Corporate governance and corporate social responsibility disclosures in insurance companies

• Pages: 284-300
• Date: 07 May 2019
• DOI: https://doi.org/10.1108/IJAIM-10-2017-0120
• Published date: 07 May 2019
• Author: Md Shahid Ullah,Mohammad Badrul Muttakin,Arifur Khan

Corporate governance and

corporate social responsibility

disclosures in insurance companies

Md Shahid Ullah

Bangladesh Institute of Bank Management, Dhaka, Bangladesh

Mohammad Badrul Muttakin

Department of Accounting, Business School, Deakin University,

Melbourne, Victoria, Australia, and

Arifur Khan

Department of Accounting, Business School, Deakin University,

Geelong, Victoria, Australia

Abstract

Purpose –The purpose of this study is to empirically examine the association between corporate

governance and the extentof corporate social responsibility (CSR) disclosuresin insurance companies, using

archivaldata.

Design/methodology/approach –The data set comprises 277 listed insurance company-years in

Bangladesh for the period of 2008 to 2014.The authors have used a checklist to measure the extent of CSR

disclosures. The checklist was developed based on the previous CSR literature. The study uses a multiple

regression analysis technique to investigate the association between different governance variables,

particularlymanagerial ownership, institutional ownership,board independence and the proportion of female

directors,and the extent of CSR disclosures in Bangladeshi insurance companies.

Findings –The authors find that boardindependence and the proportion of female directors have positive

associations with the extent of CSR disclosures.However, the results indicate that managerial ownership is

negativelyassociated with the extent of CSR disclosures.

Originality/value –Unlike most of the prior research that explored CSR disclosures in non-financial

companies, the authors focus on financial companies, namely, insurance businesses. The authors provide

empirical evidence using archival data that suggests that some governance mechanisms are important

determinantsof CSR disclosures in the insurance industry.

Keywords Corporate governance, Corporate social responsibility, Legitimacy theory,

Insurance companies

Paper type Research paper

1. Introduction

Our study attempts to examine the association between different corporate governance

variables and the extent of corporate social responsibility (CSR) disclosures in Bangladeshi

insurance companies. Business organizations impact significantly on society through their

activities. Nowadaystherefore, companies adopt CSR strategies and undertake various CSR-

related activities to ensure sustainablebusiness practices. CSR strategies help companies to

create a balance between their social and economic goals and the efficient use of limited

resources. CSR considers the interests of all stakeholders, rather than only those of

stockholders by taking society, ecology and ethics into account. CSR strategies may help a

IJAIM

27,2

284

Received11 October 2017

Revised21 January 2018

Accepted6 February 2018

InternationalJournal of

Accounting& Information

Management

Vol.27 No. 2, 2019

pp. 284-300

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-10-2017-0120

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1834-7649.htm

business to be competitive in the market(Mittal et al., 2008). For a company to position itself

as a responsible corporate citizen, differentiate it from competitors, and enjoy competitive

advantages (Porter and Kramer,2006;Smith, 2003;Smith and Higgins, 2000), it needs to not

only discharge its social and environmental responsibilities but also to communicate its

superior socio-environmental performance to the relevant stakeholders. This is because

stakeholders are crucial to the success of businesses and are now increasingly concerned

about corporatesocial and environmental performance (Hossainand Alam, 2016).

Regarding CSR disclosures, the prior studies mostly focus on non-financial companies

and ignore the financial sector; and in particular, insurance companies. Like any other

businesses, insurance companies have a significant impact on human, social and

environmental developmentby mobilizing funds from the surplus small savers to the deficit

units (Chong, 2015) and supporting the socioeconomic activities of a country. Unlike

manufacturing companies, the socio-environmental impacts of insurance businesses may

not be visible due to their indirect and intermediary activities. By accepting therisk of loss,

insurance companies strongly support individuals, other businesses and society at large

(Greenbaum and Thakor, 2007). Scott (2003) argues that insurance companies consider

social, ethical and environmental conditions in selling their products and making

investments. Scott (2003) further argues that insurance companies also profoundly impact

society (by eradicating poverty and inequality) through their mainstream activities and

social performance. The insurance industry has a special social role as a manager of

medium- and long-term risks throughoutthe lifecycle of individuals and societies. Insurance

companies, especially life insurers, promote sustainability and social well-being with their

medium- and long-term products (Atchinson, 2004). Through their active monitoring role,

insurance companies induce other companies to adopt good governance and socially

responsible practices(Marsiglia and Falautano, 2005;Scholtens, 2011). By accepting the risk

of loss, the insurance companies supportindividuals and business to perform their activities

smoothly. Therefore, the CSR of insurance companies is critically important for promoting

social solidarity and inclusivegrowth.

By reviewing the literature on CSR disclosures, it appears that the issue of corporate

social activities has not been widely researched in the insurance industry. Moreover, the

current evidence in this area is mostly qualitative in nature. For example, Das (2013) finds

that non-life insurance companies provide significantly less CSR information than life

insurance companies. He also documents that insurance companies emphasize human

resources, products and services disclosures more heavily compared to environmental and

community-related issues.Similarly, Scholtens (2011) reveals that insurance companiespay

less attention to environmental concerns. Obalola (2008) finds that insurance companies in

Nigeria engage in CSR-related activities through their involvement in community-based

projects. Olowokudejo et al. (2011) reveal that consumer affairs receive the most active

attention of insurance companies. Hsu (2012) documents that customer perceptions of the

CSR performance of life insurance companies are positively associated with customer

satisfaction, business reputation and brand equity. Collectively, these studies focus on

different areas of CSR disclosure, as wellas the reasons for making such disclosures, using

qualitative methodologies.Moreover, these studies also delineate policyholders’perceptions

of CSR disclosures. However, there is a paucity of empirical evidence in regard to CSR

disclosures by insurancecompanies, using archival data.

Previous studies suggestthat corporate governance can influence CSR practices (Haniffa

and Cooke, 2005;Khan et al.,2013). However, neither of these studies explore the association

between corporate governance and CSR practices in insurance industries. Like any other

business organization, corporate governance is also important for insurance companies.

Corporate

governance

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