1

Flinders Business School

2

Corporate Governance and Social Responsibility in the Middle East: A Literature Review

Abdullah SilawiPhD Candidate

Professor Carol TiltPrincipal Supervisor

3

Overview

• Purpose: To conduct a review of the existing literature in the following areas in the context of the Middle East (ME), and to identify some gaps for future research:

1. Corporate Governance (CG)

2. Corporate Social Responsibility (CSR)

3. Corporate Community Involvement (CCI)

• The review mainly focuses on the Gulf Co-operation Council (GCC) Countries

4

Overview

• The GCC countries are part of the Middle East and North Africa (MENA) region

• The GCC comprises of 6 countries:

1. Bahrain

2. Kuwait

3. Oman

4. Qatar

5. Saudi Arabia (SA)

6. United Arab Emirates (UAE)

5

Background

• Why ME, particularly GCC countries?

– In 2011, the market capitalisation of the GCC stock markets reached $719 billion (Awartani & Maghyereh, 2013).

– Opening up the stock market for foreign investors (Awartani & Maghyereh, 2013).

– Converting some family and Government owned firms into public firms (Visser, 2008).

– Adapting international business paradigms and International standards (Visser, 2008).

6

Definitions

• Corporate Governance (CG):

“The responsibility that is held by members of boards of directors to grow, preserve and protect the interests of shareholders and related stakeholders” (Robertson et al., 2013, p. 316)

7

Aspects of CG

• CG from Islamic perspective• CG Practices• CG and Firm performance and Value• CG from a Reporting Perspective• CG and Corporate Voluntary Reporting

8

CG from an Islamic Perspective

• Abu-Tapanjeh (2009) found the principles issued by The Organisation for Economic Co-operation and Development (OECD) are an effective tool of CG compared to Islamic principles.

• Bhatti & Bhatti (2010) proposed the concept of Islamic corporate governance (ICG).

• There is potential application of OECD principles but after some amendments (Al-Malkawi et al.,2014).

9

CG Practices

• In Bahrain, CG system is in practice before issuing the CG codes, but at basic level (Hussain & Mallin, 2002;2003).

• Audit committee in SA is not fully independent and has no strong power to influence the board of directors (Al-Twaijry et al., 2002).

10

CG Practices

• Based on the OECD 2005 survey data, the ranking of GCC countries: Oman, Kuwait, UAE, Bahrain & Qatar (Baydoun et al., 2012).

• 69% of CG index addressed by the GCC listed firms, and ranked as follow: UAE, Oman, SA, Qatar, Bahrain & Kuwait (Al-Malkawi et al., 2014).

11

CG and Firm performance and Value

• In UAE, Aljifri & Moustafa (2007) found Gov. ownership has a positive impact on corporate performance, while debt ratio and payout dividend have negative impacts.

• In Saudi Arabia, CG mechanisms are positively associated with firms’ value, but not performance (Fallatah & Dickson, 2012).

• Ownership concentration has a negative association with Kuwaiti firms’ value (Al-Saidi & Al-Shammari, 2014).

12

CG and Firm performance and Value

• The presence of female directors does not show any significant impact on Kuwaiti firms’ performance (Al-Shammari & Al-Saidi, 2014).

• Ownership structure and ownership concentration are both statistically significant with firm performance (Zeitun, 2014).

13

CG from a Reporting Perspective

• Online reporting: Banking industry in Saudi Arabia report more than other industries (Hussainey & Al-Nodel, 2009).

• In UAE, firms report more info on management structure and transparency and less on external auditing and non-audit service (Hassan, 2012).

• Board independence, audit committee size, profitability, liquidity and gearing are the key determinants of CG reporting in annual reports in Saudi Arabia (Al-Moataz & Hussainey (2012).

14

CG and Corporate Voluntary Reporting

• CG in Saudi Arabia plays a vital role in enhancing the quality of annual reports (Al-janadi et al., 2013)

• In Kuwait, only audit committee was found to be statistically significant with the level of voluntary reporting (Al-Shammari & Al-Sultan, 2010).

