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CORPORATE GOVERNANCE AND CORPORATE SOCIAL PERFORMANCE:

A META-REGRESSION ANALYSIS



Hossam Zeitoun
Warwick Business School
University of Warwick
Coventry, CV4 7AL (UK)
Tel. +44 24 7652 84 84
hossam.zeitoun@associate.wbs.ac.uk





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CORPORATE GOVERNANCE AND CORPORATE SOCIAL PERFORMANCE:
A META-REGRESSION ANALYSIS

Abstract
Corporate managers often face public pressure to focus not only on increasing their firms
financial performance, but also on meeting the expectations and demands of various stakeholders
of the firm. Therefore, recent corporate governance research has begun to examine how different
corporate governance characteristics influence not only the corporations financial performance,
but also its social performance. Among the investigated corporate governance characteristics are
the size of the board of directors, its independence, CEO duality, ownership concentration, and
the share of equity held by corporate directors and managers. This study provides a meta-
regression analysis that seeks to examine the existing research to assess the overall evidence as
well as the moderators and potential publication bias. The study distinguishes between different
types of social performance, which reflect the firms disclosure, their ratings, and their actual
behavior. Preliminary analysis shows that the different corporate governance characteristics vary
in their influences on the different types of corporate social performance. I discuss the
implications of the meta-regression analysis, in particular concerning the debate about what
constitutes good corporate governance and how it depends on different contingencies.

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What constitutes good corporate governance? This question has sparked extensive debates within
academia, among regulators, and in the business world. Academic debates have revolved around
the proper purpose of corporate governance (e.g., Blair, 2003); regulators discuss and create
codes of good governance practice (e.g., Aguilera & Cuervo-Cazurra, 2009); and corporate
directors and managers attempt to signal to investors and the public that their company is well
governed (e.g., Zattoni & Cuomo, 2008). However, as the following alternative definitions of
corporate governance show, there are different points of view on how to judge the outcomes of
corporate governance.
On the one hand, the standard law and economics perspective suggests that corporate
governance deals with the ways in which suppliers of finance to corporations assure themselves
of getting a return on their investment (Shleifer & Vishny, 1997: 737). This perspective has
engendered a large body of research, implying that the outcomes of corporate governance need
to be judged by the corporations financial performance. On the other hand, recent research in
the management field and in a variety of related disciplines take the broader view that corporate
governance addresses relationships between parties with a stake in the firm (Aguilera &
Jackson, 2010: 491). Theories based on incomplete contracting emphasize that, in addition to
shareholders, various other stakeholders invest in the firm and bear firm-specific risks (Asher,
Mahoney, & Mahoney, 2005; Blair & Stout, 1999; Klein, Mahoney, McGahan, & Pitelis, 2012;
Zingales, 1998, 2000). Moreover, corporate accounting scandals, such the Enron and WorldCom
scandals, have increased the awareness that corporate governance failures often have
repercussions not only for shareholders, but also for employees, customers, and the wider society
(Blair, 2005; Clarke, 2007). Therefore, stock price changes are not reliable indicators of welfare
changes even when the market is perfectly efficient (Zingales, 2000: 1635).

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Traditionally, the research literature has placed a stronger emphasis on financial
performance as the main outcome. Numerous studies and meta-analyses have investigated the
relationship between corporate governance characteristics and financial performance (Dalton,
Daily, Ellstrand, & Johnson, 1998; Dalton, Daily, Johnson, & Ellstrand, 1999; Essen,
Oosterhout, & Carney, 2012; Rhoades, Rechner, & Sundaramurthy, 2000, 2001; Sundaramurthy,
Rhoades, & Rechner, 2005; Wagner, Stimpert, & Fubara, 1998). The studies tend to show that
elements associated with good corporate governance, such as an independent board of directors
and the absence of CEO duality, are positively correlated with financial performance. However,
the results are mixed and often inconclusive.
In contrast, the broader stakeholder perspective implies that researchers need to look
beyond financial measures to assess a corporations governance. An alternative performance
criterion, which has recently gained traction in the research literature, is corporate social
performance, defined as a business organizations configuration of principles of social
responsibility, processes of social responsiveness, and policies, programs, and observable
outcomes as they relate to the firms societal relationships (Wood, 1991: 693). An important
strand of research has examined the relationship between corporate social performance (CSP)
and financial performance (FP). Empirical results often showing a positive relationship between
the two constructs (Brammer & Pavelin, 2006; Margolis & Walsh, 2003; Orlitzky, Schmidt, &
Rynes, 2003). However, Wood (2010: 76) calls for a temporary ceasefire on CSPFP research,
suggesting that financial performance is just one dimension of the firms overall social
performance. Instead of viewing corporate social performance as subordinate to financial
performance, the stakeholder perspective considers corporate social performance an outcome in
and of itself (Zingales, 2000).

