Explaining the Mutual Relationship between Social Responsibility and Corporate Governance by Using Simultaneous Equations System

By strengthening corporate governance mechanisms, it is possible to encourage managers to disclose more of their responsibility towards society. Moreover, more disclosure of social responsibility by companies can lead to raise the level of manager's accountability of the company which will be resulted in strengthening the corporate governance mechanisms. Thus, it can be stated that there is a mutual relationship between corporate governance and corporate social responsibility.
The current research is an applied one, in terms of logic, it is inductive, and regarding time dimension, it is retrospective. The statistical population of the research include all the companies Listed on the Tehran Stock Exchange from 2011 to 2015. Since the aim of this research is to investigate the mutual relationship between variables, identification test and result analysis have been used by Simultaneous Equations.
The results of the research show that corporate governance has a positive and significant effect on social responsibility, and also social responsibility has a positive and significant effect on corporate governance.
Companies can enhance their corporate governance in order to send a positive signal to capital market, which will be resulted in improving their social responsibility. Also, by disclosing more of their social responsibility and by increasing expectations of them, they should strengthen corporate governance to provide an appropriate level of accountability.