The Influence of Internationalization on Corporate Social
Performance and the Moderating Role of Board Diversity
Author: Rutger de Jong Student Number: S3842657 Email: r.de.jong.38@student.rug.nl
Word count: 10.940 Supervisor: Dr. E. Mendiratta Co-assessor: Dr. R.K.J. Maseland
Faculty of Economics and Business University of Groningen
Duisenberg Building, Nettelbosje 2, 9747 AE Groningen, The Netherlands P.O. Box 800, 9700 AV Groningen, The Netherlands
http://www.rug.nl/feb
ABSTRACT
Corporate social responsibility (CSR) plays an important role in today’s business environment. Due to increasing internationalization, firms are more visible as they are active in multiple countries. Therefore, firms need to deal with increased pressures from a more varied group of stakeholders. This could either lead to a higher corporate social performance (CSP) when firms are able to comply, or to a lower CSP when firms are unable to comply with the increased stakeholder pressures. It is expected that board diversity will positively contribute to a firm’s ability to recognize and to deal with stakeholder needs due to the fact that diversity brings different perspectives, knowledge and values to the board room. This finally results in being better able to identify themselves with a more varied group of stakeholders. Therefore, the moderating effect of board age and gender diversity on the relationship between internationalization and CSP is researched. A stepwise regression analysis is performed with sample of 139 U.S MNEs. The results support a positive relationship between internationalization and CSP. The moderating effect of board gender diversity turned out to be insignificant and the moderating effect of board age diversity significant, but negative. The findings provide important theoretical and practical implications.
Keywords: Corporate social performance (CSP), internationalization, stakeholder theory, board
ACKNOWLEDGEMENTS
TABLE OF CONTENT INTRODUCTION……….6 LITERATURE REVIEW ……….………10 Internationalization……….………..10 CSR and CSP……….………...11 Stakeholder Theory……….………..13 Internationalization and CSP ……….…………...14 Board Diversity……….………17 METHODOLOGY……….………23 Data Collection ……….…………...23 Dependent Variable………...………24 Independent Variable ………..……….24 Moderating Variable……….…………25 Control Variable………....25 Analysis……….26 Descriptive Statistics……….27 RESULTS………30
Interpretation of the Results……….………….30
Robustness Test………32
DISCUSSION………..33
Theoretical Implications………...37
Managerial Implications………...38
Limitations and Future Research………..38
REFERENCES………41
APPENDIX………..46
Appendix A: Hausman Test………..46
Appendix B: Variance Inflation Factor Test……….46
Appendix C: Robustness Test Board Gender Ratio………..47
Appendix D: Robustness Test ROE………..48
List of tables Table 1: Descriptive Statistics……….………..27
Table 2: Pairwise Correlation Matrix……….………...29
INTRODUCTION
Nowadays Corporate Social Responsibility (CSR) plays an important role in the business environment as firms are more global and markets are more complex. Besides that, the world is facing a rising number of issues regarding the society and environment, such as poverty and climate change. According to the Forum for Sustainable and Responsible Investment, the sustainable investment grew in the US from 2016 till 2018 with 38% (Forum for Sustainable and Responsible Investment, 2018). Therefore, it can be seen that firms invest more in CSR. Firms have several reasons to engage in CSR. One of the reasons that firms engage in CSR is due to increasing pressures of various stakeholders (Deng, Kang, & Low, 2013). Moreover, stakeholders are more and more interested in the CSR activities executed by firms (Snider, Hill & Martin, 2003). Besides the growing interest in CSR, stakeholders are interested in how well or how poor firms socially perform. MNEs face an increased pressure from several stakeholders to show the society their effort to behave in a socially responsible way (Brammer, Pavlin & Porter, 2006). Because of that, corporate social performance (CSP) is becoming an important performance measure for MNEs to show their commitment regarding their corporate social behavior to various stakeholders (Brammer et al., 2006).
or negatively influence their overall CSP? If MNEs are able to recognize and to respond to those increased stakeholder demands, it could enhance their CSP (Brammer et al., 2006; Kang, 2013). However, when an MNE does not have the ability to recognize and to comply with their stakeholder demands or even resist stakeholder pressures, their CSP could go down (Kang, 2013). Therefore, an MNE’s ability to recognize and to comply with their stakeholder demands seems to be a crucial factor to understand the relationship between internationalization and CSP.
