Exploring the Relationship between CSR Reporting and Corporate Misconduct

Abstract

While the literature on corporate social responsibility (CSR) has been growing, there is still a limited understanding of the connection between CSR reporting and corporate misconduct, especially in cases where the decision-making process is influenced by interactions between top management teams (TMTs) and boards of directors. The present study aims to fill this gap by exploring how this relationship is affected by factors such as chief executive officer (CEO) career horizon, TMT heterogeneity, and board size. This study develops and tests hypotheses with a sample of 90 construction firms in China from 2008 to 2017. The findings indicate that firms voluntarily issuing CSR reports are more likely to engage in illegal activities when the CEO career is longer and TMT heterogeneity is lower. Regarding the moderating role of board size, the result shows that large board size may not always imply better monitoring. While the positive impacts of CSR have been extensively emphasized, this study provides confirmation that it can also potentially lead to adverse behavior, such as corporate misconduct. Aligned with the upper echelon theory, this study substantiates the moderating roles of CEOs and TMTs. These findings are poised to make a contribution to the academic domain of CSR by elucidating the potential adverse outcomes of CSR activities and delineating the boundaries within which such outcomes occur. This study endeavors to confront the recurring issue of corporate misconduct within the construction industry through an investigation into the impact of CSR reporting in conjunction with corporate governance mechanisms. The empirical findings reveal an intriguing trend: companies that voluntarily engage in CSR reporting are more susceptible to misconduct, particularly when helmed by long-tenured CEOs and TMTs characterized by limited diversity. Notably, the study also finds that board size does not significantly influence the CSR-reporting-misconduct relationship, suggesting that merely enlarging the board does not guarantee improved oversight. To address this issue, companies are advised to transition from a singular focus on CSR reporting to a comprehensive overhaul of their governance and management systems. Specifically, appointing CEOs with shorter decision horizons is touted as a promising strategy, alongside augmenting TMT diversity to balance diverse stakeholder demands and enhance decision-making quality. Moreover, government agencies are encouraged to refine existing corporate laws and regulations to promote greater TMT diversity. Through the diligent implementation of these multifaceted strategies, the construction industry can proactively mitigate instances of corporate misconduct and cultivate a genuine commitment to CSR activities, fostering a more ethical and responsible business environment.