The Determinants and Consequences of Shareholder versus Stakeholder Corporate Governance Disclosure Policies: Evidence from Post-apartheid South Africa

Abstract

This study examines the drivers of shareholder versus stakeholder corporate governance (CG) disclosures and their consequences. Based on a hand-collected dataset of 1470 firm-years in South Africa (SA), we develop disclosure indices using 72 CG provisions from the King III report of CG. We find that CEO age, foreign ownership, board size, racial diversity and audit committee increase total voluntary disclosure. Also, whilst board size and the presence of an audit committee increase both shareholder and stakeholder CG disclosures, foreign ownership have a positive (negative) relationship with shareholder (stakeholder) CG disclosures. Further, racial diversity of the board increases stakeholder disclosure but not shareholder disclosure. Our results further indicate that, ceteris paribus, the extent of shareholder CG disclosure relative to stakeholder CG disclosure is (1) higher with CEO age, foreign ownership, institutional ownership, and audit committee; and (2) lower with board size and racial diversity of the board. We find that, in the absence of higher level shareholder CG disclosures, the disclosure of stakeholder CG provisions can be a vehicle for managerial entrenchment that reduces pay-performance link. Our findings are robust across a raft of econometric techniques.