An investigation into the associations between reported corporate governance and corporate social responsibility practices, and corporate financial performance in Nepalese listed public companies

An investigation into the associations between reported corporate governance and corporate social responsibility practices, and corporate financial performance in Nepalese listed public companies

Purpose – There are three main purposes of this research. Identifying the level of reported corporate governance (CG) practices and reported corporate social responsibility (CSR) practices in the annual reports of listed public companies on the Nepal Stock Exchange (NEPSE). A further purpose is to investigate the relationship between reported corporate governance (CG) practices and corporate financial performance (CFP) as well as the relationship between reported corporate social responsibility (CSR) practices and CFP for these companies. In addition to this examination of the individual relationships with CFP, the final purpose is to test, collectively, the relationship between reported CG practices and reported CSR practices on CFP for these companies.

Design/methodology/approach – This study investigates the three identified purposes using the 2015-16 annual reports for 155 of the 222 listed public companies on the Nepal Stock Exchange (NEPSE). Necessary data were not available in the 2015-16 annual reports for the remaining 66 listed companies. This single year was selected due to events that occurred in previous years that may have a significant compounding impact on CFP at that time. The data were analysed (using content analysis, multivariate analysis, and regression analyse) to test the hypothesised relationships.

Findings ̶ This study is useful for academics and companies seeking to understand the extent of reported CG practices and reported CSR practices that are undertaken in Nepalese companies in different sectors. As there were no significant relationships found between reported CG practices and CFP, or reported CSR practices and CFP, as well as CG and CSR, collectively, on CFP, additional analyses were undertaken. The findings were significant for the different phases of sustainability acceptance on the extent of CSR reported practices. Although there was no significant interaction (moderating) effect by CG and CSR on CFP, the mediating effect of CSR on the CG to CFP relationship was tested using structural equation modelling (SEM). The SEM found significant indirect results to support this mediating effect of CSR.

Research limitations ̶ The research is subject to two limitations. Firstly, the study examines only one year of annual reports and therefore will be subject to the normal limitation of a cross-sectional study. Secondly, the study analyses the reported CG and CSR, not actual CG and CSR.

Research implications ̶ This study contributes to an understanding of the reason for inconsistent results in prior studies. Future research should consider contingency theory related to the phase of sustainability adopted by the organisations on their reported CSR practices. Furthermore, future studies should examine the indirect sequential relationships between CG and CSR as well as CSR and CFP.

Originality/Value – This research is original and a significant contributor for future researchers, the government of Nepal and other stakeholders to understand reported practices in publicly listed Nepalese companies in both banking and finance and non-banking sectors. This research was conducted on 155 companies from banking, finance and non-banking sectors.