MASTER THESIS An institutional approach to board gender diversity and corporate social performance

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June 17th, 2019

MASTER THESIS

An institutional approach to board gender diversity and

corporate social performance

Sybe Klaas Kappe Student number: 3526003

Populierenlaan 103, 9741 HC Groningen s.k.kappe@student.rug.nl

Supervisor: Dr. S. Castaldi

Abstract

This thesis examines the moderating effect of firm institutional context on the relationship between gender diversity within boards and CSR performance. Drawing on Institutional Theory, prevailing institutions can exert considerable influence on the corporate decision-making process. Therefore, country-level institutions might affect the degree to which woman in the boardroom can influence CSR. Therefore, I propose there is a positive moderation of favorable formal and informal institutions on the link between board gender diversity and CSR performance. By using firm-level data from various databases, mainly the Thomas Reuters ESG database, I find empirical support for the relationship between board gender diversity and CSR performance in 118 sampled MNEs from 16 European countries. Surprisingly, my results show that while favorable informal institutions positively moderate the relationship between board gender diversity and CSR performance, favorable formal institutions negatively influence this relationship. Keywords: Board of directors, Gender diversity, Board diversity, National

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List of Figures

Figure 1: Conceptual model

List of Tables

Table 1: Sample

Table 2: Descriptive statistics per country Table 3: Descriptive Statistics

Table 4: Correlation Matrix

Table 5: Fixed Effects Regression Analysis

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1. Introduction

In recent years, public concern increased on the composition and role of corporate boardrooms and the behavior of large multinationals as a result of governance failures and corporate scandals together with environmental and societal damages (Jain & Jamali, 2016). As a response to for example The Volkswagen Scandal whose occurrence was mainly attributed to a lack of diversity in expertise and competence – and woman in particular – in the boardroom (Sharpe, 2017). Private and public initiatives have tried to increase gender diversity in boardrooms. Several countries implemented new corporate governance legislation such as the Sarbanes-Oxley Act whereas other countries have tried to increase board diversity, mainly gender diversity (García-Izquierdo, Fernández-Méndez, & Arrondo-García, 2018). In line with this regulation, several European have implemented legislation to improve gender diversity in the executive positions of publicly listed firms in the form of the so-called gender quota- quotas that stipulate the percentage of women that must be included in the boardroom (García-Izquierdo et al., 2018; Rao & Tilt, 2016a). Moreover, one of the most far-reaching and latest attempts to increase gender diversity in corporate boards is the European Commission advocating for a new series of legislation aimed at improving gender diversity (Solimene, Coluccia, & Fontana, 2017). Despite such increased attention of gender diversity and board composition in both theory and practice (Cabeza-García, Del Brio, & Rueda, 2019), we still lack a clear understanding of its impact on CSR.

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5 2005). Moreover, under diversity theory, female directors bring in comprehensive and heterogeneous perspectives being crucial to complex and voluntary decisions corresponding to CSR (Cumming et al., 2015; Estélyi & Nisar, 2016; Rao & Tilt, 2016a). While some studies in this domain exist, the results remain inconclusive, with some showing a positive relation (Bear, Rahman, & Post, 2010; Zhang & Hou, 2012), mixed and non-significant effects (Post, Rahman, & Rubow, 2011). One possible explanation of these conflicting results could be ignoring the contingent effects of country-level institutions (Post & Byron, 2015a). Drawing on Institutional Theory, prevailing institutions – consisting of normative expectations and acceptable organizational practices and structures – can exert considerable influence on the corporate decision-making process (Tolbert, David, & Sine, 2010). Therefore, country-level institutions might affect the degree to which woman in the boardroom can influence CSR since not every context accounts the same importance towards diversity (Post & Byron, 2015). Consistent with recent studies, who note that the importance of diversity is not equal in every context (Adams 2015; Post & Byron, 2015), I argue that the institutional framework of a country might impact the strength of the link between board gender diversity and CSR performance. Unfortunately, to date, a systematic analysis on which either validates or refutes the above proposition is missing. Taking on a contingency perspective, this research investigates how both formal and informal institutional factors influence the relationship between board gender diversity and CSR performance. Drawing on Institutional Theory, I aim to investigate the following question:

Given the institutional embeddedness of the MNE, how does board gender diversity affect CSR performance?

