The Influence of Corporate Social Responsibility on the Financial Performance of Firms in Ghana: The Moderating Role of Board Independence and Diversity

Abstract

Purpose: This study investigates the intricate relationship between Corporate Social Responsibility (CSR) initiatives, corporate governance structures (board independence & diversity), and financial performance [(Return on Asset (ROA), Return on Equity (ROE), & Gross Profit Margin (GPM)] in the context of Ghanaian firms operating in the manufacturing and service sectors. Design/Methodology/Approach: Adopting longitudinal secondary data analysis and drawing from annual reports of 39 firms in Ghana over a six-year period (2015-2021), our research reveals sector-specific nuances in the impact of CSR on financial metrics. Findings: Notably, CSR initiatives significantly predict ROA and GPM, underlining the potential for operational efficiency gains and profitability through socially responsible practices. However, these initiatives do not significantly predict ROE, indicating the need for nuanced CSR strategies tailored to specific financial objectives. Delving into governance dynamics, the study uncovers the moderating role of board independence in the CSR-ROA relationship, suggesting that boards with a higher degree of independence play a discerning role in enhancing asset efficiency. Conversely, board diversity does not exert a significant moderating effect on any financial performance indicators, emphasizing the need for a more nuanced understanding of governance structures in the CSR context. Practical Implications: These findings hold important implications for both management and theoretical frameworks. Managers are encouraged to strategically align CSR initiatives with specific financial goals, considering the influence of board structures.