Corporate political connection and corporate social responsibility disclosures

Corporate Political Connection and Corporate Social Responsibility
Disclosures: A Neo-Pluralist Hypothesis and Empirical Evidence

Mohammad Badrul Muttakin
Dessalegn Getie Mihret
Arifur Khan
Department of Accounting, Deakin University, Melbourne, Australia

Forthcoming in Accounting, Auditing and and Accountability Journal

Corresponding Author:
Dr Dessalegn Getie Mihret
Department of Accounting
Deakin University
221 Burwood Highway
Burwood, Victoria 3125
Australia
Email:
Phone: +61 3 92445202


Corporate Political Connection and Corporate Social Responsibility Disclosures: A
Neo-Pluralist Hypothesis and Empirical Evidence
Abstract
Purpose – This study examines the association of corporate political connection with the
level of voluntary corporate social responsibility (CSR) disclosures to determine how the
relationships between the state and the corporate sector influence CSR engagement.
Design/methodology/approach – Based on a neo-pluralist view of legitimacy theory, which
conceptualises the state as a concentration of power amenable to exploitation by the corporate
sector, the study develops and empirically tests a hypothesis that CSR disclosures are
inversely associated with political connection. A sample of 936 firm-year observations is

used with data collected from annual reports of companies listed on the Dhaka Stock
Exchange in Bangladesh from 2005 to 2013.
Findings – Results indicate that corporate political connection is associated with reduced
CSR disclosures. This finding suggests that the perceived need for CSR disclosures as a
legitimation strategy diminishes for politically connected firms. The finding supports a neopluralist argument that political connection could enable firms to eschew stakeholder pressure
associated with potential legitimacy threats originating from poor CSR performance. This
conclusion challenges the pluralist view of legitimacy theory that considers the state as a
neutral arbiter resolving conflict among stakeholder groups in society.
Originality/value – The study makes a significant contribution to the literature by
developing a neo-pluralist theorisation of voluntary CSR disclosures within legitimacy theory
and empirically testing it. Because prior empirical CSR disclosure research is largely
underpinned by the pluralistic conception of society, examining this phenomenon from a neopluralist perspective enables a more complete understanding of CSR disclosure behaviours of
firms.
Keywords – Corporate Social Responsibility, Legitimacy theory, Neo-pluralist view,
Stakeholder theory, Bangladesh.
Paper type – Research paper


1. Introduction
Voluntary corporate social responsibility (CSR) disclosures have attracted significant
research attention in recent decades due to heightened societal interest in CSR. One of the
focus areas in this respect has been understanding the rationales for firms’ CSR engagement
(Parker, 2014) and interpreting ensuing corporate behaviour. Prior research indicates that one
possible motivation behind voluntary CSR disclosures is to portray business practices as
congruent with societal expectations (see, for example, Cho et al., 2012; Deegan and Rankin,
1996; Milne and Patten, 2002; O’Donovan, 2002; Suchman, 1995). This view maintains that
CSR disclosures are driven by the interest in legitimising the firm’s existence by placating key
stakeholders but not necessarily discharging corporate accountability obligations (Killian and
O'Regan, 2016) pertaining to the environmental and social impact of business on society (Cho
et al., 2015; Deegan and Rankin, 1996, p. 60; Milne and Gray, 2013). The need for legitimacy

is underpinned by the concept of an underlying social contract between corporations and
society. To maintain the social contract, firms attempt to influence legitimacy by attending to
stakeholders’ expectations—including those of the government, consumers (Deegan and
Rankin, 1996), shareholders and special interest groups (Roberts, 1992), for example, through
voluntary CSR disclosures. Legitimacy theory has been widely adopted to explain voluntary
CSR disclosure behaviours of firms as a strategy to communicate firms’ actual CSR
performance or to manipulate stakeholder perceptions about such performance. This
mainstream articulation of legitimacy theory is problematic because it is premised on the
pluralist notion of society, which conceptualises the state as a neutral arbiter for freely
competing interests in society.
From the pluralist perspective, power—the capacity to influence others (see Max
Weber’s definition of power in Gerth and Mills, 1948, p. 180)—is conceived as widely
distributed among stakeholders in society, albeit not necessarily evenly. This notion of power
suggests that multiple stakeholders can influence state policymaking and that no particular
3


stakeholder can systematically dominate others (Gray et al., 1996, p. 16). Nevertheless, power
asymmetries abound, especially in non-pluralistic societies, and the state may serve as an
institution with a concentration of power amenable to exploitation by dominant interest groups
in society, including corporations (Archel et al., 2011) as the state may align itself with
interests. This perspective challenges the concept of neutrality of the state that underpins the
pluralist view of society. By recognising the limitations of the pluralist assumptions, a critical
strand of the legitimacy theory literature interprets the theory from a neo-pluralist perspective
(Soobaroyen and Mahadeo, 2016; Guthrie and Parker, 1989; Gray et al., 1996), which
recognises the unequal distribution of power in society and questions neutrality of the state
(Archel et al., 2009). This alternative theoretical perspective warrants empirical investigation
because CSR disclosure issues are gaining in importance in the era of globalisation, when
stakeholders may be interested in firms operating in environments atypical of a pluralist
society. Despite repeated calls to refine CSR research within legitimacy theory (Guthrie and

