The impact of board ethnic diversity and Chief Executive Officer role on corporate social responsibility

Abstract

AbstractWe examine the influence of board ethnic diversity on firms' corporate social responsibility (CSR) activities within modern day corporations. Using firm‐year observations in Australia from the period 2004–2017, we document that board ethnic diversity leads to better CSR performance and CSR disclosure. Our results suggest that for every additional ethnic cluster represented on the board, on average, a firm's CSR performance rating from ASSET4 is higher by 2.6% and the odds ratio of producing a CSR report increases by 38.8%. The results are robust to controlling for endogeneity (using both instrumental variable approach and difference‐in‐differences analysis) and alternate proxies to measure CSR performance and ethnic diversity. We also document the moderating impact of Chief Executive Officer (CEO) power on the relationship between board ethnic diversity and firms' CSR activities. Specifically, a less powerful CEO and a CEO of ethnic minority (i.e., non‐Anglo) are more likely to facilitate this relationship. This study adds to our understanding of how board ethnic diversity, an often‐overlooked factor in prior research, can have significant impacts on firm outcomes.