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The present paper provides a meta-regression analysis that seeks to investigate the
research on the relationships between different corporate governance characteristics and
corporate social performance. The aim is to assess the overall evidence as well as the moderators
and potential publication bias. The study distinguishes between different types of social
performance, reflecting the firms disclosure, their ratings, and their actual behavior. Preliminary
analysis shows that the different corporate governance characteristics vary in their influences on
the different types of corporate social performance. I discuss the implications of the meta-
regression analysis, in particular concerning the debate about what constitutes good corporate
governance and how it depends on different contingencies.
CORPORATE GOVERNANCE CHARACTERISTICS AND THEIR EFFECTS
Corporate governance determines the broad uses of organizational resources and the resolution
of conflicts among the various participants in corporations (Daily, Dalton, & Cannella, 2003:
371). As such, corporate governance provides an arena where the demands and expectations of
numerous stakeholders confront each other and need to be reconciled. Much of the research
literature on corporate governance has focused on the potential conflict of interests between two
important stakeholders, namely shareholders and managers. This theoretical approach, called the
principal-agent model (Fama, 1980; Jensen & Meckling, 1976), assumes that the managers
interests can diverge from the shareholders interests due to the separation of ownership and
control (Berle & Means, 1932). The shareholders as principals delegate control over the
corporation to managers as their agents. As there is asymmetric information between
shareholders and managers (i.e., managers being better informed), managers may deploy the
corporations resources in ways that are not in their principals best interests. The shareholders
claims are considered paramount because all other stakeholders are assumed to be able to write

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complete contracts, which protect their claims in their relationships with the corporation
(Hansmann & Kraakman, 2001).
In contrast, theories based on incomplete contracting suggest that various stakeholders
are unable to protect their claims fully and therefore require their interests to be safeguarded
(Asher et al., 2005; Blair & Stout, 1999; Klein et al., 2012; Zingales, 1998, 2000). Stakeholders,
such as employees, creditors, customers, suppliers, and the local community, often make firm-
specific investments that are difficult to protect through formal contracts (Mahoney & Qian,
2013; Williamson, 1985). As a consequence of incomplete contracting, the corporations
financial performance understates the value created by the corporation (Blair, 1995). Measures
such as financial profits or stock price changes focus on the value created to shareholders, not to
other stakeholders. Similar to Woods (2010) conceptualization of social performance, the
incomplete contracting perspective submits that the corporations financial performance is just
one dimension of its overall value creation.
Which corporate governance characteristics may influence the corporations social
performance? Research studies generally have focused on two realms, namely the board of
directors (e.g., its size, its independence from management, and the presence or absence of CEO
duality) and the corporations ownership structure (e.g., the degree of ownership concentration
and the amount of shares held by insiders, in particular, directors and managers). The following
sections outline how these different corporate governance characteristics may influence
corporate social performance.
On the one hand, the principal-agent model suggests that boards of directors that are
beholden to corporate managers may neglect the shareholders interests (Eisenhardt, 1989).
Specifically, CEOs and managers are more likely to be able to dominate boards when boards are