• Al-Shammari (2014a) examined one type of voluntary reporting (Risk reporting) [Positive with board size]

[Negative with role duality]

15

Bahrai

n

KuwaitOman

Qatar

Saudi A

rabia

United Arab

Emira

tes0

1

2

3

4

5

6

2

4

0 0

5

2

CG Studies

Corporate Governance (CG) studies on GCC countries

Studies (author, date) Research Topic Research typeSample

SizeResearch method Country

1 Abu-Tapanjeh, 2009 CG from Islamic perspective Theoretical    

2 Bhatti & Bhatti, 2010 CG from Islamic perspective Theoretical    

3 Hussainey & Al-Nodel, 2009 CG online reporting Empirical 64 Content Analysis Saudi Arabia

4 Al-Moataz & Hussainey, 2012 CG Reporting in annual reportsEmpirical

52 Content Analysis Saudi Arabia

5 Hassan, 2012 CG Reporting in annual reports Empirical 95 Content Analysis UAE

6 Aljifri & Moustafa, 2007 CG and firm’s performance Empirical 51 Statistical Analysis UAE

7 Al-Saidi & Al-Shammari, 2014 CG and firm’s valueEmpirical

121 Statistical Analysis Kuwait

8 Al-Shammari & Al-Saidi, 2014CG (female director) and firm’s

performance

Empirical121 Statistical Analysis Kuwait

9 Fllatah & Dickson, 2012 CG and firm’s performance and value Empirical 94 Statistical Analysis Saudi Arabia

10 Zeitun, 2014 CG firm’s performanceEmpirical

203 Statistical Analysis5 GCC

countries

11 Al-Shammari, 2014a CG and risk reportingEmpirical

109 Content Analysis Kuwait

12 Al-Shammari & Al-Sultan, 2010 CG and voluntary reportingEmpirical

170 Content Analysis Kuwait

13 Al-janadi et al., 2013 CG and voluntary reportingEmpirical

87 Content Analysis Saudi Arabia

14 Al-Twaijry et al., 2002 The role of Audit CommitteeEmpirical

33 Interviews Saudi Arabia

15 Al-Malkawi et al., 2014 CG PracticesEmpirical

Statistical AnalysisAll GCC

countries

16 Baydoun et al., 2013 CG PracticesEmpirical

Statistical Analysis5 GCC

countries

17 Hussain & Mallin, 2002 CG PracticesEmpirical

Survey Bahrain

18 Hussain & Mallin, 2003 CG PracticesEmpirical

Survey & Interviews Bahrain

16

Definitions

• Corporate Social Responsibility (CSR):

The responsibility of enterprises for their impacts on society (European Commission, 2011)

17

CG and CSR

• CG aims to grow, preserve and protect the interests of shareholders and related stakeholders (Robertson et al., 2013)

• Corporate responsibility goes beyond the legal obligation to shareholders, to include other stakeholders (Donaldson & Preston, 1995).

18

Managerial perceptions on CSR

• The common perception of CSR in the ME is limited to charitable activities and donations (Emtairah et al., 2009; Visser, 2008; Qasim et al., 2011; Jamali & Mirsha, 2007; Marios & Tor, 2007).

• Business managers in Saudi Arabia are aware of the concept but at infancy stage “Philanthropy” (Mandurah et al., 2012)

• Even though the awareness of CSR is increasing in UAE, but still lag behind developed countries (Qasim et al., 2011)

19

Stakeholders perceptions on corporate reporting

• The majority of studies in the GCC countries found that corporate annual report users are mainly interested in financial information (Al-Ajmi, 2009; Naser et al., 2003; Alattar & Al-Khater, 2007; Naser & Nuseibeh, 2003; Al-Razeen & Karbhari, 2004a;2004c).

• Except some stakeholders in Qatar are interested in CSR information (Al-khater & Naser, 2003).

20

Corporate reporting on CSR

• Previous studies reveal that firms in developed countries report on CSR due to pressure from stakeholders and public (Tilt, 1994), however, such pressure does not exist in the ME (Dias, 2012).

• Studies have shown that many firms report on CSR activities (Kamla, 2007; Al-Naimi, 2012).

• All the GCC studies investigated why firms engage in CSR activities, but did not investigate why they report?

Studies on corporate reporting and CSR in the GCC countries

Country Study (author, date) Research Topic Research Method

Bahrain     

1 Al-Ajmi, 2009 Stakeholder perceptions on corporate reporting Questionnaire and interviews

2 Gibbon et al., 1999 Environmental accounting and reporting Questionnaire

Kuwait     

1 Naser et al., 2003 Stakeholder perceptions on corporate reporting Questionnaire

2 Al-Shammari, 2013 Corporate voluntary reporting (incl. CSR): the extent and determinants Content Analysis

Oman     

1 Minnee et al., 2013 CSR : stakeholder perceptions Questionnaire and Content Analysis

2 Sangeetha & Pria, 2012 CSR : stakeholder perceptions Questionnaire

Qatar    

1 Alattar & Al-Khater 2007 Stakeholder perceptions on corporate reporting Questionnaire

2 Al-Khater & Naser, 2003 CSR : stakeholder perceptions Questionnaire

3 Al-Naimi et al., 2012 Corporate voluntary reporting (incl. CSR): the extent and determinants Content Analysis

4 Hossain & Hammami, 2009 Corporate voluntary reporting (incl. CSR): the extent and determinants Content Analysis

5 Naser et al., 2006 Corporate voluntary reporting (incl. CSR): the extent and determinants Content Analysis and Quantitatiev Analysis