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2. Literature review

2.1 MNEs and CSR

Due to increased globalization, MNEs are challenged with increasingly stronger and diverse pressures from stakeholders which compelled MNEs to promote CSR activities (Surroca, Tribó, & Zahra, 2013). Although CSR is defined in a myriad of ways (Dahlsrud, 2006; Post et al., 2011), it has most often been defined as situations where the organization goes further than compliance and participates in “actions that appear to further some social good, beyond the interests of the firm and that which is required by law” (McWilliams & Siegel, 2001: 117). While the implementation of laws and regulations differs considerably between country-level institutions (Éthier, Hadaya, Talbot, & Cadieux, 2006; Fritzen, 2006; Knill & Lehmkuhl, 2002), institutional researchers have often used this definition (Rathert & Rathert, 2015). Therefore, I define CSR by whether it considers governing norms and rules of a social structure in a particular country-level institution instead of going solely beyond legal requirements, including a more extensive range of discretionary practices that can both complement and substitute for legal requirements. Consistent with the results of this research, I define CSR as multiple optional social practices which address stakeholder pressures associated with embedding social norms and legislation into the MNE.

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8 leading them to adopt a more favorable view of the company (Weber, 2008). By employing CSR-driven market or product development, CSR can also lead to increases in revenue from higher market share and higher sales (Weber, 2008). This increase in market share and revenue can result in an increased competitive advantage over a firm’s competitors (Aguilera, Williams, Conley, & Rupp, 2006; Kolk & Pinkse, 2009). Investing in CSR also decrease the possibility that performance is affected negatively by consumer fraud, scandals, and labor disputes (Rodriguez-Fernandez, 2016). Hence MNEs with increased CSR engagement face less firm-specific risks because of decreased cash flow variability (Renneboog, Liang, & Ferrell, 2014). By employing CSR activities, MNEs can experience a domino effect (Fasciglione, 2015). With a better reputation, more customers will purchase their products or services. More satisfied employees will lead to increased quality and improved efficiency. And increased market share will eventually lead to greater competitive advantage. Positive consequences of adopting CSR are mostly inter-connected and can multiply these benefits (Fasciglione, 2015).

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9 2.2 Corporate Governance and CSR

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10 companies’ sustainability through creating positive relationships with stakeholders and recognizing societal concerns, companies with a more efficient board structure are expected to have higher levels of CSR (Amran, Lee, & Devi, 2014). Hence corporate governance mechanisms like board composition might impact the CSR engagement of an MNE.

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12 2.3 Corporate Governance and CSR across institutions

MNEs are embedded in an institutional environment and there significant research suggesting that to get a better understanding firm strategies and managerial choices related to CSR engagement the institutional context is crucial (Jain & Jamali, 2016). North (1990: 3), defines institutions as “a set of rules, formal or informal, that actors generally follow, whether for normative, cognitive, or material reasons.” Therefore, the foundation of institutions are the shared rules and typifications, although the institutional concept also includes the behavior related to these rules. To become an institution, the activities that produce rules, norms, and cultural beliefs must be conserved (Dacin, Goodstein, & Scott, 2002). For an institution to be effective, a sanctioning authority must also endorse these rules and norms (Mulder, 2018). Furthermore, institutions also have specific characteristics, like a high amount of resilience which means they are hard to modify and change and to be repeated and preserved due to passing on to younger generations (Dacin et al., 2002; Scott, Smith, & Hitt, 2004). Intuitions can be noticed across a variety of levels from interpersonal relationships until a worldwide scale (Dacin et al., 2002; Scott et al., 2004). The institutional framework comprises both formal institutions in the form of financial legal and political systems (i.e., gender quotas), along with informal institutions like communally valued norms and beliefs (Helmke & Levitsky, 2004). The impact of the institutional environment, as an external corporate governance mechanism, on CSR, can be seen through the influence of informal and formal institutions.

Formal institutions refer to the regulatory framework and legal institutions of a country (North, 1990). These institutions comprise of sanctions, regulations, and laws which are different across national contexts (Senden, Kica, Hiemstra, & Klinker, 2015). The regulations and rules that govern employment discrimination and socially responsible behavior of an MNE reflect the formal institutional environment in which they are embedded (Rathert, 2016). For example, some countries have implemented gender quota legislation that are put in place as a which are formulated to support a woman in overcoming obstacles to their appointment or election, like gender roles (Clayton & Suhr, 2015; Zetterberg, 2007). A gender quota represents a percentage or number for the nomination or selection of woman which can in forms of targets or recommendations (Mateos de Cabo, Terjesen, Escot, & Gimeno, 2019).