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large, have few independent directors, and are characterized by CEO duality (i.e., the CEO acts
simultaneously as chairman of the board) (Dalton, Hitt, Certo, & Dalton, 2007). With regard to
corporate ownership structure, a low degree of ownership concentration reduces the monitoring
of managers by shareholders, and little share ownership by insiders reduces the extent to which
the managers interests are aligned with those of shareholders (Aguilera & Jackson, 2010). When
managers can dominate boards, and when corporate ownership structure reduces monitoring and
interest alignment, managers can be said to have high latitude of objectives (Shen & Cho, 2005).
As a consequence, they may engage more in corporate social responsibility (CSR) related
activities for self-serving reasons (Dahyaa & McConnell, 2004; Ibrahim, Howard, & Angelidis,
2003).
On the other hand, the research literature also reveals the opposite hypothesis. For
instance, Kock, Santal & Diestre (2012) predict environmental performance using stakeholder-
agency theory (Hill & Jones, 1992), which models incomplete contractual relationships between
stakeholders and the corporation. Kock et al. (2012: 495) submit that managers are not keen to
engage in environmentally friendly strategies because reducing waste emissions requires a lot of
managerial effort, whereas shareholders are less negatively or even positively affected by these
strategies. Hence, managers with greater latitude of objectives may engage less in CSR related
activities.
To reconcile these two positions, I submit that the type of CSR related activities has a
moderating effect on the relationship between the managers latitude of objectives and corporate
social performance. In the case of highly visible activities that require little managerial effort
(e.g., disclosing information about their CSR-related activities), high latitude of objectives is
likely to increase corporate social performance. However, in the case of less visible and more

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effortful activities (e.g., emission-reducing strategies), high latitude of objectives is likely to
decrease corporate social performance.
This proposed moderating effect is somewhat related to the distinction between explicit
and implicit CSR. Matten and Moon (2008: 409) describe explicit CSR as corporate policies that
assume responsibility for societal interests, typically using the language of CSR. In contrast,
implicit CSR represents values, norms, and rules, which cause corporations to address
stakeholder issues. Explicit CSR is highly visible and rests on managerial discretion, thus
enabling managers to choose activities that require little managerial effort. In contrast, implicit
CSR is less visible and characterized more by managerial efforts to comply with the
corporations formal and informal institutional environment.
To summarize, the managers latitude of objectives is likely to be increased by large
boards, few independent directors, CEO duality, small ownership concentration, and little inside
ownership. I submit that high latitude of objectives increases corporate social performance in
highly visible and less effortful activities, but decreases corporate social performance in less
visible and more effortful activities.
METHODS AND DATA
The primary studies for this meta-regression analysis were drawn from an internet search of
research articles. In order to collect these articles, a comprehensive search was conducted using
Google Scholar as well as the Web of Science and EBSCO databases. With regard to corporate
governance characteristics, the keywords included board attributes, board characteristics,
board composition, board of directors, board independence, board size, CEO duality,
and ownership. With regard to corporate social performance, the keywords included social
performance, corporate social responsibility, environmental performance, disclosure,

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environmental disclosure, social disclosure, corporate philanthropy, and environmental
protection. In addition, extensive manual searches were undertaken to detect additional articles
by consulting the reference lists of collected articles and by searching subsequent articles that
cited the collected ones. The search encompassed English-language research literature for the
period until June 2012.
This procedure resulted in 218 articles that were usable for the meta-regression analysis.
The collected articles included at least one of the corporate governance characteristics and a
measure of corporate social performance. Further, they contained regression analyses, which
presented the effect size and a measure of the estimates precision. Studies using logit or probit
models were not appropriate for this meta-regression analysis and were excluded. 75 percent of
the studies were published articles, and the others were unpublished manuscripts.
In the following sections, I describe the main variables with regard to the corporate
governance characteristics and the different types of corporate social performance.
Corporate Governance Characteristics
The following five corporate governance characteristics are investigated. First, the size of the
board of directors generally represents the number of directors on the board. Second, the boards
independence refers to the proportion of directors who are deemed independent because, for
instance, they are neither employed by the corporation nor affiliated through family or business
ties. The assumption is that such independent directors are less beholden to the corporations
management and therefore are better able to monitor managers. Third, CEO duality describes the
fact that the same person acts as CEO and as chairman of the board. Fourth, inside ownership
refers to the proportion of equity held by insiders, in particular corporate directors and managers.

