The dynamic impact of board composition on CSR practices and their mutual effect on organizational returns

Abstract

Purpose The purpose of this paper is twofold. First, it aims to investigate the dynamic impact of board composition (board size, board independence and board diversity) on independent corporate social responsibility (CSR) practices (marketplace, environment, community and workplace). Second, it tends to examine the mutual effect of board composition and CSR practices on organizational returns (return on assets and Tobin’s Q) of 631 Malaysian PLCs listed on Bursa Malaysia during 2006-2017. Design/methodology/approach The dynamic model (system GMM) provided by Arellano and Bond (1991) and Arellano and Bover (1995) is used for estimations that control for potential dynamic endogeneity, reverse causality, unobserved heterogeneity and simultaneity problems. Findings Findings reveal weak linkage between board composition and CSR practices where only board diversity is found to be positively linked to marketplace practices of CSR. Further, the mutual impact of board composition and CSR practices on organizational returns suggests board size be positive and board independence to be negative with Tobin’s Q. Board diversity is negative with ROA and positive with Tobin’s Q. Conversely, CSR practices indicate marketplace practices are positive and community practices are negative with Tobin’s Q, environment practices are insignificant with performance, whereas workplace practices are positive with ROA and negative with Tobin’s Q. Practical implications This research is practically considerable for Bursa Malaysia, Securities Commission Malaysia, policymakers, stakeholders, investors and managers. For academia, the theoretical linkages between agency theory, resource dependence theory, resource-based view and stakeholder theory are highlighted. Moreover, methodological underpinnings are also novel for academicians as well as for practitioners. Originality/value The paper uncovers multiple aspects: first, it elaborates the dynamic relationship between board composition and CSR practices; second, it examines the combined effect of board composition and CSR practices on company’s accounting and market gains; finally, the study controls for dynamic endogeneity that is the main econometric problem for CG-CSR-performance relationships.

Environmental Performance of the Tourism Sector from a Gender Diversity Perspective

“…Alazzani et al [103] reported that while board gender diversity gives rise to improved social action by firms, the same is not true in relation to the environment. Such findings have been corroborated by studies that exclusively examine environmental performance [97,106].…”

“…The results for the relationship of interest are also shown. [27,47,85,89] Use of resources [27,71,85] Emissions [19,47,72,85,[90][91][92] Environmental innovation [30,31,93,94] Environmental performance Negative relationship [87] Consumption of water and energy [95] Environmental innovation [28,34,[96][97][98][99][100][101][102][103][104][105][106] Environmental performance No relationship [29] Consumption of energy [27,85] Environmental innovation Source: authors, based on the literature review.…”

“…Moreover, it does not lead to greater environmental awareness [100] or determine energy use [29]. This lack of female influence on corporate action may owe to the under-representation of women on the board [28,95,97] or to resistance that reduces women's voice in decision making because of the stereotype of men as the dominant gender [107].…”

“…PwomProportion of women directors, calculated as the ratio of the number of women on the board to the total number of board members[24,27,47,50,51,73,85,87,97] Blau Index of gender diversity on the board of directors[118] [26,47,80,103] Source: authors, based on a review of the studies cited in the table.…”

The Interaction Effect of Independent Boards on Corporate Governance-Corporate Social Responsibility (CG-CSR) and Performance Nexus

“…Though the board delegates both management functions and decision control functions to internal managers, they retain final control over the managers through the right to ratify key operational decisions (Duru et al, 2016). As Coles et al (2008) contend, complex firms should have higher board independence for better advice to the firm's CEO (Karim et al, 2019b;Sheikh & Karim, 2015).…”