Nowadays the composition of the board gets lots of attention in the literature as well as in the business environment. Especially in developed countries governments put pressure on firms to enhance the diversity of their board (Boulouta, 2013; Harjoto, Laksmana & Lee 2015). In quite a lot of countries, policies are established in order to enhance board diversity. In Norway and The Netherlands for example, the board needs to consist of a minimal of 40% female board members (Tjerjesen & Sealy, 2016). Moreover, in other countries large institutional shareholders put pressures on firms to increase diversity in corporate boards (Hillman, 2015).
these pressures, their CSP is expected to be higher (Kang, 2013). Therefore, the interaction effect of the composition of the board seems to be an essential aspect in the relationship between internationalization and CSP as this could enhance a firm’s ability to recognize and deal with their stakeholder demands. Quite a lot of research has been done to the direct relationship between board diversity and CSP (Hafsi & Turgut, 2013; Harjoto et al., 2015; Rao & Tilt, 2016). However, it seems to be important to research the moderating effect of board diversity on the relationship between internationalization and CSP as this might help to understand the main relationship better.
According to Harjoto et al. (2015), a diverse board could lead to an enhanced ability of an MNE to satisfy their stakeholder needs and eventually contributes to their CSR performance. Therefore, a diverse board could help to overcome the difficulty to recognize the increased variety of stakeholder demands and satisfy the needs of stakeholders that are caused by the increased internationalization of MNEs. Moreover, it leads to an increased ability to find good strategies to manage the stakeholder interests and potential conflicts regarding stakeholders (Harjoto et al., 2015). According to Setó-Pamies (2015), a diverse board better represents the reflection of demographic characteristics of a firm’s stakeholders, which results in a better understanding of a more varied group of stakeholders. Based on the theories named above, the following main question will be researched:
Does a diverse board positively moderate the relationship between internationalization and an MNE’s CSP?
the needs of the stakeholders that are involved or affected by the MNE’s business (Freeman, 1984). Michelon and Parbonetti (2012), state that it is crucial for MNEs to interact with stakeholders as it enhances a firm’s legitimacy and it contributes to the overall viability of an MNE. Wood (1991), argues that a good interaction with stakeholders could finally lead to an enhanced CSP.
The link between internationalization and CSP is already been researched. However, the results are not consistent as some studies found a positive effect (Brammer et al., 2006; Kang, 2013) and other studies found a negative effect (Lu and Liang, 2019). In order to get a better understanding of this relationship, the moderating role of board diversity is researched. Moreover, the role of board diversity could lead to more insights regarding stakeholder management and CSR decisions. This research aims to broaden the knowledge of the stakeholder theory in relation to CSP and will contribute to the CSP literature. Moreover, the role of board diversity will be researched and integrated in the existing literature stream of internationalization and CSP. Besides theoretical contributions, this research will provide managerial contributions for MNEs. This research is relevant for policy makers as they will get insights in stakeholder management to mitigate problems regarding internationalization and to enhance their CSP. Moreover, this research stresses the positive benefits of having a diverse board of directors.
LITERATURE REVIEW
Internationalization
Internationalization can be defined as: “the process to which a firm expands the sales of its goods and services across the borders of global regions and countries into different geographic locations or markets” (Hitt, Ireland, & Hoskisson, 2007: 251). For MNEs, the internationalization process involves positive and negative aspects. Among other benefits, internationalization allows firms to make use of foreign market opportunities (Strike, Gao & Bansal, 2006). Moreover, it gives MNEs the opportunity to access resources globally and access new markets, which could lead to a competitive advantage (Ma et al., 2016). Besides that, firms use internationalization as a strategy to spread operating risk (Husted, 2005).
Due to LOF, firms face other problems as well. MNEs need to deal with an increased and more diverse set of stakeholders. Therefore, it makes it more difficult to satisfy the needs of the stakeholders that are affected by the MNE (Brammer et al., 2006). Each country to which an MNE internationalizes, different stakeholder groups are present. Different stakeholders have different needs and an MNE needs to develop different approaches in order to satisfy the needs of their stakeholders (Brammer et al., 2006). Moreover, the needs of the stakeholders in the domestic market may differ from the needs of overseas stakeholders and therefore managing the needs of stakeholders will become more complex (Sanders & Carpenter 1998). Besides the difficulty regarding managing the needs of stakeholders, MNEs face increased pressures of both domestic and overseas stakeholders to behave in a socially responsible way. This increased pressure of stakeholders influences an MNE’s legitimacy in the home and foreign market (Ma et al., 2016). To build and maintain legitimacy is an important issue for MNEs, as they are active in multiple host environments. For MNE’s, it is key to build and maintain legitimacy in the eyes of stakeholders in order to survive as a firm and to be successful (Kastova & Zaheer, 1999). According to Mitchel, Agle, and Wood (1997), it is important for an MNE to establish and maintain legitimacy in order to better understand their stakeholder environment and to get acceptance from their stakeholders.