Parker, 1989; Gray et al., 1996), empirical research has largely continued to adopt the pluralist
view of the theory. In particular, empirical studies based on the neo-pluralist view of society
are yet to emerge.
This study responds to these calls by developing and empirically testing a neo-pluralist
hypothesis on a possible inverse association between corporate political connection and the
level of voluntary CSR disclosures. The study is based on data collected from annual reports of
non-financial companies listed on the Dhaka Stock Exchange (DSE) in Bangladesh. Our
findings support the neo-pluralist hypothesis that politically connected firms perceive a reduced
need for CSR disclosures as a legitimation strategy. We argue that firms may use political
connection to fend off potential risk of losing the social contract associated with perceived poor
CSR performance. The empirical context of Bangladesh provides an ideal setting to empirically
test such a neo-pluralist hypothesis on CSR disclosures, because the country is characterised by
a tenuous institutional environment, which implies limitations on mechanisms of enforcing
4


desirable corporate behaviour in the event of poor CSR performance. In such contexts, firms
could employ political connection rather than legitimating through voluntary CSR disclosures
to avoid possible legitimacy challenge regardless of whether the firms meet CSR performance
expectations.
This study contributes to research and policy as follows. First, it extends the literature
on voluntary CSR disclosures within legitimacy theory by developing and empirically testing a
neo-pluralist hypothesis. The study provides a timely response to Richardson’s (2015) call to
challenge mainstream views in accounting research through quantitative critical research and
Patten’s (2015) call for methodological diversity to achieve greater understanding of research
phenomena within the critical stream of research. In this respect, the study enriches the existing
critical theorisation regarding drivers of voluntary CSR disclosure by generating an additional
factor, namely, corporate political connection that influences voluntary CSR disclosures.
Because legitimacy theory research has largely adopted a pluralistic view of society, our study
in a setting where key assumptions of a pluralistic society are absent enables testing of the

theory’s explanatory power. Second, by exposing corporate political connection as a key
restraining factor that could limit CSR performance, results could inform stakeholders such as
non-governmental organisations (NGOs) (Belal et al., 2015) and other civil society groups (see
Apostol, 2015) in any effort to advocate for policy changes directed at ensuring corporate
accountability to society. Furthermore, given the increasing integration of developing
economies into the global supply chain and the tendency of CSR reporting practices to vary by
country (Chen and Bouvain, 2009; Kolk and Pinkse, 2010; Young and Marais, 2012), the
findings of this study may inform international stakeholders interested in exploring CSR issues
pertinent to emerging economies as an input for making business decisions.
The remainder of this paper is organised as follows. In section 2, we further develop the
motivation for the study by highlighting the empirical context of Bangladesh. This is followed
by the theoretical framework and hypothesis formulation in section 3. Section 4 outlines the
5


research design, and section 5 presents our data analysis, which is followed by a conclusion in
section 6.

2. CSR in Bangladesh
2.1 The significance of CSR matters and corporate political connection in
Bangladesh
Upon Bangladesh’s independence in 1971, the focus of its economy began to transition
from its agrarian base to industry. According to the World Bank statistics, the contribution of
the industrial sector to the national GDP doubled from the period 1991 – 2000 (15%) to 20012010 (30%). The growth in foreign direct investment (FDI) has also been remarkable during
the last two decades, as a number of more-developed Asian countries have outsourced their
factory production, mainly textiles, to Bangladesh. However, rapid industrialisation and
investments by overseas investors has generated concerns about corporate accountability
regarding employee, environmental and ethical issues, which has led to increasing demands for
enhanced transparency in business practices (Belal and Owen, 2007). Furthermore, in recent
years, some high-profile environmental and safety-related corporate disasters that claimed

hundreds of lives in the garment industrial sector have resulted in significant pressure from
foreign buyers on firms to demonstrate socially responsible business practices. Well-publicised
incidents include the collapse of ‘Rana Plaza’ (Siddiqui and Uddin, 2016; Sinkovics et al.,
2016.), a factory building, that killed over 1200 garment workers on April 24, 2013
(Washington Post, 2013). Similarly, 112 people were burned alive or jumped to their deaths
when the Tazreen Fashions Ltd building caught fire on November 24, 2012 (The Daily Star,
2012). As a result, U.S. President Barack Obama announced the suspension of U.S. trade
privileges for Bangladesh in June 2013 over concerns regarding labour rights and workers’
safety (Washington Post, 2013). These incidents attracted international attention to
Bangladeshi politics, labour rights, and workers’ safety and resulted in international buyers