Saudi Arabia    

1 Al-Razeen & Karbhari, 2004a Stakeholder perceptions on corporate reporting Questionnaire

2 Al-Razeen & Karbhari, 2004c Stakeholder perceptions on corporate reporting Questionnaire

3 Naser & Nuseibeh, 2003 Stakeholder perceptions on corporate reporting Questionnaire

4 Al-Moataz & Alhussainey, 2012 Corporate Governance Content Analysis and Quantitative Analysis

5 Mandurah et al., 2012 CSR: managerial perceptions Questionnaire

6 Emtairah et al., 2009 CSR: managerial perceptions Content Analysis and Interviews

7 Nalband & Alamri, 2013 CSR: managerial perceptions Content Analysis and Interviews

8 Al-janadi et al., 2013 Corporate voluntary reporting (incl. CSR): the extent and determinants Quantitative Analysis

9 Al-Razeen & Karbhari, 2004b Corporate voluntary reporting (incl. CSR): the extent and determinants Quantitative Analysis

10 Alsaeed, 2005 Corporate voluntary reporting (incl. CSR): the extent and determinants Quantitative Analysis

11 Alsaeed, 2006 Corporate voluntary reporting (incl. CSR): the extent and determinants Quantitative Analysis

12 Umaru Mustapha et al., 2011 Corporate voluntary reporting (incl. CSR): the extent and determinants Content Analysis

United Arab Emirates    

1 Qasim et al., 2011 CSR: managerial perceptions Business Cases

2 Marios & Tor, 2007 CSR: managerial perceptions Questionnaire

3 Abdeldaym, 2009 Corporate voluntary reporting (incl. CSR): the extent and determinants Content Analysis

4 Aljifri, 2008 Corporate voluntary reporting (incl. CSR): the extent and determinants Quantitative Analysis

5 Naser & Hassan, 2013 Corporate voluntary reporting (incl. CSR): the extent and determinants Content Analysis and Quantitative Analysis

Studies on multiple countries     

1 Khasharmeh & Suwaidan, 2010 Corporate voluntary reporting (incl. CSR): the extent and determinants Content Analysis and Quantitative Analysis

2 Baydoun et al., 2013 Corporate Governance OECD 2005 Survey

3 Al-janadi et al., 2011 Corporate voluntary reporting (incl. CSR): the extent and determinants Quantitative Analysis

21

22

Research Topic

Studies (author, date) Research type Research method Country

Stakeholder perceptions on

corporate reporting

Al-Ajmi, 2009 Empirical Questionnaire and interviews Bahrain

Naser et al., 2003 Empirical Questionnaire Kuwait

Alattar & Al-Khater 2007 Empirical Questionnaire Qatar

Al-Razeen & Karbhari, 2004a Empirical Questionnaire Saudi Arabia

Al-Razeen & Karbhari, 2004c Empirical Questionnaire Saudi Arabia

Naser & Nuseibeh, 2003 Empirical Questionnaire Saudi Arabia

CSR : stakeholder perceptions

Minnee et al., 2013 Empirical Questionnaire and Content Analysis Oman

Sangeetha & Pria, 2012 Empirical Questionnaire Oman

Al-Khater & Naser, 2003 Empirical Questionnaire Qatar

CSR: managerial perceptions

Mandurah et al., 2012 Empirical Questionnaire Saudi Arabia

Emtairah et al., 2009 Empirical Content Analysis and Interviews Saudi Arabia

Nalband & Alamri, 2013 Empirical Content Analysis and Interviews Saudi Arabia

Qasim et al., 2011 Empirical Business Cases UAE

Marios & Tor, 2007 Empirical Questionnaire UAE

Corporate voluntary reporting

(incl. CSR): the extent and

determinants

Al-Shammari, 2013 Empirical Content Analysis Kuwait

Al-Naimi et al., 2012 Empirical Content Analysis Qatar

Hossain & Hammami, 2009 Empirical Content Analysis Qatar

Naser et al., 2006 Empirical Content Analysis and Quantitatiev Analysis Qatar

Al-janadi et al., 2013 Empirical Quantitative Analysis Saudi Arabia

Al-Razeen & Karbhari, 2004b Empirical Quantitative Analysis Saudi Arabia

Alsaeed, 2005 Empirical Quantitative Analysis Saudi Arabia

Alsaeed, 2006 Empirical Quantitative Analysis Saudi Arabia

Umaru Mustapha et al., 2011 Empirical Content Analysis Saudi Arabia

Al-janadi et al., 2011 Empirical Quantitative Analysis Saudi Arabia and UAE

Abdeldaym, 2009 Empirical Content Analysis UAE

Aljifri, 2008 Empirical Quantitative Analysis UAE

Naser & Hassan, 2013 Empirical Content Analysis and Quantitative Analysis UAE

Khasharmeh & Suwaidan, 2010 Empirical Content Analysis and Quantitative Analysis All six GCC countries (1 industry)