CSR and CSP
conceptualized CSR in a multidimensional model. The model consists of economic, legal, ethical and philanthropic responsibilities. The economic responsibility refers to making profits in order to survive as a firm. The legal responsibility involves for firms to comply with the law and legislation. The ethical responsibilities involve acting in an ethical way according to the societies’ expectations. Lastly, the philanthropic responsibilities refer to a firm’s effort to do something good for the society beyond the expectations of the society (Carrol, 1991). The Commission of European Comities defines CSR as: “corporate behavior that voluntary integrates social and environmental concerns into business operations and core strategies to interact with their stakeholders” (The EU Commission of European Comities 2001: 6). This definition will be taken into account as it best suits the nature of this study. This is due to the fact that it stresses the importance for firms to interact with their stakeholders, which is an important aspect of this research. Moreover, Dahlrud (2008), studied 37 definitions of CSR and found five dimensions that are commonly used in the definitions. According to this author, the CSR definition of the EU Commission of European Comities, is the most complete definition as it includes all five aspects and is most used in CSR literature (Dahlrud, 2008).
Stakeholder Theory
Quite a lot of CSR research has its theoretical basis in the stakeholder theory as it is argued that a natural fit exists between CSR and a firm’s stakeholder environment (Yasser, Mamun & Ahmed, 2017). The overall idea of the stakeholder theory is that firms maximize value by satisfying the needs of the stakeholders that are involved or effected by a firm’s business activities (Freeman, 1984). According to Guthrie, Petty and Ricceri (2006), the stakeholder theory stresses a firm’s responsibility regarding their stakeholders that goes beyond making profits. In other words, stakeholder theory entails that firms should not only focus on value maximization regarding shareholders, but also regarding their stakeholders. Jamali (2008), even argues that it is necessary to meet the needs of a firm’s stakeholders to a certain extend in order to being able to meet the needs of the shareholders. Stakeholders can be defined as: “any group or individual who can affect or is affected by the achievement of the firm’s objective” (Freeman, 1984: 46). Among other groups, such as customers, suppliers, shareholders, employees and the society can be seen as stakeholders (Freeman, 1984). When placing this in a CSR context, stakeholders can be perceived as the group that benefits or is harmed by a firm’s activities (Yasser, et al., 2017).
are better able to establish relationships with their stakeholders, in order to improve their stakeholder management and finally their CSP.
Internationalization and CSP
A lot of research regarding the relationship between the degree of internationalization and CSR is already been done (Attig et al., 2016; Brammer et al., 2006; Kang, 2013; Ma et al., 2016; Strike et al., 2006). Brammer et al. (2006), found a positive significant effect between geographical diversification and CSP with a sample of large firms from the UK. Also, Kang (2013), found a positive and significant relationship between internationalization and CSP based on a sample of US firms. However, Lu and Liang (2019), found a negative relationship between the level of internationalization and the social dimension of CSP. Also, Ma et al. (2016) found a negative but insignificant relationship between geographical diversification and CSP. Moreover, Strike et al. (2006) found that internationalization creates incentives to engage in both socially responsible as well as irresponsible activities. Because of that, there can be argued that internationalization has an influence on CSP, but it is not sure whether this relationship is positive or negative. In order to better understand the relationship between internationalization and CSP, it is important to get a deeper understanding of the rationale of this relationship.
are active in different countries, which means that they need to abide to different institutional environments. Moreover, as MNEs are present in multiple markets, they have to deal with an increased number of social issues (Brammer et al, 2006; Kang, 2013). This is mainly due to the fact that different stakeholders in different markets attach value to different social issues (Kang 2013). Moreover, MNEs most often adopt global standards regarding CSR in order to comply with the increased pressures of stakeholders and deal with the increased number of social issues (Brammer et al, 2006). Those global CSR standards are commonly quite high and lead to higher CSP as MNEs want to be sure that they meet the CSR standards of all countries they are active in (Brammer et al., 2006).
Hypothesis 1a. The higher the level of internationalization, the higher an MNE’s CSP.