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Fifth, ownership concentration indicates the extent to which the corporations equity is held by
large shareholders, which are often described as blockholders.
Corporate Social Performance
The research literature shows clearly that there is no agreement on a single way of measuring
corporate social performance. Furthermore, the measurements are not always tied to theoretical
criteria. For example, Wood (2010: 63) posits that most studies on corporate social performance
give a nod in the direction of theoretical CSP [corporate social performance] developments, and
then choose a CSP measure with minimal or no reference to any of those developments.
Nevertheless, the measurements adopted in empirical studies can be broadly categorized into the
following groups.
The most basic type of measurement refers to the corporations disclosure of CSR-related
information (Brammer & Pavelin, 2006; Mallin, Michelon, & Raggi, 2013; Roberts, 1992).
Voluntary corporate disclosure reduces the information asymmetries between the firms
management and its different stakeholders (Cormier, Ledoux, & Magnan, 2011). Generally,
voluntary corporate disclosure may have instrumental benefits in lowering the corporations cost
of capital, especially when these disclosures concern accounting and governance issues (Lang &
Lundholm, 1993). However, Gelb and Strawser (2001: 1) suggest that more importantly firms
disclose because it is the socially responsible thing to do. Similarly, Wood (2010: 69) suggests
that disclosure can be seen as a fulfillment of the principles of legitimacy and public
responsibility, or as a responsive process, or as an outcome relevant to a variety of stakeholders.
Furthermore, corporate directors and managers who believe that their corporation fares better
than average (e.g., with regard to their social and environmental activities) have incentives to
increase transparency and disclose information voluntarily (Grossman, 1981).

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The second type of measurement relates to ratings of corporate social performance,
which are undertaken by independent analysts, such as KLD in the United States or CSID in
Canada. Social performance ratings are typically based on publicly available information as well
as interviews (Hillman, Keim, & Luce, 2001). For instance, the KLD rating covers issues
associated with community, corporate governance, diversity, employee relations, environment,
human rights, and products (KLD Research & Analytics, 2003). In contrast to voluntary
disclosures, social performance ratings offer an external judgment of the corporations social
performance. However, as the main rating indices are country-focused, the primary studies using
ratings are often unable to compare corporations internationally.
The third type of measurement concerns managerial behavior. For example, managers
can decide to make charitable contributions and increase the recycling of material in the
production process (Berrone & Gomez-Mejia, 2009; Brammer & Pavelin, 2006). In addition,
managers can take actions to decrease the corporations negative externalities, for instance, by
reducing toxic emissions and preventing unlawful behavior (Berrone, Cruz, Gomez-Mejia, &
Larraza-Kintana, 2010; Kock et al., 2012). The strength of behavioral measurements of social
performance is that they closely reflect managerial decisions about resource deployments.
However, studies using these measurements can rely only on disclosed information, thus limiting
the range of managerial behavior that can be studied.
In the preliminary analysis of the present meta-regression, I adopt the distinction of four
types of social performance: CSR-disclosures, environmental disclosures, ratings, and behavior. I
assume that disclosure reflects explicit CSR, whereas the other categories are closer to implicit
CSR. In future analysis, I plan to add further criteria to refine our understanding of the empirical
relationships.

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RESULTS
The following preliminary results follow meta-regression methods that have been developed for
economics and business research (Doucouliagos & Stanley, 2009; Stanley, 2001, 2005, 2008;
Stanley & Doucouliagos, 2010, 2012). I present the funnel graphs, FAT (funnel asymmetry test),
PET (precision effect test), and PEESE (precision effect estimate with standard error).
The results are based on the average effects per study, weighted by precision. In future
analysis, I plan to extend the results by using the individual effects and conducting multi-level
regression and meta-regression using cluster-robust standard errors. Each of the following tables
displays the relationship between one of the five corporate governance characteristics and
corporate social performance. In those cases where an empirical effect is found, I also present the
multivariate version using moderators (i.e., the type of social performance as well as other study
characteristics).