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13 2005). These run in tandem with the formal institutions and can be used as tools to solve coordination problems (Helmke & Levitsky, 2004). The reason of informal institutions to exist lies in the coordination of repeating human interaction, particularly, elaborations, extensions, and adjustments of formal rules; internal enforced standards of conduct; and socially sanctioned norms of behavior (Fiori, 2002). National culture largely drives informal institutions (Fuentelsaz, González, & Maicas, 2019), since every country has a unique set of cultural features (Beugelsdijk, Kostova, & Roth, 2017). Therefore, national culture is one of the most foundational institutions of society, which refers to a system of beliefs and values that support specific formal and informal institutions (Krüger et al., 2019). Cultural values offer norms for thoughts, actions, perceptions, and behavior (Guldenmund, 2010). Thus, behaviors and reasoning for these behaviors could be compared with values and norms that have manifested itself in a country’s culture. (Bicchieri & Muldoon, 2011). In this way, values and norms manifest itself within cultures (Bicchieri & Muldoon, 2011). The result is that cultural values are the anchor for certain behaviors and expressions, including the three determinants of knowledge, skills, and motivation (Sri Ramalu, Chuah, & Rose, 2011).

In some countries the institutional framework in which the MNE is embedded is more favorable towards gender diversity and CSR engagement in that they “contribute in a positive way to the adoption of a practice through regulations, laws, and rules supporting and/or requiring the practice; cognitive structures that help people understand and interpret the practice correctly; and social norms enforcing the practice” (Kostova & Roth, 2002: 218). Therefore, favorable institutions are for example more likely to impose regulations and laws which safeguard strong environmental and employment protection, usually have strong norms promoting ethical business, and there are many companies implementing certification such as IS) 14001 (Deakin, 2009; Sapkal, 2016; Scarpetta, 2014). In light of this study, favorable institutions thus promote higher compliance by national regulations, laws, shared beliefs and norms regarding CSR engagement and gender equality

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3. Hypotheses Development

3.1 CSR and board gender diversity

Previous behavioral research has found that woman are proposed to have values, beliefs, and attitudes which are different from men (Bertrand, 2011; Goldberg, Kashy, & Smith, 2012; Meece, Glienke, & Burg, 2006). Woman enjoy a higher degree of communal traits compared to their male counterpart (e.g., caring, honesty, compassion, sympathy, understanding, and care for other people) (Hyun, Yang, Jung, & Hong, 2016). These communal traits may help female directors to think about corporate social responsibility in a more broader way (Krüger et al., 2019; Post & Byron, 2015a). Female directors are unlike their male counterparts are also more motivated to encourage socially responsible behavior due to their different psychological characteristic which makes woman sensitive to broader range of stakeholders interests (García-Izquierdo et al., 2018; Issa, 2018; Pletzer, Nikolova, Kedzior, & Voelpel, 2015; Terjsesen, Sealy, & Singh, 2009; Vongas & Hajj, 2015). This is because a woman decides in a way that is more socially oriented compared to men. Therefore, female directors will enhance effectively addressing issues regarding CSR and the interest of stakeholders (Hyun et al., 2016). Consequently, the representation of woman directors in the board room can increase the effectiveness of stakeholder management (Nielsen & Huse, 2010; Velte, 2017). Moreover, the professional experiences and backgrounds of female directors are overall more diverse than those of male directors (Campbell & Bohdanowicz, n.d.; Ritter-Hayashi et al., 2016). This could enable female directors to engage more with certain stakeholders (Hyun et al., 2016). Do the arguments mentioned above; it is proposed that gender diversity positively influences CSR performance. Hence, the following hypothesis is formulated:

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16 3.2 The Moderating Effect of Formal Institutions