Besides the fact that internationalization creates incentives to engage in CSR activities, it also creates incentives to engage in irresponsible practises that lowers an MNE’s CSP. As explained before, internationalization is involved with increased pressures of a more varied group of stakeholders and also with a more diverse set of social issues that a company needs to take into account. This can create difficulties for the MNEs and could lead to the fact that MNEs are not able to meet the expectations of their stakeholders. Besides that, the fact that MNEs are more visible due to internationalization could also create incentives to hide irresponsible behaviour as this irresponsible behaviour has a negative impact on their global reputation (Strike et al., 2006). Especially for MNEs, a good reputation is important as it effects their legitimacy and MNEs need legitimacy to overcome LOF in order to be active in foreign markets (Kostova & Zaheer, 1999). As explained before, international firms face LOF and therefore, it is more difficult for them to build and maintain legitimacy. A good reputation can help MNEs to build legitimacy and a bad reputation will make it even more difficult to establish and maintain legitimacy (Kostova & Zaheer, 1999). As explained before, the needs of the stakeholders in the domestic market may differ from the needs of overseas stakeholders and therefore managing the needs of stakeholders will become more complex (Sanders & Carpenter 1998). Moreover, the more international an MNE is, the more stakeholder pressures this MNE faces and the more differing social issues the firm needs to deal with (Brammer et al., 2006). Therefore, it is more difficult for MNEs to comply with the demands of their stakeholders and recognize and anticipate on the differing social issues in the several host markets they are active in.
(Strike et al., 2006). Therefore, it is more complex for MNEs to monitor and control their subsidiaries. This complexity could lead to the fact that it would be more difficult for MNEs to recognize the stakeholder demands and being able to comply with these demands. According to Campbell (2007), MNEs may even engage in social irresponsible behavior when they are not able to comply with their stakeholder demands. This happens as MNEs try to keep up their good reputation in order to maintain their legitimacy and therefore try to hide their irresponsible behavior (Campbell, 2007). When a firm is not able to deal with the increased complexity regarding managing their stakeholders, higher internationalization could eventually lead to a lower CSP as stakeholder expectations cannot be fully met (Kang, 2013). Because of this the following hypothesis will be tested:
Hypothesis 1b. The higher the level of internationalization, the lower an MNE’s CSP
Board Diversity
Because of that, the board of directors play an essential role in a recognizing and managing stakeholder needs.
The idea that the composition of the board influences the decisions made by the board originates from the upper echelon theory. The upper echelon theory states that “organizational outcomes, strategic choices and performance levels are partially predicted by managerial backgrounds and characteristics” (Hambrick & Mason, 1984: 193). This theory consists of two interconnected parts. First, directors act on strategic situations in the way that they interpret those strategic situations. Second, this interpretation is influenced by their personalities, values and experiences (Hambrick, 2007). According to Zhang, Zha & Ding (2013), the background of each board member has an impact on how he or she perceives the importance of stakeholder demands and how resources towards those demands are allocated. MNEs prioritize stakeholder demands based on the urgency of the demands, the stakeholder power and the legitimacy of the demands (Mitchel et al. 1997). The background and experience of the board members could lead to a better understanding of this urgency and legitimacy of the stakeholder demands (Zhang, 2012). This better understanding enhances a MNE’s stakeholder response and acceptance (Zhang, 2012). Because of that, it can be argued that the composition of the board influences a firm’s ability of recognizing, prioritizing and dealing with their stakeholders needs and demands.
broader view at certain issues and are better able to consider more options (Hillman, 2015). Harjoto et al. (2015) argues that a diverse board brings in different knowledge, perspectives and experiences, which could lead to an increased ability to recognize and satisfy the needs of different stakeholder groups. Moreover, it leads to an increased ability to find good strategies to manage the stakeholder interests and potential conflicts regarding stakeholders (Harjoto et al., 2015). According to Setó-Pamies (2015), a diverse board better represents the reflection of demographic characteristics of a firm’s stakeholders, which results to a better understanding of a more varied group of stakeholders. Therefore, it can be assumed that board diversity enhances a firm’s ability to recognize, identify and deal with their stakeholders’ needs, as a diverse board brings a variety of experience and knowledge into the group decision making process. This variety of experience and knowledge could lead to the fact that board members can identify themselves better with the differing stakeholders.
Hypothesis 2a. Board gender diversity has a positive effect on the relationship between internationalization and CSP
on this it is argued that a more age diverse board better understands a more varied group of stakeholders and is therefore better able to recognize and to comply with stakeholder demands. As explained before, MNEs need to deal with increased stakeholder pressures of a more varied group of stakeholders and an increased set of social issues. Since board age diversity is expected to increase a firm’s ability to recognize and to comply with more varied stakeholder demands, it is expected that board age diversity positively moderates the relationship between internationalization and CSP.