6


facing significant pressure to demand socially responsible business practices from Bangladeshi
suppliers.
The incidents also reveal the politics-business nexus in Bangladesh and its implications
for socially responsible corporate behaviours. For example, no legal actions were taken against
Delwar Hossein, the owner of Tazreen Fashions, because the local industry body, the
Bangladesh Garments Manufacturers and Exporters Association (BGMEA), a powerful lobby
group whose members account for approximately 10 percent of parliament, provided legal
assistance to him. The group defended him on the grounds that he was not on the premises at
the time the fire broke out (Allchin, 2013). Similarly, Sohel Rana, owner of ‘Rana Plaza’, was
a local political leader of the ruling party Bangladeshi Awami League (BAL) (The Wall Street
Journal, 2013). Following the Rana Plaza incident, ‘the Bangladeshi Prime Minister Sheikh
Hasina publicly denied Rana’s affiliation with her party although the media exposed—shortly
afterwards—his continued political activities as a member of the ruling party (Gomes, 2013).
Politically connected businesses are commonplace around the world (Faccio et al.,
2006), although they are less common in countries that apply stringent regulations against
political conflicts of interest (Faccio, 2006). Particularly, corporate political connection is

pervasive in countries with weak regulatory environments and high levels of corruption.
Bangladesh is characterised by a poor regulatory environment (Farooque et al., 2007) and
according to Transparency International’s index, the country has a high level of corruption [1].
Furthermore, Muttakin et al. (2015) highlight that political connection is extensive in
Bangladesh. Business owners can easily obtain party nominations for parliamentary elections
by making large donations, thereby placing them in a position to use the government system to
maintain, defend and advance business interests. Bangladeshi business owners such as those in
the garment industry are some of the most powerful politicians in the country. Workers and
their unions shun expressing opposition to the businessmen because the financial and political
power of the businessmen portends excessive costs of legal and political action against any
7


pressure group. For example, Yardley (2012) notes that Bangladesh factory owners are major
political donors, and some of them own newspapers and television stations, which feature
relatively positive news about businesses while ignoring issues such as labour rights. He also
notes that in Bangladesh’s parliament, roughly two-thirds of the members belong to the
country’s three largest business associations [2].
Political connection in the Bangladeshi corporate governance context takes two forms.
First, government officials could serve as members of the boards of directors at numerous
listed companies, or retired politicians may be assigned as directors arguably in exchange for
favours (see, for example, Sobhan and Werner, 2003). Second, many industrial elites in
Bangladesh either become part of the political process or develop strong personal and/or
business relationships with political leaders and their families and make financial contributions
to the major political parties (Chowdhury, 2009). The success of such businesses tends to
depend upon the connections they maintain with political parties. In recent years, a large
number of businessmen in Bangladesh have mainly been tied with two major political parties,
i.e., Bangladeshi Awami League (BAL) and the Bangladesh National Party (BNP). In the ninth
parliament, 59% of the elected Members of Parliament were businessmen, with 44% having
assets worth at least one crore taka (US$10 million) (Chowdhury, 2009). As argued later in this

paper, these forms of political connection can serve as a strategy to manage potential
legitimacy gaps and associated regulatory or political action.
2.2 Bangladesh’s institutional background and CSR disclosure
The regulations that govern the business practices of Bangladeshi firms include the
Companies Act, 1994, the Income Tax Ordinance, 1969, and the Securities and Exchange
rules, 1987. Nevertheless, neither any legislative pronouncement nor the Securities and
Exchange rules, 1987, mandate CSR disclosures for public limited companies. CSR disclosure
levels of Bangladeshi companies tend to be low and of a descriptive nature, reporting mostly
positive news (Belal, 1999; Imam, 2000). The disclosures also tend to focus on employee8


related matters, as compared to CSR information on a more comprehensive set of issues (Belal,
2001). Disclosure of information on important social issues such as child labour, equal
opportunities and poverty alleviation is limited due to a focus on profits and the absence of
legal requirements (Belal and Cooper, 2011). While a mandatory requirement for CSR
disclosures is regarded as an option to enhance corporate accountability on CSR matters, a lack
of political will and prohibitive costs involved may hinder such a move (Belal et al., 2015). By
contrast, the desire to satisfy key stakeholder groups such as international buyers, tends to
generate motivation for CSR reporting in Bangladesh (Belal and Owen, 2015; Belal and Owen
2007).

3. Theoretical framework and hypothesis development
3.1. A neo-pluralist view of legitimacy theory and CSR disclosures
Legitimacy theory is widely adopted to explain voluntary CSR disclosures (e.g.,
Deegan, 2002; Deegan, Rankin and Tobin, 2002; O’Donovan, 2002). Guthrie and Parker
(1989) questioned the explanatory power of the theory and argued that political economic
considerations determine corporate decisions to disclose CSR information. Similarly, recent
critical literature (Archel et al., 2009; Gray et al., 1995) problematises the pluralist version of
legitimacy theory by interrogating the key assumptions underpinning this version of the theory.
This dominant articulation of legitimacy theory is grounded in the concept of a ‘social

contract’, which is envisaged to provide the basis for identifying the rights society grants to
firms and the societal expectations that ensue in return. From this perspective, firms will have
the legitimacy to operate if the values and actions of the firms are consistent with societal
values and expectations. Such congruence enables the firm to garner community acceptance
and good corporate image necessary for the firm’s continued existence (Deegan and Rankin,
1996). On the other hand, disparity between the two phenomena produces a legitimacy gap that
might prompt economic, legal, social, or political sanctions on organisations (Deegan and
9


