Board diversity and corporate social responsibility: the moderating role of Shariah compliance

Muhammad Azam · Muhammed Usman Khalid · Syeda Zinnaira Zia

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Gender Diversity and Inequality Islamic Finance and Banking Studies Corporate Social Responsibility Reporting

Abstract

Purpose The purpose of this study is to investigate the effect of board diversity on corporate social responsibility (CSR) practices and the interaction effect of Shariah compliance of firms with religious and ethical principles. Design/methodology/approach A total of 65 firms listed on the Pakistan Stock Exchange (PSX) were selected. The data were collected from the companies’ financial reports from 2012 to 2018 (n=455). The data were analyzed using fixed and random effects regression models to test the effect of board diversity on firms’ CSR activities, while hierarchical moderated regression analysis was used to determine the moderating effects of Shariah compliance. Findings The study found evidence for a moderating effect of Shariah compliance on the relationship between board diversity and CSR activities. The findings suggest that a high level of Shariah compliance together with diverse educational backgrounds and presence of both genders among corporate members significantly promoted CSR activities. Research limitations/implications The present study included the demographic variables, gender, ethnicity and education; but excluded language and culture. The results suggest that the Security and Exchange Commission of Pakistan should attach more importance to Shariah compliance by firms in developing their CSR policies to improve social development and human well-being. Policy-makers should encourage more women to become directors on company boards and to increase philanthropic and charitable activities. These findings possess important implications for many Islamic countries irrespective of whether they are developed or developing. Originality/value To the best of the authors’ knowledge, this study provides the first empirical analysis of the relationship between CSR and board diversity from the perspective of Islamic Shariah law. The findings will contribute both theoretically and empirically to the existing body of knowledge.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 2010Strategic management a stakeholder approach 2011External Control of Organizations: Resource Dependence Perspective 1995A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance 2003Corporate Governance, Board Diversity, and Firm Value 1983Stockholders and Stakeholders: A New Perspective on Corporate Governance 2004Stakeholder Theory and “The Corporate Objective Revisited”2015Board Composition and Corporate Social Responsibility: The Role of Diversity, Gender, Strategy and Decision Making

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