METHODOLOGY Data Collection
The main question in this research is: Does a diverse board positively moderate the relationship between internationalization and an MNE’s CSP? The objective is to test whether the relationship between internationalization and CSP is positive or negative and to see if board gender and age diversity positively moderates this relationship. In order to answer the main question, a stepwise regression analysis will be exercised. This research will be quantitative and the data will be retrieved from the Thomson Reuters ASSET4, Orbis and BoardEx database. The sample will be taken from 139 US MNEs and the observations are ranging from 2015 till 2019. The independent variable and the control variables are lagged as it takes at least a year before the effect of these variables are observable on the dependent variable.
Dependent Variable
The dependent variable is a firm’s CSP score, which will be measured with the Thomson Reuters Combined ESG score. The combined ESG score ranges from 0, which indicates a poor CSP till 100, which indicates an excellent CSP. In this research, the combined ESG score is used, because it seems to give a more reliable view of a firms CSP. This is because the combined score also takes into account a firm’s corporate social irresponsible behavior (Thomson Reuters, 2018)
Independent Variable
Moderating Variables
The moderating variables are board gender diversity and board age diversity. A common proxy for board gender diversity is the Blau Index (Ben- Amar et al., 2017; Harjoto et al., 2015; Zhang, 2012;). The Blau Index (Blau, 1977) is a diversity measure with the following formula:
Blau Index= 1-
In this formula k stands for the number of categories and p for the proportion of persons in each category. For board gender diversity, two categories have been taken into account, male and female. In this case the index ranges from 0, which indicates that the board is not gender diverse at all and 0.5, which is the highest possible board gender diversity. The second moderating variable is board age diversity. In line with prior research, board age diversity will be measured with the coefficient of variation (Ali, Ng & Kulik, 2014). In order to calculate the coefficient of variation, the standard deviation of the age of the directors is divided by the mean of the age of the directors and multiplied by 100. The higher this score is, the higher the board age diversity is. The formula for the coefficient of variation is as follows:
Coefficient of variation = !"#$%#&% %()*#"*+$,(#$ * 100
Control Variables
profitability of a firm has a positive effect on a firm’s CSP as it is more likely that firms that are financially strong engage in CSR compared to firms that are financially weak. Besides that, when a firm is more profitable, the better able they are to deal with the increased pressures of their stakeholders (Ma et al., 2016). Consistent with prior studies, the logarithm of the return on asset (ROA) will be used to measure firm profitability (Campbell, 2007; Ma et al., 2016; Zhang, 2012). Moreover, according to Brammer et al., (2008) older firms are more likely to face stakeholder pressures. Therefore, the logarithm of firm age will be added as a control variable. In line with prior research there will be controlled for the CEO’s gender (Benkraiem, Hamrouni, Lakhal & Toum, 2017). The CEO’s gender will be added as a dummy variable for which, 0 is female and 1 is male. The last control variable is board size, as the size of the board influences a firms CSP score (Dawar & Sing, 2016). This control variable will be measured by the sum of all members of a board.
Analysis
Descriptive Statistics
In table 1, the descriptive statistics of the dependent, independent, moderating and control variables can be found. The total sample of this research contains 139 US firms and a total of 739 observations ranging from 2015 till 2019. It can be observed that the mean of the ESG value is 44,37. The minimum score that firms can get is 0 and the maximum score is 100. In this sample, the firm with the lowest ESG scored 6.38 and the firm with the highest ESG scored 88.16. The mean of the foreign sales ratio is 0,39. This means that on average firms generate 39% of their sales outside their headquarters’ country. Board gender diversity is measured with the Blau Index. In this sample the Blau Index ranges from 0, which indicates no board gender diversity, till 0,5, which indicates the highest possible gender diversity. The mean of board gender diversity is 0.287 and the standard deviation is 0.12, which implies that in this sample female directors are underrepresented in the boards. In total, 19 % of all board members is female. Age diversity is measured with the coefficient of variation and is expressed in a percentage. The higher this coefficient, the greater the level of dispersion is around the mean. In this sample, the coefficient of variation of age ranges from 3.65% to 26.76%, with a mean of 10.63% and a standard deviation of 3.5%. The lowest ROA in this sample is -73.42% and the highest 47.8%. The average firm in this sample has a ROA of 7.19%. The smallest board consist of 4 directors and the largest board has 15 directors. The standard deviation of board size is 1.82 and the mean is 9,6, which means that the average board consist around 10 directors.