Since previous research on the relationship between board gender diversity and CSR performance has been mixed, research has suggested that this relationship could be influenced by country-level institutions (Post & Byron, 2015a). Therefore, the moderating effect informal and formal institutions will be considered for the link between board gender diversity and CSR performance. First of all, the moderating effect of formal institutions will be discussed, more specifically favorable formal institutions which have had regulations that support certain practices (Steyrer et al., 2006), will be examined. When a firm decides not to comply with these rules, sanctions will follow, which can damage the firm's legitimacy and survival. Therefore, in a favorable formal institution, female requests are actually ‘heard,’ because participation is desired and appreciated. In some countries the formal institutional environment is more favorable towards female directors than others due to legislation which will increase the acceptance of women as corporate boards will become less biased against woman, the negative stereotyping regarding female directors’ dissolve, and corporate cultures to become less sexist (Gilardi, 2015; O´Brien & Rickne, 2016). Furthermore, we could assume the possible ‘vote of confidence’ effect by which people see the adoption of legislation regarding gender diversity as confidence vote towards the capability of female directors (Zetterberg, 2007). This effect would not depend on the type of legislation put in place and is the same for targets as well as recommendations (Zetterberg, 2007). Therefore, it is reasonable to assume that when a firm is located in a county that exhibits a favorable formal institutional environment gender diversity has a stronger effect on CSR. Hence, the following hypothesis is formulated:

H2: Favorable formal institutions will positively moderate the relationship between board

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17 3.3 The Moderating Effect of Informal Institutions

Another moderating country-level institution that is assumed to moderate the link between board gender diversity and CSR performance is the informal institutions of a country. More specifically, the favorable informal institutions which contain norms and believe systems that support certain practices (Peng et al., 2006), will be examined. Informal institutions offer norms for thoughts, actions, perceptions, and behavior (Guldenmund, 2010). Therefore, behaviors and reasoning for these behaviors could be compared with values and norms that have manifested itself in a country’s culture. (Bicchieri & Muldoon, 2011). Therefore, informal institutions can not only influence the number of females within the boardroom but can also influence the equal treatment of both male and female directors (Thams, 2018). Moreover, the Social Role Theory advocates that informal institutions create gender stereotypes and is assumed to influence the process concerning different roles to males and females (Eagly et al., 1995). Also, due to the decision making the process of corporate boards being highly related to sexual and gender roles, is it reasonable to assume that cultural and societal values towards gender roles influence the link between board gender diversity and CSR performance as it could affect the perceptions and acceptance of female directors. Therefore, countries informal institutions may influence the amount of woman directors within the boardroom and equal treatment of woman and men (García-Izquierdo et al., 2018). When there is an equal perception of gender in society, acceptance towards woman female directors will be perceived higher because of their equal role in society (Veenstra & Shi, 2014). Thus, it is also reasonable to assume that when a female director is located in a county where gender is perceived to be more equal, which, in turn, creates a favorable informal institutional environment gender diversity has a stronger effect on CSR. Hence, the following hypothesis is formulated:

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18 3.4 Conceptual model

In line with this argumentation, this research aims to provide empirical evidence on the moderating effects of favorable informal and formal institutions on the relationship between board gender diversity and CSR performance together with investigating the singular impact of gender diversity in the board on CSR performance. Based on this relationship, the following conceptual model has been developed, which is displayed in Figure 1.

CSR Performance

(DV)

Favorable Informal Institutions

(Moderator)

Board Gender Diversity

(IV)

Figure 1: Conceptual model

+

Favorable Formal institutions

(Moderator)

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4. Methodology

4.1 Data collection and Sample

To investigate the proposed relationship, I use a sample of the largest European headquartered MNEs operating in a variety of industries. This research is based on Europe because, as introduced in the introduction and chapter two of this thesis, the European Commission implemented gender quotas in different European countries, which is not the case in most other regions around the world. The implementation of gender quotas in many European countries, together with the increased attention being paid to increase the number of woman directors led to the decision to focus on the European continent solely. Since there is an increasing number of woman directors present within boards of European MNEs, it is relevant to investigate the effect on CSR performance. Moreover, the presence of gender quota legislation in many European countries and the diverse national cultures to be found in Europe make it possible to investigate the moderating effects.

Multiple databases are used to collect data. First, I use the Orbis database, a firm-level database which contains business and financial information on companies worldwide, to identify European MNEs. MNEs are firms that own foreign subsidiaries with at least 10 percent ownership (OECD, 2018). Second, the ESG scores of the Thomas Reuters ESG database was used to collect data on CSR performance. The Thomas Reuter ESG database is considered to be an objective and comprehensive database on CSR (Benlemlih, Shaukat, Qiu, & Trojanowski, 2018). Furthermore, the data for independent variable Board Gender Diversity and of all control variables (MNE Age, Board size, MNE size, MNE Leverage, and Industry Type) are collected via the database of Thomas Reuters Asset4 ESG. Second, the scores of Hofstede’s dimensions were collected from the website ‘Hofstede Insights’ (2017). Hofstede’s approach to measuring culture remains the most dominant and most popular categorization among researchers (Beugelsdijk et al., 2017). Literature in the field of international management and business extensively integrated his dimensions to explain leadership behavior (Schwartz, 2006). Third, the IDEA gender quotas database was used to collect data regarding gender quota legislation. Fourth, the World Bank site was used to collect data on GDP per capita.