Rankin, 1996; Dowling and Pfeffer, 1975). That is, the pluralist view envisages that the
implicit and explicit terms of the social contract would be discontinued if companies fail to
operate within the bounds of societal expectations, i.e., when corporate legitimacy is lost. This
view maintains that to avoid these consequences, firms employ strategies to justify their
existence by inter alia providing voluntary CSR reports aimed at portraying the firm as a
socially responsible business (Deegan and Rankin, 1996).
Organisations influence the perceived legitimacy society confers on them (Dowling and
Pfeffer, 1975) through managing legitimacy threats using a range of strategies, including CSR
disclosures (O’Donovan, 2002). This conception draws on the liberal idea of individual
freedom to act and exercise choice through the market for economic matters or through
political action for non-economic issues. Because the state provides mechanisms for political
action, the liberal notion of CSR is premised on the neutrality of the state in relation to
arbitrating competing interests. Neutrality of the state enables stakeholders to exert pressure to
“enforce” the social contract in the event that corporations fail to meet CSR obligations. For
example, legal requirements place accountability obligations on firms (Gray et al, 1996, p. 3940; 43), and CSR reporting could serve as a communication channel in this respect (Gray et al.,
1996, p. 44). Such reports may serve to communicate substantive CSR engagements of firms,
represent a symbolic act without an actual commitment to CSR, or a combination of these two
possibilities (Ashforth and Gibbs, 1990). That is, voluntary CSR disclosure could be provided
to legitimate the existence of the corporation (Deegan, 2010, p. 334) by disclosing information
on actual CSR activities or by merely altering the perceptions of stakeholders about CSR

activities of the firm. The pluralist view maintains that pressure on companies to engage in
socially responsible activities originates from stakeholders, such as the state, consumers
(Deegan and Rankin, 1996), special interest groups, shareholders (Roberts, 1992), and NGOs
(Belal et al., 2015). To address potential or actual pressure in this regard, firms may employ
legitimation strategies by attending to the stakeholders’ expectations (Gray et al., 1995;
10


O’Donovan, 2002). Along this line of thought, Deegan et al. (2002) find that environmental
disclosures are motivated by management’s interest in legitimising corporate activities. In
pluralistic societies, firms identify key stakeholders and devise legitimation strategies to
address stakeholder expectations regarding CSR (Bailey et al., 2000; Buhr, 2002; Nasi et al.,
1997). For instance, organisations attend to the expectations of the state to reduce the
possibility of issuance of new legislation detrimental to the operation of the firm (Deegan and
Rankin, 1996; Roberts, 1992).
The explanatory power of legitimacy theory regarding this commonly held view on
voluntary CSR disclosures has been criticised (see, for example, Guthrie and Parker, 1989),
and calls have been made to extend legitimacy theory into a more critical domain (Archel et
al., 2009). The critical view challenges the claim that stakeholder groups can exert pressure on
firms to discharge corporate accountability pertaining to CSR matters (see, for example,
Deegan and Gordon, 1996) and that the state provides neutral institutional mechanisms to
adjudicate conflicts that involve multiple stakeholders. The pluralist view on these issues is
based on a problematic assumption that power is widely distributed among freely competing
groups in society and that the state is free of ideological alignment with particular stakeholders
in society. Contrary to this conception, the state may align its interests with the corporate
sector, as, for example, advancing corporate profit also contributes to achieving macroeconomic growth goals of the state (Miller, 1991). Furthermore, power asymmetries are
commonplace in practice, and not all societies exhibit wide distribution of power.
The Marxist literature advances a radical view that the state is a mechanism dedicated to
preserve the interests of the corporate sector. While this extreme view could be arguable, the
neo-pluralist view of society maintains that the state could “willingly or under pressure” align

with corporate interests (Gray et al. 1996, p. 19; see also Tinker, 1984). This critical view of
legitimacy theory bears particular relevance for emerging economies, where the neo-pluralist
conception of society applies and thus associated implications for voluntary CSR disclosures
11


cannot be ruled out. While companies could face “political, social and economic” pressure if
corporate social performance falls short of societal expectations, firms’ choice of strategies to
address such challenges proactively is likely to depend on the political setting and the ensuing
role of the state. In non-pluralist societies where the state could align with corporate interests,
firms could employ political connection as a more crucial strategy for their survival than
legitimating through CSR disclosures. Against this background, we develop a neo-pluralist
hypothesis on the association between CSR disclosures and political connection.

3.2 Political connections and CSR disclosure: a neo-pluralist hypothesis
Conceptualising the state as potentially aligned with the interests of some groups in
society permits exploring empirical possibilities regarding CSR disclosure behaviours of firms.
This view calls for a departure from the pluralist assumption that power is distributed among
various members of society and that the state lacks ideological alignment and material
connection with some groups in society. Political connection could be one form in which the
ideological alignment of the state with the corporate sector manifests itself or an instrumental
connection between the two develops. This connection could, in turn, interfere with the role of
the state as a neutral adjudicator in society with respect to stakeholder pressure on firms for
increased CSR engagement. Legitimacy threats originating from poor CSR performance may
eventuate when the state provides neutral institutional and legal mechanisms of enforcement to
address stakeholder concerns, for example, by introducing a new legislation (O'dwyer, 2002).
Critical theorising of the role of the state permits a new way of interpreting implications of
political connection for CSR activities and disclosures.
In addition to other corporate attributes such as firm size, board characteristics, industry
type, and export orientation that influence voluntary CSR disclosure practices (Patten, 1992;

