The moderating effect of board gender diversity on the relation between corporate social responsibility and firm value

The U.S. regulators are considering passing new legislations to mandate female representation on boards of directors (e.g., Hatcher et al., 2020).

In the context of our study, we refer to negative CSR-related activities as CSR concerns or CSR controversies, and positive CSR-related activities as CSR strengths. In other words, CSR-related strengths (concerns) reflect a positive (negative) CSR performance. We use the term ‘board gender diversity’ to indicate when there is female representation on the board.

Among the studies that examine the direct effect of female board representation on firm value, while some find no significant association or a negative association (e.g. Adams & Ferreira, 2009; Carter et al., 2010; Chapple & Humphrey, 2014; Haslam et al., 2010; Matsa & Miller, 2013; Rose, 2007), many document a positive association between firm performance and board female representation using both accounting-based and market-based performance measures in a number of jurisdictions (e.g., Campbell & Mínguez-Vera, 2008; Carter et al., 2003; Erhardt et al., 2003; Francoeur et al., 2008; Lückerath-Rovers, 2013; Reguera-Alvarado et al., 2017; Terjesen et al., 2016).

In terms of the empirical evidence on how CSR performance relates to firm value, while some studies find a negative or no association between certain CSR activities and firm financial performance (e.g., Boyle et al., 1997; Brammer et al., 2006; Seifert et al., 2003), many studies in this area are conclusive of a positive relation (e.gCarter et al., 2000; Chen & Wang, 2011; Herremans et al., 1993; Jiao, 2010; Klassen & McLaughlin, 1996; Menguc & Ozanne, 2005; Preston & O’Bannon, 1997; Ruf et al., 2001; Van Beurden & Gössling 2008).

See Rao and Tilt (2016) for a review of the empirical evidence on the association between board diversity and CSR performance and reporting.

Decision-making is likely shaped by the traits and values of the board members. Boards with a higher female director ratio are more likely to have characteristics and behaviors associated with the style of women leaders (Nielsen & Huse, 2010a, b).

Female board representation may also lead to more effective crisis management, which helps to mitigate the negative effect of CSR concerns on firm value. CSR-related controversies, such as the revelation of CSR concerns, could constitute an organizational crisis, i.e., a situation that significantly threatens or damages the operations, financial conditions, and reputation of a firm (e.g., Hamblin, 1958; Barton, 1993; see a discussion about the BP oil spill crisis at https://​pagecentertraini​ng.​psu.​edu/​public-relations-ethics/​ethics-in-crisis-management/​lesson-1-prominent-ethical-issues-in-crisis-situations/​case-study-tbd/​). Prior literature in leadership and crisis management suggests that leadership abilities that coincide with the stereotypical feminine characteristics, such as being people-oriented, empathic, understanding, and showing concern for others are particularly valuable in managing crisis situations (Eagly & Johnson, 1990; Eagly et al., 1995; Mano-Negrin & Sheaffer, 2004; Ryan & Haslam, 2007). Female leaders are expected to excel at reducing interpersonal conflicts and facilitating mutual understanding and collaboration (Carli, 1990; Eagly, 1992, 2007). Post et al., (2019, p. 216) find evidence supporting the idea of a female leadership trust advantage during crises through interpersonal emotions management, i.e., ‘threat reducing behaviors that anticipate and manage the emotions of others.’ However, to the extent that not all CSR concerns are organizational crises. the interacted effect of female board representation and CSR concerns on firm value through effective crisis management may be limited.

For example, Volkswagen suffered huge financial losses because of their ‘clean diesel’ scandal (see https://​www.​bbc.​com/​news/​business-34324772).

The ISS Director database only covers the S&P 1500 firms, which cover approximately 90% of the U.S. market capitalization (Hope & Lu, 2020).

Following prior studies on the effect of CSR performance and firm value (e.g., Buchanan et al., 2018; Servaes & Tamayo, 2013), we do not exclude financial firms from our sample. To check the robustness of our results, we exclude the firms in the financial industry (SIC code 6000-6999) and our main results are qualitatively unchanged.

Shleifer and Vishny (1997, p. 737) state that “Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.” CSR, on the other hand, deals with social objectives and stakeholders other than shareholders.

We thank an anonymous reviewer for suggesting this method.

The system GMM estimations are based on Roodman (2006) using Stata module ‘xtabond2’. Refer to Wintoki et al., (2012, p. 605) for the codes of running the estimation in Stata.

We find similar results using two alternative measures of board gender diversity, as shown in Sect. 5.3.

In the results reported in Tables 3, 4 and 5, we find that the standalone term, CSR_Con, is insignificantly related to TobinQ. This suggests that for firms with no female directors on the board, CSR concerns are not negatively related to market assessed firm value as measured by Tobin’s Q. An explanation for this finding is that CSR concerns for firms with no female representation on the board likely come as no surprise to the market since firms’ CSR performance tends to be sticky (Amin et al., 2020; Habib & Hasan, 2019). It is also likely that the market does not consider the concerns in the firm valuation because they may not be considered relevant.