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20 sample consists of 1,062 firm-year observations with a balanced panel. An overview of the sampled countries can be found in Table 1.

TABLE 1 Sample Country N Austria 2 Belgium 4 Czech Republic 1 Denmark 9 Finland 8 France 19 Germany 18 Greece 4 Hungary 1 Ireland 3 Italy 5 Netherlands 4 Norway 4 Spain 13 Sweden 15 Switzerland 8 Total 118 4.2 Measurement Dependent Variable

For the dependent variable, CSR Performance, companies are scored on two pillars (environmental, social) from 0 (low) until 100 (high). A composite measure of the two pillars will be calculated. In line with previous literature (Cheng, Ioannou, & Serafeim, 2014; Eccles, Ioannou, & Serafeim, 2012; Luo et al., 2015), a composite CSR performance score for each MNE is calculated by taking the sum of the performance scores for the environmental and social dimension divided by two, hence appointing equal importance to both pillar (Waddock & Graves, 1997)

Independent Variable

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21 considered to be the most inclusive measure to capture the essence of gender diversity, as opposed to other measures such as the overall presence of woman measured by a dummy variables within boards or the number of woman directors (e.g., Jetten, Haslam, Iyer, & Haslam, 2009; Torchia, Calabrò, & Huse, 2011).

Moderator Variables

To measure the first moderating variable, formal institutions, a gender quota dummy variable is created with a value of 1 if the country has a gender quota or target which indicates a

favorable institution and 0 otherwise indicating an unfavorable institution. To measure the

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TABLE 2

Descriptive statistics per country

Country N Informal institutions Formal institutions

Austria 18 45 Yes Belgium 36 59.5 Yes Czech Republic 9 57 No Denmark 81 17 No Finland 72 29.5 No France 171 55.5 Yes Germany 162 50.5 Yes Greece 36 58.5 Yes Hungary 9 67 No Ireland 27 48 No Italy 45 60 Yes Netherlands 36 26 Yes Norway 36 19.5 Yes Spain 117 49.5 Yes Sweden 135 18 No Switzerland 72 52 No

Note: Table2 presents the number of observations and the scores per country on the informal and formal institutions

Control Variables

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24 4.3 Empirical Analysis

The data for this thesis covers multiple entities over multiple years. Hence, panel data research will be conducted. Panel data is a combination of both cross-sectional data and time-series data (Horváth & Wieringa, 2003). To determine whether a pooled method can be used, a Chow-test is conducted. This test will show if the regression coefficients are similar or different between companies. Returning a p-value of 0.093, the Chow-test failed to reject the null hypothesis. This means that the pooled method cannot be used, and the regression coefficients are different between companies (Pillai, 2016).

To analyze panel data, two models can be used, the random effects model and the fixed effects model. To determine which model is most appropriate, a Hausman specification test is performed. The null hypothesis states a random-effects regression is preferred while the alternative hypothesis states the fixed effects model is most consistent. Returning a p-value of 0.000, we fail to accept the null hypothesis, which means the fixed effects model is most consistent. To perform a fixed effects regression, several issues must be considered as a robustness check beforehand.

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25 (Marinova, Plantenga, & Remery, 2016). In line with this argumentation, self-selection bias does not seem to be an issue in this study.

Another critical concern regarding the diversity-performance relationship is reverse causality. Previous research (e.g., Terjesen, Couto, & Francisco, 2016) have highlighted that the performance of a firm may influence both the company’s willingness to increase the amount of woman board members and women’s incentives to join the company. In light of this research, this means that the dependent variable of CSR performance might affect the independent variable of main interest, gender. To alleviate this issue of reverse causality, in line with previous research, the independent variables are lagged by one year (Leszczensky & Wolbring, 2018).