Roberts, 1992), political connection could impact on CSR disclosure behaviours of firms.
Firms may be interested in maintaining relations with politicians because people holding key
12


government positions might help the firms, for example, through relaxed regulatory oversight
on CSR matters (Hillman, 2005; Niessen and Ruenzi, 2010). In some institutional settings, a
reciprocal relationship exists between firms and government systems (Aronson et al. 2005) in
which corporate social activities serve firms to pay back the government for support and to gain
continuous political benefits in the future (Li et al., 2015).
This argument suggests that firms may use political connections to eschew regulatory
action that could originate from stakeholder pressure. Particularly, in a weak institutional
environment such as that of Bangladesh, the management of politically connected firms could
focus more on advancing economic interests than allocating resources to CSR activities. From
a neo-pluralist perspective, it can be argued that a trade-off exists between political connection
and CSR disclosures. Siddiqui and Uddin (2016) examine the state-business nexus in response
to human rights violations in Bangladeshi businesses and document that the nexus exacerbates
human rights disasters. They also show that the Bangladeshi state, ruled by family-led political
parties, is more inclined to protect businesses than to ensure the observance of human rights by
businesses. In a neo-pluralist society where power asymmetries abound and the state may be
prone to align with interests (Archel et al., 2009; Gray et al., 1995) of the corporate sector,
political connection may undermine the need to garner legitimacy through genuine engagement
in CSR activities. Thus, we propose the following hypothesis.
Hypothesis: There is an inverse association between corporate political connection and the
extent of CSR disclosure.

4. Research design
4.1 Sample and data
The sample selection procedure is reported in Table 1. Our sample consists of all 155
non-financial companies listed on the Dhaka Stock Exchange (DSE) in Bangladesh from 2005

to 2013 [3] [4]. Of the 1,395 firm-year observations, we excluded 459 due to missing or
13


incomplete information. The final sample comprises the remaining 936 firm-years. The data for
our analysis are obtained from multiple sources. We collected the financial data from the
annual reports of the sample companies. CSR information was hand-collected from CSR
disclosures, corporate governance disclosures, directors’ reports, Chairman’s statements, and
notes to the financial statements contained in the companies’ annual reports. Data on political
connections were collected from a variety of sources. We used national election data from the
Bangladesh Election Commission to identify members of the boards of directors in our sample
firms who contested or were elected in national parliamentary elections during the sample
period (2005-2013). We also checked the names of committee members and advisory council
members of political parties from party websites. Finally, we consulted four major national
dailies (namely, The Daily Star, The Bangladesh Observer, The New Nation and The Financial
Express) to identify directors’ political affiliations. Our process of identifying political
connections is consistent with that of other studies (Muttakin et al., 2015; Chaney et al., 2011;
Faccio et al., 2006).

<Table 1 about here>
4.2 Model specification
We used OLS regression to test the hypothesised relationship between corporate social
responsibility disclosure (CSRDI) and corporate political connections. The corporate political
connection (PCON) variable is measured in two ways: a dummy variable for presence of
politically connected board members or major shareholders (PCONDUM) and proportion of
politically connected board members to total board members (PCONPRO). To test our
hypothesis, we use the following model:
CSRDI = α + β1 PCON + β2 LEV + β3 FAGE + β4 FSIZE + β5 ROA+ β6 YEAR DUMMIES + ε

Where:

CSRDI is the corporate social responsibility disclosure score/ index;

14


PCON is measured in two ways: (i) PCONDUM equals 1 for politically connected
firms and 0 otherwise. We consider a firm to be politically connected when at least
one of its major shareholders or a member of its board or the CEO is or was a
member of the parliament, a minister or closely associated with a political party or
a politician and (ii) PCONPRO is the proportion of politically connected directors
on the board;
LEV is the ratio of book value of total debt to total assets. Companies with high
leverage may have closer relationships with their creditors and use other means to
disclose social responsibility information (Purushothaman et al., 2000);
FAGE is the natural log of the number of years since the firm’s inception. An older firm
is concerned about its reputation and provides more social responsibility
disclosures (Roberts, 1992);
FISZE is the natural logarithm of total assets. Larger firms receive more attention from
the various groups in society and, therefore, would be under greater pressure to
disclose more social activities to legitimise their businesses (Haniffa and Cooke
2005); and
ROA is the ratio of earnings before interest and taxes to total assets. Profitable
companies demonstrate their contribution to society’s well-being and legitimise
their existence through disclosing more social information (Haniffa and Cook,
2005).
4.3 Dependent Variable- Corporate Social Responsibility disclosure index (CSRDI)
CSR disclosure index (CSRDI) represents the dependent variable in this study. To assess
the extent of CSR disclosure in annual reports, a checklist containing 20 items was constructed.
We follow previous Bangladeshi studies (Khan et al., 2013; Muttakin and Khan, 2014) in
constructing this checklist. These 20 items comprise five categories, i.e., community,

environment, employee, product and service, and value-added information, which are relevant
to the Bangladeshi environment. Community involvement covers three items: charitable
donations and subscriptions, sponsorship and advertising and community programmes (health
and education). The environment category covers disclosures regarding environmental policies.
The employee information covers nine aspects, i.e., number of employees, employee relations,
employee welfare, employee education, employee training and development, employee profit
sharing, managerial remuneration, workers’ occupational health and safety, child labour and
related actions. The product and service category covers six aspects: types of products
disclosed, product research and development, product quality and safety, discussion of
marketing networks, customer service and satisfaction, and customer awards. Value added
15