TABLE 1 Descriptive Statistics
Variable Obs Mean Std. Dev. Min Max
ESG 740 44.373 18.883 6.84 88.157
Foreign Sales Ratio 740 .391 .231 .013 .994
Board Gender diversity 740 .287 .124 0 .5
Board Age Diversity 740 11.626 3.504 3.647 26.763
Ln Firm Size 740 8.969 1.281 5.037 13.112
Ln Firm Age 739 3.207 .845 0 4.913
ROA 740 7.193 10.464 -73.429 47.812
TABLE 2
Pairwise Correlations Matrix
Variables (ESG) (FS Ratio) (BGD) (BAD) (Ln Firm Size) (Ln Firm Age) (Ln ROA) (Board Size)
RESULTS Interpretation of the results
instead of 0.01. In model 6, the interaction effect of board age diversity is added. This coefficient is negative and significant on a level of 0.01. It was expected that board age diversity would have a positive moderating effect on the relationship between internationalization and CSP. Therefore, hypothesis 2b cannot be supported based on this sample. In this model, the independent variable and the control variables firm size and firm age are significant at a level of 0.01. Besides that, the coefficient of board gender diversity is positive and significant a 0.05 level. In the last model, all variables are added. The model shows that the foreign sales ratio is positive and significant on a level of 0.01. Moreover, the control variables firm size and firm age are positive and significant on a level of 0.01, board age diversity is positive and significant on a level of 0.05. Lastly the interaction effect of board age diversity is negative and significant on a level of 0.01.
TABLE 3 Regression Analysis
(1) (2) (3) (4) (5) (6) (7)
ESG ESG ESG ESG ESG ESG ESG
Firm Size (log) 8.722*** 9.464*** 9.271*** 9.541*** 9.205*** 9.484*** 9.285***
(2.631) (2.619) (2.668) (2.653) (2.672) (2.629) (2.685)
Firm age (log) 10.553*** 9.543*** 9.13*** 9.608*** 9.123*** 9.108*** 8.933***
(2.891) (2.886) (3.077) (2.909) (3.079) (2.888) (3.078) Board Size -.133 -.15 -.168 -.175 -.194 -.064 -.084 (.441) (.436) (.44) (.456) (.441) (.453) (.456) ROA (log) -.14 -.006 -.016 -.003 .022 .003 .054 (.732) (.727) (.728) (.728) (.731) (.721) (.725) Gender CEO 3.686 2.899 2.902 2.985 2.848 2.711 2.562 (4.385) (4.352) (4.357) (4.38) (4.361) (4.341) (4.35) FS Ratio 13.98*** 13.897*** 14.018*** 17.552** 43.683*** 50.12*** (4.941) (4.952) (4.952) (7.281) (11.749) (13.551) BGD 2.247 7.939 8.877 (5.765) (10.115) (10.122) BAD .049 .866** .863** (.256) (.388) (.391) FS Ratio*BGD -13.82 -20.245 (20.176) (20.307) FS Ratio*BAD -2.769*** -2.875*** (.996) (1.01) Constant -64.322*** -67.822*** -64.563** -68.497*** -63.743** -67.436*** -64.942** F-Value 5.359*** (24.257) 6.358*** (24.056) 7.357*** (25.494) 7.357*** (24.346) 8.356*** (25.541) 8.356*** (24.123) 10.354*** (25.648) Observations Number of Firms 503 139 503 139 503 139 503 139 503 139 503 139 503 139 R-squared .077 .097 .097 .097 .099 .116 .119
Robustness Test
In order to ensure that the coefficients in the regression models are not sensitive to changes, multiple robustness tests are done. In the first robustness test, the proxy for board gender diversity will be changed and then the outcome of the regressions will be compared. Based on previous research, the current proxy for board gender diversity is the Blau Index (e.g. Ben-Amar et al., 2017; Harjoto et al., 2015; Zhang, 2012). However, other scholars use the percentage of female directors as proxy for board diversity (e.g. Boulouta, 2013; Zhang et al., 2013). Because of that, a fixed effect regression analysis is done with the percentage of female directors as proxy for board gender diversity. This regression can be found in appendix C. When comparing the results, it became clear that there were no significant differences. The signs and the significance levels are the same for both regression analyses and therefore do not impact the results of this research.
