Corporate Governance, Institutions and Corporate Social Responsibility

Our study extends the existing literature on CSR, corporate governance and institutions by providing the first empirical analysis of complementarity or substitutability of firm-level governance mechanisms and country-level institutions with respect to their effect on CSR. Using large sample of 8878 firms from more than 50 countries, we find that good governance view on CSR prevails meaning that CSR practices are consistent with shareholder wealth maximization. In addition, we find empirical evidence that firm-level governance mechanisms and institutions can be seen as complements with regards to their effect on CSR, that is, good governance view on CSR is more pronounced in countries with higher institutional quality. In our paper we also focus on how social norms affect CSR performance of firms. We find empirical support of demand-side view on CSR, meaning that firms from countries with strong social norms towards environmental and social issues have higher CSR scores. In addition, we find that corporate governance and social norms are complements with regards to their effect on CSR.