light of these limitations. First, while board interlocks are an important social aspect of institutional pressure, other types of social pressure exist. Second, the focus is on CSR reporting decisions. However, CSR reporting can also be symbolic, with little substantive quality to improve CSR-related activities. Third, this study argues that both regulatory and social pressures influence the decision to report on CSR. However, this study was unable to determine the weight of each pressure. Future research should follow this direction. Finally, the influence of certain behaviours through interlocks is stronger in the initial stage of the institutionalisation process. Practical implications The findings of this study have important implications for practitioners. First, the messaging role of interlocking directors suggests that director selection should consider the effectiveness of information transfer. Knowing and analysing specific interlock and its links with the firm’s strategy is very important. Meanwhile, firms should be vigilant that the balance between the access to information and loss of autonomy because searching for information related to firms’ strategic decisions might challenge current strategy. Second, the results of the study suggest that to effectively urge companies to engage in CSR reporting, government and policy makers should consider beyond institutional pressure, but also be sensitive to the social pressure exerted upon the companies. Social implications The positive role of board interlocks on corporate voluntary CSR reporting can not only make valuable contributions to the Chinese society but also, as an important participant of global economy and trade, the Chinese interlocking directors’ contribution to CSR reporting have global benefits. Originality/value This study extends the institutional perspective on CSR reporting by uncovering the effect of social pressure. It advances the literature on the antecedents of CSR reporting by linking board interlocks to CSR reporting. Finally, the study enriches the broader interlock literature by delineating three specific characteristics of interlocks that influence CSR reporting.

Birds of a Feather Flocking Together: Sustainability of Tax Aggressiveness of Shared Directors from Coercive Isomorphism

The purpose of the study is to examine the sustainability of the tax aggressiveness of shared directors from coercive isomorphism and whether social networks of directors have an impact on their tax aggressiveness. Specifically, the study intends to examine how tax knowledge diffuses across firms and how this knowledge diffusion affects connected firms. To test the constructed hypothesis, the panel logistic regression model is estimated using a firm-level panel dataset for the US and Pakistan to analyze cross-country differences, as the USA holds more legislation and effective governance mechanisms. The study covers the period of 2007–2019. The data required for the empirical analysis was collected from the Thompson Reuters database. The results of panel logistic regression show a significant relationship between tax aggressiveness and director’s connections, suggesting that information diffuses by board interlocks. Specifically, the estimates suggest that there is a positive and significant influence of connected directors on the probability that the tax aggressiveness spreads through coercive isomorphism, inferring that the sustainability of the tax aggressiveness of shared directors from coercive isomorphism is strong. Findings reveal that Pakistani firms, when compared to the USA, are more likely involved in tax aggression because of fewer legislations and tax reforms. The results also reveal that coercive isomorphism significantly mediates the relationship between board interlocks and tax aggressiveness. These findings provide valuable insights into detecting the tax aggressiveness of firms and the channels through which this spread. The study contributes to the scarce research on the impact of board interlocks on tax aggressiveness and the influence of coercive isomorphism on these impacts. This study can help tax authorities in identifying tax-saving strategies through connected directors. Secondly, this study provides empirical evidence to support the diffusion of information regarding tax aggression and provides mechanisms with which to detect tax aggression. Third, our choice of empirical context also helps us contribute to the management practice of firms. CEOs and boards should be wary of interlocks with organizations, lest they inadvertently become reticent and hence prove to be of no good.

Corporate boards, interorganizational ties and profitability: the case of Japan

We analyze the ties between 4000 Japanese corporations in the time period from 2004 until 2013. We combine data about the board composition with ownership relationships and indicators of corporate profitability. The board network exhibits some clustering, which can partly be explained by ownership relations, and a tendency to form ties to other corporations from the same sector. Connectivity in the board network (corporate board interlocks) and ownership network (shareholdings) does have an influence profitability. Firms that are linked to peers with above average profitability are more profitable than firms in other relationships. Hence, network effects partly explain why board interlocks and ownership ties are not always beneficial.

Do Director Networks Help Managers Forecast Better?

I examine whether directors' superior access to information through their board network improves the accuracy of firms' forecasting. Managers may benefit from well-connected directors (i.e., board centrality) as they may have limited insight into market developments or decision-making processes of other firms beyond knowledge specific to their firm. Employing a sample of U.S.-listed companies, I separately examine the effect of within-firm variation in direct and indirect board connections on management earnings forecast accuracy. The study contributes by showing that higher-degree connections can have an economically significant effect on the accuracy of management forecasts, regardless of firms' board interlocks. Further analyses point toward well-connected directors' ability to provide managers with valuable advice in a forecasting context, which complements directors' more extensively studied role in preventing managerial expropriation.

Do Interlocks Lead to the Convergence of Interfirm Innovation Performance? Evidence From China

We examine how interlocking directorates influence innovation performance differentials between firms. Our study offers a new perspective of the effect of interlocking directorate ties upon innovation performance, focusing on network effects on interfirm performance. Using a sample of China’s listed companies for the period 2012–2016, we empirically examined the relationship between board interlocks and interfirm innovation performance differentials. The results demonstrate that the presence of board interlocks reduces interfirm innovation performance differentials and leads to a convergence of innovation performance between the connected companies. Furthermore, cross-level analysis found that the relationship between board interlocks and interfirm innovation performance differentials is moderated by the interfirm industry attributes and demographic characteristics of the board. This study expands the existing research in explaining the driving mechanism of enterprise innovation performance as affected by interlocking directorate ties.