Lastly, the endogeneity issue regarding omitted variable bias and unobserved heterogeneity need to be addressed (Adams & Ferreira, 2009). Omitted variables, related to firm characteristics, influence the decisions of corporate boards and the selection of woman within high leadership positions. There exists a chance that some firms, because of progressive corporate culture, decide to have a board with a higher amount of gender diversity. The issue of omitted variable bias is considered by making using the fixed-effects method, which automatically mitigates the unobserved heterogeneity issue (Gormley & Matsa, 2014).

Another issue is heteroscedasticity, which occurs when the residuals at every level of the predictor variables are not constant (Lewis & Linzer, 2005). Heteroscedasticity may lead to biased estimates of the standard errors, which could result in biased test statistics, ultimately leading to a hypothesis test which can be considered abnormal. To consider heteroscedasticity, a Breusch-Pagan / Cook-Weisberg test is used which fails to accept the null hypothesis with a p-value of 0.000. Meaning heteroscedasticity is present, and standard error must be corrected for heteroscedasticity (Lewis & Linzer, 2005). Accounting for heteroscedasticity is done by making using White Heteroscedasticity Consistent (or robust) standard errors throughout the regression model.

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26 Therefore, autocorrelation does not seem a problem in the panel data for the fixed effects regression.

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5. Empirical Results

5.1 Descriptive Statistics

Table 3 provides the descriptive statistics of the sample. The CSR performance data shows that the CSR ratings are quite spread with a range from 17 to 97.775 on a scale of 0-100. This means that the CSR performance of the sampled MNEs is substantially different. However, the average score on CSR performance can be considered to be high with a mean of 64.977, which shows that the data for the dependent variables is skewed towards higher scores. This means that European MNEs, as expected, perform relatively well in terms of CSR performance. Furthermore, approximately twenty percent of the firm’s board of directors were female with a maximum of 60 percent, which indicates that female directors are underrepresented in European boards. Absolute numbers support this assumption as 1,172 directors are male, and 177 are female. The control variables are also displayed in the table. On average, the Firm age is 96.287, which means that most of the sampled MNEs are mature old companies. However, a considerable heterogeneity among the Firm age can also be noticed as the standard deviation is 174.205.

TABLE 3 Descriptive statistics

Variable Mean SD Min Max

CSR Performance 64.977 17 17 97.775

Board Gender Diversity 20.895 13.459 0 60

Formal institutions 0.678 0.467 0 1 Informal institutions 42.322 15.887 17 67 Board Size 11.613 3.984 4 24 MNE Leverage 19.788 20.450 0 242.8 Employees 22992.44 29833.84 47 199698 GDP per capita 47432.27 16028.74 12483.9 103059 Industry 10.390 6.256127 1 22 MNE Age 96.287 174.2054 3 1852

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28 5.2 Correlation Matrix

In Table 4 the Pearson correlation matrix between the dependent, independent, moderating, and control variables is presented. At first sight, the first hypothesis is confirmed as the correlation coefficient of .252 indicates that the percentage of female directors positively relates to CSR performance. Moreover, the control variables Board size, MNE Size, GDP per capita, and MNE

Leverage significantly correlate with CSR performance.

Overall, multicollinearity does not seem to be a problem apart from the correlation between Informal institutions and Formal institutions with a correlation coefficient of .719 which reaches the threshold of 0.7 and hence might have an impact on the empirical analysis (Dormann, 2013). However, an additional test for multicollinearity, Variance Inflation Factors (VIF), indicates that the highest VIF is 2.17 for Informal institutions and the average VIF is 1.50, which is well under the threshold of 10 (Alauddin & Nghiemb, 2010). This suggests that in this research, multicollinearity may not be a problem. And hence the predictor variables will be combined in the full model.

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29 5.3 Fixed Effects Regression Analysis

This paragraph shows the results of the fixed effects analysis regarding the relationship between board gender diversity and CSR performance with the moderating effects of formal and informal institutions. In the regression, country dummies are not included as they are time-invariant and already accounted for by making use of year and firm fixed effects. The results of the fixed effects regression are presented in Table 5. In model (1), the effects of the control variables within the model are tested. As expected, Industry (p= .000), Board size (p= .000), and MNE size (p= .000) and Leverage (p=.014) have a significant positive influence on CSR

performance. However, MNE age (p=.711) does not show to be significant importance and

contradicts the expectation by influencing CSR performance negatively. Moreover, GDP per capita (p=.387) are not found to have any explanatory power in the model.

Second, next to the control variables, the predictor variable board gender diversity was added to the model to test the first hypothesis. Looking at model 2, it can be found that

board gender diversity has positive explanatory power on CSR performance (B= .206; p= .000).

