The link between independent directors and firm’s performance: the moderating role of corporate social responsibility

Abstract

Purpose

This paper aims to examine how independent directors (IDs) affect a firm’s performance measured on profitability, with corporate social responsibility (CSR) interaction.

Design/methodology/approach

The study uses an international data set of 1,817 firm-year observations from 545 large companies in 20 countries across Asia, America and Europe, and the fixed-effects estimation method.

Findings

The direct effect of IDs alone on profitability is statistically insignificant; however, the synergic effect of IDs and CSR on profitability becomes significantly positive when firms disclose CSR information.

Practical implications

The profitability is partially sourced from the synergy of IDs and stakeholders through CSR. IDs may use CSR disclosure to win stakeholders’ goodwill. This goodwill will likely be transformed into profitability. The empirical results indicate that there should be more need for IDs’ engagement in CSR projects as the resources of IDs combined with external stakeholders can be of important value to firms.

Originality/value

This paper reveals the underlying mechanism that firm-idiosyncratic value is formed using a combination of ID resources and stakeholders through CSR. This research extends the literature of IDs’ efficiency and effectiveness and confirms the agency theory and resource dependence theory.

Citation

Tran, H.T. (2021), "The link between independent directors and firm’s performance: the moderating role of corporate social responsibility", Corporate Governance, Vol. 21 No. 5, pp. 831-844. https://doi.org/10.1108/CG-05-2020-0176