Key Mechanisms Of Corporate Governance Mechanisms

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2.5. Corporate Governance Mechanisms In addition to CSR and company performance, corporate governance mechanisms are key variables which might affect the relationship between CSR and company performance. Corporate governance is defined from a broad perspective by Gillan & Starks (2003) as “the system of laws, rules, and factors that control operations at a company” (p. 2). Corporate governance mechanisms within a company protects shareholder interests and reduces the frequently occurred agency problem (Stuebs & Sun, 2015; Bushee, Carter & Gerakos, 2014). Due to the implementation of corporate governance mechanisms, shareholders have a greater control over the managerial decisions and actions, which prevents the agency conflict and creates trust …show more content…

Previous academic studies confirmed a statistically significant positive relationship between corporate governance mechanisms, CSR and company performance (Harjoto & Jo, 2011; Neubaum & Zahra, 2006; Johnson & Greening, 1999; Stuebs & Sum, 2015). Therefore, Johnson & Greening (1999) concluded that corporate governance mechanisms affect the relationship between CSR and company performance and that these mechanisms are crucial to incorporate. Based on previous literature, board structure, managerial incentives, antitakeover measures and ownership structure can be determined as the main components of corporate governance (Gillan, 2006; Bhagat & Bolton, 2008). Nevertheless, Hess (2007) argued that the term corporate governance is expanding and that the term no longer includes only the traditional components such as managerial compensation, board structure and antitakeover devises. The author concluded that non-financial criteria, such as sustainability and CSR are also incorporated in the term corporate governance nowadays (Hess, 2007). Through CSR and sustainability, companies are more long-term focused, reduce risk and improve shareholder value creation (Hess, 2007). Even though there are various views on the main components of the term corporate governance, this study will examine board structure, managerial incentives, antitakeover measures and ownership structure in more detail to see how these mechanisms are used to reduce the so-called agency conflict and how the relationship between CSR and company performance is affected (Gillan, 2006; Bhagat & Bolton,

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