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Board independence and social performance
0
5
0
1
0
0
i
n
v
_
s
e
-.2 0 .2 .4 .6
part_corr

(1) (2)
VARIABLES t t

1/SE 0.0266** 0.0223**
(0.0116) (0.00878)
SE 3.191
(2.893)
Constant -0.0495
(0.368)

Observations 55 55
R-squared 0.089 0.168
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1


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Board size and social performance
0
1
0
2
0
3
0
4
0
5
0
i
n
v
_
s
e
-.4 -.2 0 .2 .4 .6
part_corr

(1) (2)
VARIABLES t t

1/SE 0.0483 0.0495**
(0.0344) (0.0226)
SE -2.292
(4.510)
Constant -0.113
(0.679)

Observations 28 28
R-squared 0.070 0.170
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1


15
CEO duality and social performance
0
2
0
4
0
6
0
8
0
1
0
0
i
n
v
_
s
e
-.4 -.2 0 .2 .4
part_corr

(1) (2)
VARIABLES t t

1/SE 0.00653 0.000762
(0.0139) (0.0103)
SE -4.726
(3.562)
Constant -0.451
(0.401)

Observations 31 31
R-squared 0.008 0.066
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1


16
Inside ownership and social performance
0
2
0
4
0
6
0
8
0
1
0
0
i
n
v
_
s
e
-.4 -.2 0 .2 .4
part_corr

(1) (2)
VARIABLES t t

1/SE 0.00668 -0.000477
(0.0142) (0.0103)
SE -5.486
(4.038)
Constant -0.560
(0.486)

Observations 30 30
R-squared 0.008 0.071
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1


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Ownership concentration and social performance
0
2
0
4
0
6
0
8
0
1
0
0
i
n
v
_
s
e
-.4 -.2 0 .2
part_corr

(1) (2)
VARIABLES t t

1/SE 0.0125 0.000753
(0.0104) (0.00776)
SE -5.318**
(2.302)
Constant -0.723**
(0.296)

Observations 40 40
R-squared 0.037 0.136
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

The above results show that only board independence has a significant effect on social
performance in both the FAT-PET and the PEESE estimations. Furthermore, only ownership
concentration exhibits publication bias.

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Multivariate estimation: Board independence and social performance
In the following, I present the multivariate version of the estimation of the relationship between
board independence and social performance. As moderators for publication bias, I entered: year
of publication, published vs. unpublished study, and objective vs. subjective measure of social
performance. As moderators for the effect of board independence on social performance, I
entered: year of publication, published vs. unpublished study, objective vs. subjective measure of
social performance, type of CSR category (CSR-disclosure, environmental disclosure, rating,
behavior), and the countries of the corporations (Anglo-Saxons, Asians, others).
After removing the insignificant variables, the following multivariate FAT-PET and
PEESE estimations are shown (see next page).

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(1) (2) (3)
VARIABLES t t t

Year of publication 0.0683
(0.128)
Published study -0.698
(1.018)
Objective CSP measurement 2.086
(5.126)
1/SE 8.924 0.00120 0.00139
(16.05) (0.0139) (0.0124)
1/SE * Year of publication -0.00439
(0.00798)
1/SE * Published study 0.0669** 0.0460*** 0.0445***
(0.0280) (0.0156) (0.0154)
1/SE * Objective CSP measurement -0.0126
(0.224)
1/SE * CSP-rating -0.0483
(0.0553)
1/SE * CSP-behavior -0.117* -0.0726*** -0.0742***
(0.0586) (0.0253) (0.0242)
1/SE * Environmental disclosure -0.0192
(0.0492)
1/SE * Anglo-Saxon -0.0538
(0.0758)
1/SE * Asian -0.0756
(0.0730)
SE 3.443
(2.594)
Constant -139.1 0.114
(257.3) (0.341)

Observations 55 55 55
R-squared 0.367 0.307 0.373
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1




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The results show that published study positively moderates, and the CSR category
CSP-behavior negatively moderates, the relationship between board independence and social
performance. Recall that the above results are based on the weighted average effects per study.
To check the robustness of the results and to find additional moderators, I will conduct the meta-
regression analysis using the individual effects. The preliminary conclusion is that more
independent boards of directors increase the corporations responsiveness to societal concerns.
This effect is stronger with regard to CSR-related disclosures and ratings, and less pronounced
when corporate social performance is measured by concrete managerial actions. Furthermore,
although there is no evidence for selection bias in the funnel asymmetry test, published studies
report stronger associations between board independence and social performance.





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