The link between independent directors and firm’s performance: the moderating role of corporate social responsibility
ISSN: 1472-0701
Article publication date: 18 May 2021
Issue publication date: 28 July 2021
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.
Keywords
Acknowledgements
The author would like to thank Professor Gerhard Kling and Dr Hanh S.T. Pham for their helpful comments to an earlier draft of the paper.
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
Publisher
:Emerald Publishing Limited
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