DISCUSSION
The aim of this research is to contribute to the field of research on internationalization, board diversity and CSP. Firstly, this research explores whether the level of internationalization has a positive or negative effect on a firm’s CSP. Secondly, the moderating effect of board gender diversity and board age diversity is researched on the relationship between the level over internationalization and CSP. By researching the moderating role of board gender and age diversity on the relationship between internationalization and CSP, this research broadens the knowledge on how different board diversity measures interact in order to better understand the main relationship. This research may help to understand what role internationalization and board diversity play in a firm’s CSP. For this research, panel data is used and the sample consist of 139 US firms and 503 observations ranging from 2015 till 2019. In general, the findings are partly consistent with prior research. Internationalization seems to be an important predictor of CSP and is moderated by board age diversity, but board gender diversity does not significantly moderate this relationship based on this sample.
expectations (Surroca, et al., 2013). Therefore, it can be argued that it is important for MNEs to make sure the activities that they perform are according the expectations of their stakeholders and therefore they should comply with the demands of their stakeholders in order to build and maintain legitimacy. As MNEs are active in foreign markets, they will face more stakeholder pressures from a more varied group of stakeholders to behave in a socially responsible way and they have to deal with an increased set of social issues (Brammer et al, 2006; Kang et al, 2013). If an MNE is able to comply with the demands of their stakeholders and is able to deal with the increased set of social issues, their CSP could increase. However, when an MNE does not have this ability, their CSP could go down (Kang et al., 2013).
pressures of their stakeholders as they have more resources (Ma et al., 2016). As firm profitability is positive and significant, it could indicate that firms with a higher profitability are indeed better able to deal with stakeholder pressures, which leads to a higher CSP. However, when following the reasoning of Campbell (2007), it could also mean that the more profitable firms are more likely to invest in CSR as they have more resources to invest.
gender diversity leads to an increased ability to recognize and deal with varied stakeholder pressures. One of the reasons for this could be that female board members are underrepresented in this sample. Only 19% of all board members is female.
and the better understanding of stakeholder demands could not be fully used due to generational conflicts
Theoretical Implications
This study contributes to the field of research regarding internationalization and its link with CSP. Results regarding the relationship between internationalization and CSP are constant with previous research (Attig et al., 2016; Brammer et al., 2006; Kang, 2013, 2013; Ma et al., 2016). As the argumentation for this relationship is built on the stakeholder theory, the results of this research add to the current stakeholder theory literature by emphasizing its importance. Moreover, this research contributes to the literature by confirming that internationalization is an important predictor for CSP as well as firm size and firm age.
The results of this research confirm that scholars regarding board diversity are quite mixed. Especially regarding demographic board diversity measures. Hafsi and Turgut (2013) and Post et al. (2011), made important theoretical assumptions regarding the positive effect of board age diversity on CSP. However, the authors did not find empirical evidence. This study contributes to that discrepancy by providing empirical evidence that for this sample board age diversity positively influences a firms CSP. Therefore, this research supports the theoretical assumptions of Hafsi and Turgut (2013) and Post et al. (2011).
Managerial Implications
This research also provides managerial implications. The results of this research indicate that internationalization has a positive effect on a firms CSP when firms are able to recognize and comply with their stakeholder demands. Therefore, this research gives policy makers insights to prioritise stakeholder management in order to enhance their CSP. It is argued that a firm’s value depends on their ability to meet the needs of their stakeholders (Cornell & Shapiro, 1987). Moreover, especially for MNEs it is important to interact with their stakeholders as it enhances their legitimacy and contributes to the overall viability of the firm (Michelon & Parbonetti 2012). This enhanced legitimacy could MNEs help to be successful in the several host markets to which an MNE internationalizes (Kostova & Zaheer, 1999). Lastly, this research shows that there are beneficial effects of having a diverse board. Therefore, it gives policy makers insights in how to structure corporate boards.
Limitations and Future Research
would be interesting to check whether the results are the same when testing on different dimensions of CSP.
Another limitation is the measurement of internationalization. The way internationalization is measured probably effects the results of the study. Ma et al. (2016) found a negative but insignificant effect when using geographical diversification as proxy for internationalization. In this case geographical diversification refers to the number of countries a firm is active in. However, when the authors used the foreign sales ratio as proxy for internationalization, they found a positive significant effect. For this research, it would have been nice to include both measures of internationalization. However, due to data availability and time reasons, only the foreign sales ratio is used as proxy for internationalization. For further research, it would be interesting to research the effect of both measurements for internationalization.
CONCLUSION
Nowadays CSR plays an important role in the business environment that is becoming more global. However, does this increased internationalization of firms benefit their CSR performance? In quite a lot of countries, policies are established in order to enhance the diversity of corporate boards. Could board diversity help to explain the relationship between internationalization and CSP? The main questions in this research is: does a diverse board positively moderate the relationship between internationalization and CSP? In order to answer this question, the first step was to research whether internationalization has a positive or negative effect on a firm’s CSP. Based on the results, it can be inferred that the level of internationalization has a positive effect on CSP. This is consistent with prior research regarding this relationship (Attig et al., 2016; Brammer et al., 2006; Kang, 2013). After that, the moderating role of board gender diversity is researched and the results indicate that there is no significant relationship. Lastly, the moderating role of board age diversity is researched. The results show a negative significant relationship, which is contradicting the expectation. Based on the results, the answer to the main question is: no, board age diversity and board gender diversity do not positively moderate the relationship between internationalization and CSP.