Therefore, the first hypothesis can be accepted.

Third, the second hypothesis and the moderating effect of favorable formal institutions on the relation between board gender diversity and CSR performance is evaluated in the model (3). In contrary to the hypothesized effect, gender quota legislation has a negative effect (B= -1.929) on the main relationship with the significance of (p= .002). Therefore, the second hypothesis should be rejected.

The effect of favorable informal institutions is considered in model (4) and includes the composite measure of the relevant cultural dimension for board gender diversity to measure the moderating effect of informal institutions. According to hypothesis 3, favorable informal institutions positively moderate the relationship between board gender diversity and CSR performance. However, it should be noted that every country was measured from 0 indicating a favorable institution until 100 indicating an unfavorable institution and hence in the regression model the independent variable should have a negative effect on CSR

performance. When looking at model (4), it is found that informal institutions indeed shows a

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30 gender diversity and CSR performance. Therefore, the last and third hypothesis can be accepted.

TABLE 5

Fixed Effects Regression Analysis

Independent variables (1) (2) (3) (4)

CSP CSP CSP CSP

Board Gender Diversity 0.206*** 0.222*** .180*** (0.000) (0.000) (0.000) Formal institutions -2.013*** (0.002) Informal institutions -0.117*** (0.000) BGD*Formal institutions -1.929*** (0.002) BGD * Informal institutions -0.557** (0.013) Industry 0.167*** 0.115*** 0.135*** 0.144*** (0.000) (0.001) (0.001) (0.000) Board Size _0.605*** _0.643*** _0.693*** 0.703*** (0.000) (0.000) (0.000) 0.000 MNE Size 0.000*** 0.000*** 0.000*** 0.000*** (0.000) (0.000) (0.000) (0.000) GDP per capita 0.000 0.000 0.000 -0.000 (0.378) (0.723) (0.744) 0.156 MNE Leverage 0.061** 0.048** 0.049** 0.054 (0.014) (0.041) (0.041) 0.029 MNE Age -0.000 -0.003 -0.002 -0.002 (0.711) (0.208) (0.377) (0.341) Constant 49.050*** 46.236*** 46.287*** 52.930*** (0.000) (0.000) (0.000) (0.000) Observations 1,062 1,062 1,062 1,062 Within R2 0.215 0.237 0.251 0.247 Between R2 0.063 0.920 0.900 0.955 Overall R2 0.204 0.247 0.258 0.255 F-statistic 1080.67 518.27 54356.71 7342.63

Firm effects Yes Yes Yes Yes

Year effects Yes Yes Yes Yes

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31 5.4 Robustness test

To validate the results from the main analysis, a robustness test is carried out. In the main analysis, board gender diversity was measured through a percentage of female directors that was appointed to the board of directors. This approach was chosen as it among the most commonly adopted methods within diversity-related research (Frink et al., 2003). However, previous research has also used the Blau index which is a less common method compared to the percentage of females (Frin et al., 2003) but could also be used within this research setting (Zhang & Hou, 2012). Hence to perform a robustness test, the Blau index will be used as a measure to determine board gender diversity. This index measures the distribution of gender among board members using the following formula:

𝐵𝑙𝑎𝑢 𝐼𝑛𝑑𝑒𝑥 = [1 − ∑ (𝑝𝑖) 2]

In this formula, 𝑝 stands for the proportion of board members within a group, and 𝑖 for the total amount of categories. The total index can range from 0 to 1, with 0 indicating no gender diversity and 1 indicating maximum gender diversity.

Looking at Model (1) of Table A.1, it can be concluded that the results for the first hypothesis are similar for both board gender diversity measures. A significant positive effect (p= .000) on CSR performance can be found for the percentage of females present on the board. These results indicate that the regression results of CSP are robust to the Blau index concerning Hypotheses 1. From these results, it can be concluded that the relationship between board gender diversity and CSR performance is robust to both a percentage of female directors as well as the Blau index.

Also, consistent with the main analysis, the moderating effect of formal institutions shows similar results. Looking at Model (2) of Table A.1, it can be found that formal institutions also has a significant negative effect (B= -1.980; p= .001) with the Blau index.

