Board diversity and quality of CSR disclosure: evidence from Pakistan

Abstract

Purpose This study aims to examine the relationship between board diversity and quality of corporate social responsibility (QCSR) disclosure. Design/methodology/approach The study estimates seven dimensions of board diversity including age, gender, nation, ethnicity, educational level, educational background and tenure by applying Blau’s index. The relationship between board diversity and QCSR disclosure from the perspective of the resource-based view theory is estimated by using panel random effects regression across 57 firms producing exclusive sustainability reports listed in the Pakistan Stock Exchange from 2010 to 2017. The robustness of the results has also been checked through alternative measurements of the variables under study. Findings The regression results reveal that gender and national diversities are the firms’ valuable resources, having the potential to promote QCSR disclosure. However, age diversity was found to be negatively associated to QCSR disclosure. Furthermore, educational level, educational background, ethnicity and tenure were insignificant on QCSR disclosure. The sensitivity analysis supports the findings of the baseline model. Research limitations/implications Pakistani firms need to improve the level of board diversity through encouragement of the inclusion of diverse forces of gender and nationality to enhance disclosure on CSR practices. Originality/value This is the first study on board diversity and QCSR in the case of Pakistan.

Does Board Diversity Matter for the Quality of CSR Disclosure? Evidence from the Financial Sector of Pakistan

“…Board diversity is the main strategic resource concerning CSR disclosure (Hassan et al, 2020;Khan et al, 2019b) and improves firms' competitiveness (Katmon et al, 2019). Many theoreticians contend that board diversity leads to a stakeholder orientation, involving ethical practices and socially responsible behavior to reduce unexpected consequences (Adams & Ferreira, 2009;Carter, D'Souza, Simkins, & Simpson, 2010).…”

“…We also control for board independence and board meetings (Nour et al, 2020). Concerning audit committee characteristics, we include audit committee size (Khan et al, 2013), audit committee meetings (Khan et al, 2019b), and audit committee independence (Katmon et al, 2019). Khan et al (2013) found that a large audit committee would be able to improve the CSR disclosure as it played a major role in monitoring the firm's management.…”

“…The results of the Hausman test suggested the application of the REM. Prior studies have also used the REM for examining panel data on board diversity (Chang et al, 2017;Khan et al, 2019b). Unlike the REM, which can be generalized to the whole population of the study (i.e.…”

“…Age diversity improves firm innovativeness and creativeness, thereby improving the firm's competitive advantages and thus QCSR disclosure. Furthermore, age diversity, which has a negative relationship with CSR disclosure in the nonfinancial sector (Hassan et al, 2020;Khan et al, 2019b;Post, Rahman, & Rubow, 2011), is positively significant in the financial sector. This is due to the differences between the financial sector and the non-financial sector (Katmon et al, 2019), characterized by the difference in institutional settings, with high regulatory intervention and tighter governance in the corporate environment of the former (Haniffa & Cook, 2005;Said, Zainuddin, & Haron, 2009).…”

“…Researchers strongly believe that firms should not be judged just on their economic success but also on their contribution to society as a whole (Wellalage, Locke, & Acharya, 2018). Firms disclose CSR information to be more transparent and accountable (Barroso, Villegas, & Perez-Calero, 2011), and achieve a competitive edge in the global business environment (Khan, Khan, & Senturk, 2019b). Moreover, it enhances a firm's reputation (Axjonow, Ernstberger, & Pott, 2018), corporate legitimacy (Azim, 2016), and regulation compliance (Chuang & Huang, 2016), and it improves corporate financial performance (Platonova, Asutay, Dixon, & Mohammad, 2018).…”