How does Corporate Governance Influence Corporate Social Responsibility?

AbstractWhile enhancing shareholder value is still a major goal for all company, the concepts of corporate governance (CG) and corporate social responsibility (CSR) enter the picture to reach to the goal. CG has been acclaimed as an instigator of tight internal control mechanisms. Under CG mechanism, firms are not encouraged only to promote ethics, fairness, transparency, and accountability in all their dealings, but to continue generating profits while maintaining the highest standards of governance internally as well. Cyert and March (1963) mention that a firm's decisions should also be aligned with the interests of different players within and outside the company. Therefore, businesses have to also keep their activities prospered to external societies and communities. This is a starting point of CSR, which is mechanisms of how companies approach their interactions with their external environments from providing quality products and services, to undertaking charitable activities. By this way, it could not be denied that those performed firms have to alliance CG and CSR together within their businesses. Moreover, Bhimani and Soonawalla (2005) suggest that CG and CSR are two sides of the same coin. However, there are limited studies mentioned on CG and CSR in the same papers. In the light of this, using the US data during the period 2001 – 2004, this study does intend to explore the relationship of CG on CSR