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APPENDIX
APPENDIX A Hausman TestCoef.
Chi-square test value 39.963
P-value 0
Appendix B
Variance Inflation Factor of model 7
APPENDIX C
Robustness Test Board Gender Ratio
(1) (2) (3) (4) (5) (6) (7)
ESG ESG ESG ESG ESG ESG ESG
Firm Size (log) 8.722*** 9.464*** 9.149*** 9.541*** 9.167*** 9.484*** 9.214***
(2.631) (2.619) (2.648) (2.653) (2.648) (2.629) (2.663)
Firm Age (log) 10.553*** 9.543*** 8.651*** 9.608*** 8.628*** 9.108*** 8.425***
(2.891) (2.886) (3.086) (2.909) (3.086) (2.888) (3.093) Board Size -.133 -.15 -.194 -.175 -.232 -.064 -.108 (.441) (.436) (.44) (.456) (.442) (.453) (.456) ROA (log) -.14 -.006 -.034 -.003 .02 .003 .052 (.732) (.727) (.728) (.728) (.73) (.721) (.724) Gender CEO 3.686 2.899 2.911 2.985 2.812 2.711 2.477 (4.385) (4.352) (4.354) (4.38) (4.355) (4.341) (4.345) FS Ratio 13.98*** 13.863*** 14.018*** 18.703*** 43.683*** 50.713*** (4.941) (4.945) (4.952) (6.887) (11.749) (13.228) BGD (Gender Ratio) 6.187 17.569 18.653 (7.554) (13.567) (13.655) BAD .049 .866** .83** (.256) (.388) (.392) FS Ratio*BDG (Gender Ratio) -28.917 -37.544 (28.634) (28.851) FS Ratio* BAD -2.769*** -2.85*** (.996) (1.008) Constant -64.322*** -67.822*** -61.641** -68.497*** -61.439** -67.436*** -62.445** F- Value (24.257) 5.359*** (24.056) 6.358*** (25.222) 7.357*** (24.346) 7.357*** (25.222) 8.356*** (24.123) 8.356*** (25.377) 10.354 Observations Number of Firms 503 139 503 139 503 139 503 139 503 139 503 139 503 139 R-squared .077 .097 .099 .097 .101 .116 .121
APPENDIX D Robustness Test ROE
(1) (2) (3) (4) (5) (6) (7)
ESG ESG ESG ESG ESG ESG ESG
Firm Size (log) 8.602*** 9.293*** 9.02*** 9.299*** 8.923*** 9.171*** 8.859***
(2.613) (2.61) (2.658) (2.644) (2.663) (2.618) (2.677)
Firm Age (log) 11.811*** 10.88*** 10.295*** 10.886*** 10.269*** 10.264*** 9.939***
(2.913) (2.918) (3.102) (2.943) (3.104) (2.921) (3.106)
Board Size -.056 -.072 -.097 -.074 -.13 .042 .017
(.443) (.44) (.442) (.461) (.445) (.458) (.461)
ROE (log) -.278 -.125 -.122 -.125 -.081 -.121 -.064
(.719) (.717) (.718) (.718) (.72) (.711) (.713)
Gender CEO (dummy) 3.853 3.162 3.162 3.169 3.103 2.859 2.676
(4.341) (4.32) (4.324) (4.35) (4.327) (4.307) (4.315) FS Ratio 12.09** 11.95** 12.093** 16.176** 42.873*** 49.618*** (4.977) (4.988) (4.988) (7.358) (11.979) (13.763) BGD 3.268 10.148 10.775 (5.84) (10.566) (10.637) BAD .004 .842** .815** (.261) (.394) (.398) FS Ratio*BGD -16.147 -22.637 (20.658) (20.882) FS Ratio* BDG -2.866*** -2.951*** (1.016) (1.031) Constant -67.579*** -71.101*** -66.522*** -71.154*** -65.355** -69.063*** -65.1** F-Value 5.343*** (24.231) 6.342*** (24.103) 7.341*** (25.477) 7.341*** (24.382) 8.340*** (25.536) 8.340*** (24.148) 10.338*** (25.655) Observations Number of Firms 484 136 484 136 484 136 484 136 484 136 484 136 484 136 R-squared .089 .105 .105 .105 .107 .125 .128
