THE IMPACT OF BOARD COMPOSITION ON CORPORATE FINANCIAL AND SOCIAL RESPONSIBILITY PERFORMANCE: EVIDENCE FROM PUBLIC-LISTED COMPANIES IN TURKEY

Presented by: Group 3

Avash BhattaraiHimalaya Ban

Kalpana ParajuliKushal Shrestha

Kader Sahin

Department of Business Administration, Karadeniz Technical University, Trabzon, Turkey.

Cigdem Sahin Basfirinci and Aygun Ozsalih

Public Relations and Advertising Department, Karadeniz Technical University, Trabzon, Turkey.

ABOUT AUTHOR

BACKGROUND• This study attempts to explain relationship between principles

of good governance, marketing practices and financial performances of companies in Turkey.

• Globalization, competing interest among internal i.e. management and external stakeholders i.e. customers, suppliers

• Caused the need for decision maker not only increase their financial performance but also satisfy increasing expectations of customers, suppliers and society as a whole.

• Lack of clarity about aforementioned interrelations due to– Most research based on board composition and financial performance– Few non-US empirical studies

Purpose of the Study

• To examines the inter-relationships between board composition characteristics, CSR practices and financial performance in this study.

ORGANIZATION OF THE STUDYPA

RT I

Conceptual Framework , Hypothesis and Research Model

PART

IIResearch Methodology PART

III

Findings and Implications

Board Composition •Board Size•Proportion of independent board members•Proportion of inside board members•Existence of CEO Duality•Existence of audit (H1) or /and corporate governance (H2) Corporate Social

Responsibility Performance •Corporate Social Responsibility Index

Financial Performances•Net Return of Assets•Net return on Equity•Return on Sales•Debt Ratio•TOBIN’S Q

H1

H2

H3

Figure 1. The Research Model

CONCEPTUAL FRAMEWORK

RELATIONSHIP BETWEEN CORPORATE BOARD COMPOSITION AND FINANCIAL PERFORMANCE

H1

a

•Smaller board size leads to better financial performance

H1

b

•A higher proportion of independent board member leads to better financial performance

H1

c

•A higher proportion of inside board members lead to worse financial performance

H1

d

•Existence of CEO duality leads to worse financial performance

H1

e

•The existence of an audit committee leads to better financial performance

RELATIONSHIP BETWEEN CORPORATE BOARD COMPOSITION AND CSR

H2

a

•Large board size leads to better corporate social performance

H2

b

•A higher proportion of independent board members lead to better corporate social responsibility

H2

c

•A higher proportion of independent board members lead to better CSP

H2

d

•Existence of CEO duality leads to worse financial performance

H2

e

•The existence of a corporate governance committee leads to better corporate social performance

H2f

•The existence of an audit committee leads to better corporate social performance

RELATIONSHIP BETWEEN CSR AND CORPORATE FINANCIAL PERFORMANCE

H3

a

•Improved CSR leads to better financial performance

H3

b

•Better financial performance leads to improved CSR

RESEARCH METHODOLOGY

• This research uses 165 firms that were listed in the

Istanbul Stock Exchange (ISE)

• There are two primary sources of data:

– companies’ financial statements and

– corporate Governance Principles Compliance Reports.

• Data of the financial performance of the companies were

obtained from two main financial statements:

• balance sheet and income statements.

• Compliance reports were used to obtain both board

structure and corporate social responsibility data.

SAMPLE SELECTION AND DATA ANALYSIS

Statistic Observation Mean Median Std. deviation Min. Max.

CSP 165 0.4400 0.5000 0.25490 0.00 1.00

CONCENT1 165 0.5140 0.5100 0.22754 0.00 0.98

CONCENT2 129 0.1892 0.1540 0.18014 0.00 1.00

CONCENT3 100 0.2145 0.0605 0.535591 0.00 4.82

FREELOAT 163 0.3237 0.3072 0.18358 0.00 0.91

ROA 162 0.0506 0.0524 0.13910 -0.84 0.49

ROE 160 0.0335 0.1001 0.45093 -3.90 0.54

TOBINQ 163 4.1276 0.8322 39.05392 0.11 499.43

ROS 160 0.2493 0.0457 2.51969 -1.53 31.79

DEBT 162 0.4608 0.4054 0.33990 0.02 3.47

BOARDSIZE 165 6.4970 7.0000 1.91790 3.00 12.00

CEODUAL 165 0.2061 0.0000 0.40571 0.00 1.00

NDEPDIR 165 0.0640 0.0000 0.13691 0.00 0.78

INDIR 165 0.2345 0.1667 0.25097 0.00 1.00

AUDITCOM 165 0.9333 1.0000 0.25020 0.00 1.00

GOVERNCOM

165 0.2303 0.0000 0.42231 0.00 1.00

SECTOR 165 0.7636 1.0000 0.42614 0.00 1.00Tabl

e 1.

Des

crip

tive

Stati

stics

FINDINGS

THE CORELATION BETWEEN THE INDR AND CEODUAL IS HIGHEST. THERE IS NO ANY EXISTENCE MULTICOLINERITY

THERE IS A POSITIVE RELATIONSHIP BETWEEN THE BOARDSIZE AND ROA AND NEGATIVE RELATIONSHIP BETWEEN THE FREEFLOAT AND ROA

THERE IS A INVERSE RELATIONSHIP BETWEEN ROA AND FREEFLOAT AND CSP ALSO HAS NEGATIVE RELATIONSHIP BETWEEN TOBIN'S Q

Positive relationship between the ROS and CSP, whereas, negative relationship between CSP and TOBIN'S Q

CONCLUSION• Significant impact of board composition on corporate

financial and social responsibility performance. • Board size, proportion of inside board members and

existence of duality has partial relationship with the financial performance, whereas, proportion independent director and existence of audit committee do not support the financial performance.

• Board size, inside board members, existence of duality and existence of corporate governance does not support the hypothesis with the relationship with CSP.

• Improved CSR does not lead to better financial performance whereas better financial performance leads improved CSR.

Limitations

• Sample size is small. • Moreover, using content analysis the authors utilized categorical

data derived from published corporate governance reports, since there is no continuous data or corporate social responsibility and some board composition characteristics in Turkey.

• The difficulty of obtaining previous years’ data and the categorical nature of the data has restricted the study in terms of overcoming the endogeneity problem as well as the statistical analysis selection process.

• Disclosure in annual reports should not be regarded as a complete measure of corporate involvement in social activities.

Critical Appreciation

• This research helps to show the importance of Corporate Social Responsibility performance (CSP) in the corporate governance.

• Helpful for the organization to determine the board size, independent director, CEO duality, the proportion of inside board members, and existence of audit committee to implement the proper CG in an organization.

Implication in Nepalese Perspective