information refers to corporate disclosure of a value-added statement. To develop our CSR
disclosure index, a dichotomous procedure is applied whereby a company is awarded 1 if an
item included in the checklist is disclosed and 0 otherwise. The CSR disclosure index is then
derived by computing the ratio of actual scores awarded to the maximum score attainable (20)
by that company (Haniffa and Cooke 2005, Khan et al. 2013).
We undertook a content analysis to develop our CSR disclosure index. To ensure
reliability and consistency, we read the annual reports thoroughly (Haniffa and Cooke, 2005)
before any decision was made about scoring. We also took a number of precautionary steps to
address potential data reliability issues that could arise. Two of the researchers independently
conducted the coding for a sample of companies to identify the possibility of multiple
interpretations. The researchers verified each other’s coding sheets to ensure reliability of
ratings and discussed possible issues to consider in performing the coding for the whole
sample. The two researchers divided the population in two and coded the data. The two
researchers continually discussed when they encountered issues not highlighted during the
initial discussion.
We used Cronbach’s coefficient alpha (Cronbach, 1951) to assess the internal
consistency of CSRDI, i.e., the degree to which the items in a test measure the same construct.

Botosan (1997) and Gul and Leung (2004) use coefficient alpha as a reliability statistic useful
for assessing the degree to which correlation among the information categories of the
disclosure index is attenuated due to random error. The coefficient alpha for the five
information categories in our disclosure index is 0.79. This result provides good support that
the set of items in the disclosure scoring index captures the same underlying construct.

5. Results
Panel A of Table 2 provides descriptive statistics for the variables used in the study. The
average CSR disclosure (CSRDI) for the sample is 0.245. Fifty-six percent of the companies in
16


our sample are politically connected (PCONDUM) and 34.8% are export (EXPORT) firms.
The average firm size (FSIZE) of companies in the sample is 8.84 (natural log), the average
firm age (FAGE) is approximately 25 years, and average level of profitability (ROA) is
approximately 7%. Panel B of Table 2 provides the average CSR disclosure (CSRDI) based on
observations classified by industry. We find that firms in the food (pharmaceutical) sector
provide lowest (highest) level of CSR disclosures.

<Table 2 about here>
Table 3 presents the correlation matrix among the variables in our regression model.
Political connection (PCONDUM) and proportion of politically connected directors on board
(PCONPRO) are negatively correlated with CSR disclosure index (CSRDI). We also document
that the CSR disclosure index (CSRDI) is positively correlated with board independence
(BIND) and export-orientation of companies (EXPORT). The control variables such as
leverage (LEV), firm age (FAGE), firm size (FSIZE) and profitability (ROA) are significantly
correlated with CSR disclosure index (CSRDI).[5]

<Table 3 about here>
Table 4 reports the results of regressing the hypothesised variables on CSR disclosure

(CSRDI). In model 1, we examine the impact of political connections (PCONDUM) on the
CSR disclosure index (CSRDI). We find a negative and significant coefficient (β=-0.029,
p<0.001) of the political connections (PCONDUM) variable. This implies that a firm’s political
connections result in a lower level of CSR disclosure, supporting our hypothesis. Indeed, the
strength of the political influence could vary with the number of politically-connected members
on the board. It could be argued that the influence of a single politically-connected member
could be less decisive than that of several connected directors. Thus, we consider an alternative
measure of political connections in model 2 of Table 4 that could capture this effect: the
proportion of politically connected directors (PCONPRO) on the board. Once again, we find a
17


negative and significant coefficient of PCONPRO which is similar to model 1. As shown on
Table 4, with the use of this improved measure, i.e., PCONPRO, the coefficient increases to
over 8 per cent. Given that Bangladesh is characterised by a poor regulatory environment,
politically connected management could utilise such connections as a strategy to avoid
accountability to stakeholders. Thus, politically connected Bangladeshi firms are likely to
undertake less CSR activities and/or disclosures.
Control variables, firm size (FSIZE), firm age (FAGE) and better performance (ROA) are
significantly related to greater levels of CSR disclosure. However, we find a significantly
negative impact of leverage on the level of CSR disclosure. The results of our analysis with
respect to the control variables are consistent with previous studies (Haniffa and Cooke, 2005,
Muttakin and Khan, 2014).
<Table 4 about here>
We undertook some additional analyses to obtain further insights into the association
between political connections and CSR disclosures. First, we tested whether independent
directors, who may strengthen the board (Fama and Jensen, 1983), are associated with
increased CSR disclosures. A number of prior studies (Harjoto and Jo, 2011; Khan et al., 2013)
reported that CSR disclosure is significantly correlated with board independence, measured in
terms of the percentage of independent directors on the board. We therefore explore the impact