23

CCI and CSR

• Corporate Community Involvement (CCI) is an essential element of CSR.

• CCI Definition:

Business involvement in social initiatives to meet the needs of the communities in which they operate (Moon & Mathuri., 2006).

24

Current Community Involvement Literature

• Limited studies based on the ME, particularly the GCC countries examined community involvement as part of CSR (Kasharmeh & Suwaidan, 2010; Kamla, 2007; Alnaimi et al., 2012; Hossain & Hammami, 2009).

25

Empirical studies examined CCI as a theme/category of CSR

Studies (author, date) Country

1 Kasharmeh & Suwaidan, 2010 6 Arabian Gulf countries

2 Chapple & Moon, 2005 7 Asian countries

3 Hassan, 2010 7 Islamic Countries

4 Kamla, 2007 9 Middle East countries

5 Young & Marais, 2012 Australia & France

6 Abu Sufian, 2012 Bangladesh

7 Azim et al., 2009 Bangladesh

8 Hossain et al., 2006 Bangladesh

9 Sobhani et al., 2012 Bangladesh

10 Gao et al., 2005 Hong Kong

11 Talebnia et al., 2012 Iran

12 Yaftian, 2011 Iran

13 Hackston & Milne, 1996 New Zealand

14 Branco & Rodrigues, 2008 Portuguese

15 AlNaimi et al., 2012 Qatar

16 Hossain & Hammami, 2009 Qatar

17 Kuasirikun & Sherer, 2004 Thailand

18 Abbott & Monsen, 1979 USA

19 Ernst & Ernst, 1974 USA

26

Current Literature onCommunity Involvement

• The majority of current studies mainly from developed countries and few from developing countries.

• No studies from the ME that has been explored CCI in greater depth.

27

Studies on Corporate Community Involvement (CCI)

Studies (author, date) Research Topic Research type Research method Country

1 Muthurie, 2008 CCI Critical Review Theoretical    

2 Seitanidi & Ryan, 2007 CCI Critical Review Theoretical    

3 Liu et al., 2013 CCI Strategic Directions Theoretical    

4 Hess et al., 2002 CCI Motivations Theoretical    

5 Arli & Cadeaux, 2014 CCI Motivations Empirical Interviews Australia

6 Lorenz et al., 2013 CCI Motivations Empirical Questionnaire Switzerland

7 Sharmin et al., 2012 CCI and Community Expectations Empirical Focus Groups and Interviews Bangladesh

8 Van der Voort et al., 2009 CCI Management Empirical Case Study Netherlands

9 Uyan-Atay, 2012 CCI Decision Making Empirical Questionnaire and Content Analysis Turkey

10 Van den Berg et al., 2004 CCI Implications Empirical Case Study US & Europe

11 Arli & Cadeaux, 2014 CCI Measurement Empirical Interviews Australia

12 Veleva, 2010 CCI Measurement Empirical Interviews USA

13 Zappalà & Arli, 2010 CCI Structure & Measurement Empirical Exploratory Study Australia

14 Muthurie et al., 2009 CCI Implementations Empirical Case Study Kenya

15 Rochlin & Christoffer, 2000 CCI Value Determinants Empirical   USA

16 Brammer & Millingtin, 2003 Managerial & Stakeholder impact on CCI Empirical Secondary Data Analysis UK

17 Campbell et al., 2006 CCI Reporting Empirical Content Analysis UK

18 Lorenz et al., 2013 CCI Reporting Empirical Questionnaire Switzerland

19 Yekini & Jallow, 2012 CCI Reporting Empirical Content Analysis UK

20 Raja Ahmad, 2010 CCI Reporting Empirical Content Analysis Australia

28

Suggestion for future research

CG • Future studies to investigate less explored countries• Future studies use recent primary data• Examining the impact of foreign ownership on firm performance

CSR• Using mixed method• Investigate the reasons behind CSR reporting• Examine less explored countries

CCI • Various aspect of CCI needs exploration

Questions & Answers

30