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6. Discussion

6.1. Summary of Results

The main aim of this research was to examine the impact of board gender diversity on the CSR performance of an MNE while considering the institutional framework of where an MNE is embedded. More specifically, the formal and informal institutions of an MNEs home country. In line with the argument that CSR performance is one of the outcomes of board’s decision making, this research also sought to provide a more in-depth investigation of the link among corporate governance, board gender diversity, and corporate social responsibility. To achieve this goal, I sampled 118 MNEs from 16 European countries. I proposed that the psychological characteristics of female boards members can increase CSR performance and that this is relationship is contingent on the underlying institutional context of the firm. Specifically, I expected that there would be a positive moderation of formal and informal institutions on the relationship between board gender diversity and CSR performance. By using firm-level data from various databases, I find empirical support for the relationship between board gender diversity CSR performance, but this effect is conditional on the underlying institutional context. These results have important implications for theory and practice.

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33 board meetings (Clayton & Suhr, 2015), which is especially harmful for complex and voluntary decision-making processes corresponding to CSR (Cumming et al., 2015; Estélyi & Nisar, 2016; Rao & Tilt, 2016a). Furthermore, board members might interpret gender quotas as unfair, even while they create more justice regarding gender equality countrywide (Leszczensky & Wolbring, 2018). Moreover, male directors might also perceive gender legislation quota as unfair due to the possible loss of male directors in the board which also might hurt their effectiveness and ability to ability to advance board discussions regarding CSR (Casey et al., 2011). According to Dorrough, Leszczyńska, Barreto, and Glöckner (2016), this unfairness leads to a decreased cooperation between female directors appointed due to quota rules and seasoned directors on the boardroom. In turn, decreased cooperation may negatively affect the link between board gender diversity and CSR performance since this could be considered as necessary for complex and voluntary decisions corresponding to CSR (Cumming et al., 2015; Estélyi & Nisar, 2016; Rao & Tilt, 2016a).

As expected, I find evidence that the presence of favorable informal institutions positively moderates the relationship between board gender diversity and CSR performance. This research shows that in line with previous research (Alazzani, Hassanein, & Aljanadi, 2017; Issa, 2018) indeed informal institutions shape the values and believes of people who can eventually influence the acceptance of opinions of female directors. Therefore, informal institutions have clearly influenced the presence of woman within a given society and, particularly, on business leadership. In other words, informal institutions can create stereotypes and roles associated to males and females (Clayton & Suhr, 2015; Zetterberg, 2007) influencing the acceptance of voices, decisions, and opinion of a female director and in turn the CSR performance and engagement of an MNE.

6.2 Theoretical contribution and implications

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34 both informal institutional and formal institutional factors. Moreover, by showing that the effect of board gender diversity and CSR performance is dependent on both formal and informal institutions, this study provides empirical evidence for the call to further investigate the influence of contextual factors on the board gender diversity and CSR relationship (Adams et al., 2015).

6.3 Practical Implications

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35 sufficiently skilled woman employees to take up leadership position in, e.g. boards (Banker & Banker, 2017). More specifically, corporate management could create an environment which fosters equal opportunities for both male and female employees (Ritter-hayashi et al., 2016). This can be accomplished by providing fair educational opportunities and encourage woman to apply for leadership positions (Ritter-hayashi et al., 2016). Furthermore, MNes could also start to adopt a policy aiming to close the wage gap themselves and create an environment which fosters supports the compatibility of career and family such as maternity leaves, home office days and flexible working hours. By implementing these policies both governments and MNEs can create an environment which is more acceptable towards woman (Chung & van der Lippe, 2018), in particular, female directors which increase the social responsibility of a countries firms but also enhances the competitive advantage of MNEs.

6.4 Limitations and Further Research

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36 is commonly assumed that board members equipped with roles like the Chief Sustainability Officer (CSO) have more influence in board discussions related to CSR matters since they have higher responsibilities for strategies such as CSR compared to other board members (Ruedig, Metzger, & Aia, 2013). Future research may look into this by investigating the sole impact of board members with different functions when it comes down to CSR engagement and practices. Lastly, this research did not consider the different characteristics among female directors. For instance, the amount a power female director possess might differ in the boardroom since not every female director has the same set of skills or the social network that enables them to let their voices be heard in boards (Issa & Fang, 2019). An avenue for further research might investigate this by looking at the impact of specific skills, social networks, or other resources on the voices of female directors within boards.

7. Conclusion

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37 appointed to let gender inequality dissolve and create more equal informal institutions, which are acceptable towards woman in leadership positions.

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