of board independence on CSR disclosure in politically connected firms. In most of the
Bangladeshi politically connected companies, independent directors are appointed based on
personal connections instead of skill and expertise (Uddin and Chodhury, 2008). Therefore,
with the presence of political connections, the appointment of truly independent directors and
the effectiveness of their roles could be doubted. The result of the relevant regression is
presented in model 1 of Table 5. Our key variable of interest is the interaction term between
political connections and board independence (PCONDUM*BIND). BIND is the proportion of
independent directors on the board. We find a negative and significant coefficient of the
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interaction ((β=-0.169, p<0.10) variable (PCONDUM *BIND). We also use proportion of
politically connected directors on boards and board independence as an interaction variable and
we find a negative and significant coefficient of the interaction variable (PCONPRO*BIND) in
model 2 of Table 5. This result suggests that although board independence is associated with
greater CSR disclosures in general, this association does not hold for politically connected
firms.
Second, as Bangladesh is notorious in the international community for its poor labour
practices in the export-oriented industries, we examined if foreign stakeholders tend to
influence the level of CRS disclosures. A number of recent Bangladeshi studies (e.g., Belal and
Owen, 2007; Islam and Deegan, 2008) have identified that firms in the export-oriented sector
provide more CSR disclosure than firms in other sectors because of pressure from a particular
stakeholder group, i.e., international buyers. Because firms in export-oriented industries rely on
foreign buyers for their long-term survival, it is more likely that even politically connected
firms in export industries would provide more CSR disclosures in order to allay any potential
concerns of such buyers. Accordingly, we examine whether firms’ export orientation
(EXPORT) influences the relationship between political connections (PCONDUM) and CSR
disclosure (CSRDI). EXPORT is a dummy variable that equals 1 if the firm belongs to the
textile or pharmaceutical industry and 0 otherwise. We report the result in model 3 of Table 5.
Our key variable of interest is the interaction tem between political connections and export

dummy (PCONDUM*EXPORT). We document a positive and significant coefficient of the
export (EXPORT) variable, implying greater extent of CSR disclosures by exporting
companies. We also find a positive and significant coefficient of the interaction (β=0.031,
p<0.10) variable (PCONDUM*EXPORT), indicating a moderating effect of export-orientation
of companies on the negative relationship between political connections (PCONDUM) and
CSR disclosure (CSRDI).When we interact proportion of politically connected directors in
boards and export-oriented companies (PCONPRO*EXPORT) in model 4, we find results
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consistent with model 3. The results suggest that despite having political connections, exportoriented companies in Bangladesh disclose more CSR information to mitigate the pressure
exerted by international buyers and ensure their long-term survival. This result is consistent
with Islam and Deegan’s (2008) observation that pressure from powerful stakeholders serves as
a principal driver of CSR disclosure in Bangladesh.
We conducted additional tests to consider the model’s robustness. We run the regression
by using the natural logarithm value of the CSR disclosure scores as the dependent variable.
Overall, the results do not differ significantly from our main findings. We also run the
regression by dropping all control variables from the model. Our results remain consistent with
the findings reported in Table 4. Finally, we used fixed-effects regression, and confirmed that
our results do not differ qualitatively from the findings we reported in Table 4.

6. Conclusion and discussion
Based on a neo-pluralist view of legitimacy theory, this study argues that voluntary
corporate social responsibility (CSR) disclosures are inversely associated with corporate
political connection. The empirical evidence from a sample of listed non-financial companies
on the Dhaka Stock Exchange in Bangladesh supports our hypothesis that in a neo-pluralist
setting, corporate political connection could be associated with reduced voluntary CSR
disclosures. Consistent with the neo-pluralist conceptualisation of the state, the evidence shows
that political and business elites could align their interests. The results challenge the
conventional claim that firms need CSR disclosures as a legitimacy tool to manage stakeholder

pressure for socially responsible corporate behaviour. Instead, we establish an alternative
argument that in neo-pluralist societies, firms could use political connections to eschew
potential stakeholder pressure for CSR engagement. Other factors such as board independence
that are positively associated with CSR disclosures do not alter the inverse association between
political connection and CSR disclosure levels. This finding suggests that political connection
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may adversely influence proper functioning of governance mechanisms such as the
appointment of independent directors. It is also consistent with Sobhan and Werner’s (2003)
observation that directors classified as “independent” in Bangladesh tend to be former
bureaucrats with vested interests in the relevant companies.
This study also shows that CSR reporting is positively associated with export-orientation
of companies regardless of political connections of the companies. This evidence supports
Islam and Deegan’s (2008) argument that Bangladeshi export-oriented companies provide CSR
disclosure to mitigate pressure from powerful foreign buyers. The present study extends
findings of previous research (Islam and Deegan, 2008 and Islam and Deegan, 2010) by
providing empirical evidence that legitimacy threats originating from powerful stakeholders
such as foreign buyers outweigh the role of political connections in influencing CSR disclosure
behaviours. Further, the archival research in the present study provides empirical support for
prior qualitative studies (see, for example, Deegan and Gordon, 1996) on CSR practices of
companies in developing countries and for critical CSR disclosure research more generally.
The findings of this study bear implications beyond Bangladesh because political connection in
various forms is prevalent world-wide—for example, corporate lobbying applies to pluralistic
societies as well (e.g., Deegan and Gordon, 1996). Furthermore, corporate pre-occupation with
economic performance and the need to advocate corporate accountability for environmental
and social performance is a pertinent agenda even in countries with a pluralist orientation (see,
for example, Haque et al., 2016). The study enhances our understanding of CSR disclosure by
illuminating a more complete set of factors that shape firms’ voluntary CSR disclosures. It
emphasises the need to evaluate CSR reports in light of the firm’s political connection status

and involvement in exports.
The present study has responded to the call for studies to understand the legitimating
strategies of firms with due regard to the political environment in which firms operate (Archel
et al., 2009). In doing so, it extends the emerging research that examines political connection
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and CSR disclosures. First, the study develops a hypothesis on CSR disclosures based on a
more critical view of legitimacy theory (Guthrie and Parker 1989; Gray et al., 1995) that
recognises the unequal distribution of power in society and questions the neutrality of the state
(Archel et al., 2009). Second, the study presents a counterpoint to the recent study on China (Li
et al., 2015) that argues that politically connected Chinese firms tend to engage in greater CSR
activities and that corporations invest in CSR (in return for continued government support) in
areas where the state is resource-constrained to provide services to communities. Implicit in the
argument of Li et al. (2015) is the premise that the state is ideologically aligned with the
corporate sector. That is, the state could support corporate interests because the corporate
sector helps the state achieve governmental goals (see Gray et al., 1995; Miller, 1991). That is,
the Chinese case illustrates an institutional arrangement where the state and the corporate
sector advance shared goals that are also aligned with the interests of the community. In
contrast, political connection in Bangladesh manifests itself in business and political elites’
tendency to help firms eschew legitimacy threats regardless of CSR engagement. The
difference between our finding and that of Li et al. (2015) underscores the significance of
institutional context in shaping corporate behaviour pertaining to CSR. By developing and
testing a new hypothesis on the association between CSR disclosures and political connection
in an institutional context that differs from the Chinese political environment, our study poses
an argument that differs from that of Li et al. (2015).
By empirically establishing that political connection could be employed to eschew a
legitimacy challenge regarding CSR performance, our findings enrich findings of prior studies
(e.g., Deegan, 2010; Woodward et al., 1996) that have conceived political connection as a
legitimating strategy. That is, political connection can reduce management’s perceived need to

use CSR disclosure as a legitimation strategy because associating the firm with key political
figures could reduce potential stakeholder pressure emanating from poor CSR performance.
From a methodological perspective, our study responds to a call for methodological diversity in
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the critical domain of CSR research (see Patten, 2015), which has tended to emphasise
qualitative methods (Everett et al., 2015), and Richardson’s (2015) call to challenge
mainstream theorising through quantitative critical research. This is an important contribution
because the critical accounting community has largely neglected quantitative research methods
(Richardson, 2015), although this method has the potential to enrich our understanding of
phenomena. Supplementing critical research with a quantitative methodology can generate new
factors influencing CSR disclosures and advance generalizability of conclusions through largesample studies (Patten, 2015; Richardson, 2015).
The study has important implications for policy and research. Although the literature
provides empirical evidence on a range of factors associated with the level of voluntary CSR
disclosures, if and how corporate political connection is associated with such disclosures has
not been empirically explored from a neo-pluralist perspective. The findings of this study
suggest that the politics-business link merits attention in any regulatory effort directed at
fostering corporate accountability pertaining to CSR. Because raising the awareness of
stakeholders on pertinent CSR issues is a key goal of critical CSR research (Burritt and
Schaltegger, 2010), the findings of the study are expected to be of interest to stakeholders
interested in advocating corporate accountability in this regard. A better understanding of
societal issues and the advancement of public discussion (Neu et al., 2001) on CSR would
inform NGOs and other stakeholders that advocate the need for corporate CSR engagement.
For example, findings of this study could be of interest to advocacy groups interested in
lobbying for regulatory policy requirements on CSR activities. Furthermore, the study could
inform international companies that have business links with local companies in assessing
potential business partners’ engagement in ethical practices. A meaningful evaluation of this
firm-level attribute would be possible if macro-level issues are understood.
Some limitations of this study should be noted. First, we acknowledge that our study

suffers from an inherent limitation common to most CSR disclosure research. That is, the study
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does not isolate disclosures that reflect actual CSR engagement of firms from those that are
mere attempts at impression management. Second, the study fully relies on CSR disclosures
made through annual reports. We recognise that some companies may not fully disclose their
social activities in annual reports. Third, this study uses directors’ political affiliation to
identify politically connected firms. Because politically connected firms are likely to make
donations to political parties, future research could examine how managers utilise political
donations to manage issues of corporate legitimacy.

Notes
[1] According to the corruption perception index for 2015 prepared by Transparency International, Bangladesh is
ranked 139 out of 167 countries ( />[2] The three largest business associations in Bangladesh are the Federation of Bangladesh Chamber of Commerce
and Industry (FBCCI), the Bangladesh Garments Manufacturers and Exporters Association (BGMEA) the
Metropolitan Chamber of Commerce and Industry (MCCI).
[3] We excluded financial sector companies, since they are controlled by different regulations and are likely to
have different disclosure requirements and governance structure. Moreover, as per section 15 of the Banking
Company Act, the appointment and removal of directors, CEOs, or managing directors require the approval of
the Bangladesh central bank. However, non-financial companies do not require such approvals.
[4] There were 282 listed companies on the Dhaka Stock Exchange (DSE) in 2005.
[5] We obtain variance inflation factors (VIFs) for the variables to test for multicollinearity. The unreported VIFs
are less than 10, indicating that multicollinearity is not a problem (Neter et al., 1989).

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