Board diversity and quality of CSR disclosure: evidence from Pakistan

• Pages: 1187-1203
• DOI: https://doi.org/10.1108/CG-12-2018-0371
• Published date: 17 July 2019
• Date: 17 July 2019
• Author: Imran Khan,Ismail Khan,Ismail Senturk

Board diversity and quality of CSR

disclosure: evidence from Pakistan

Imran Khan, Ismail Khan and Ismail Senturk

Abstract

Purpose –This study aims to examinethe relationship betweenboard diversity and quality of corporate

social responsibility(QCSR) disclosure.

Design/methodology/approach –The study estimates sevendimensions of board diversity including

age, gender, nation,ethnicity, educational level, educational backgroundand tenure by applying Blau’s

index. The relationship between board diversity and QCSR disclosure from the perspective of the

resource-based view theory is estimated by using panel random effects regression across 57 firms

producing exclusivesustainability reports listed in the PakistanStock Exchange from 2010 to 2017. The

robustness of the results has also been checked through alternative measurements of the variables

under study.

Findings –The regression results reveal that gender and national diversities are the firms’ valuable

resources, having the potential to promote QCSR disclosure. However, age diversity was found to be

negatively associated to QCSR disclosure. Furthermore, educational level, educational background,

ethnicity andtenure were insignificant on QCSR disclosure.The sensitivity analysis supportsthe findings

of the baselinemodel.

Research limitations/implications –Pakistani firms need to improve the level of board diversity

through encouragementof the inclusion of diverse forcesof gender and nationality to enhance disclosure

on CSR practices.

Originality/value –This is thefirst study on board diversity and QCSRin the case of Pakistan.

Keywords Pakistan, Board diversity, QCSR disclosure, RBV theory

Paper type Research paper

Introduction

Growing national and global concern on the role of businesses in society attracted a

considerable attention of regulators, boards and media. Corporate social responsibility

(CSR) disclosure has become an important issue among firms and is used as a marketing

tool to increase awareness (McWilliams and Siegel, 2001) so as to fulfill the increasing

demand of various groups of stakeholders, particularly investors (Saleh et al.,2011),

because of its attractive consequences reflected in corporate performance (Qiu et al.,

2016), trust and reputation (El Ghoul et al.,2011), strong stakeholders relationship (Garcia-

Sanchez et al.,2014

), transparency and accountability (Boulouta, 2013), corporate

legitimacy (Beddewela and Fairbrass, 2016) and lower cost of capital through better cash

flow management (Jizi, 2017).

The extent of literature reveals a strong relationship between good corporate governance

(CG) and firms’ market evaluation (Ahmed Sheikh andWang, 2012;Mishra and Kapil, 2017)

and that the board of directors is considered the cornerstone of governance frameworks

(Rathnayaka Mudiyanselageb, 2018;Assenga et al.,2018;Murphy and McIntyre, 2007).

The board of directors is arguably obligated to set CSR agendas, devote firm resources

and develop strategies for sustainable corporate operations (Jizi, 2017). Therefore, board

Imran Khan is based at the

Department of

Management Sciences,

Institute of Information

Technology, Commission

on Science and Technology

for Sustainable

Development in the South,

Islamabad, Pakistan.

Ismail Khan is based at the

Commission on Science

and Technology for

Sustainable Development

in the South, Islamabad,

Pakistan.

Ismail Senturk is based at

the Department of

Economics,

Gaziosmanpasa University,

Tokat, Turkey.

Received 4 December 2018

Revised 16 May 2019

Accepted 17 May 2019

DOI 10.1108/CG-12-2018-0371 VOL. 19 NO. 6 2019, pp. 1187-1203, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 1187

composition plays a major role in determining socially, ethically and environmentally

responsible behaviors and corporate strategic decision-making (Cucari et al.,2018;

Michelon and Parbonetti, 2012). Among various aspects of board composition, board

diversity is considered more relevant for quality disclosure (Katmon et al.,2017;Amran

et al., 2014). Although, most of the empirical studies both in developed and developing

nations demonstrate that the aspects of board composition ensure that firms meet CSR

objectives (Rao and Tilt, 2016a;Chang et al.,2017). However, studies on board diversity

have largely concentrated on its impact on firm performance (Carter et al.,2010), CSR and

social performance (Kyaw et al.,2017;Alazzani et al., 2017), and a very few studies have

examined the relationship between board characteristics and CSR disclosure quality

(Ahmed Haji, 2013;Katmon et al.,2017).

Despite the growing literaturein Pakistan on the strong empirical link between CG and CSR

practices (Javaid Lone et al.,2016;Rafique et al.,2017;Majeed et al., 2015;Sharif and

Rashid, 2014;Javaid Lone et al., 2016), the board characteristics are linked to either firm

performance or financial reporting (Rashid and Islam, 2013;Bhat et al., 2018;Ahmed

Sheikh and Wang, 2012;Sohail et al., 2017). There is a lack of studies conducted in

Pakistan that comprehensively measure the impact of board diversity on CSR disclosure.

According to Murphy and McIntyre (2007), the context is the central question. The quality of

CSR disclosure in developing economies is not implicitly identical and could differ within

different regions. This study is, therefore, conducted to address the research gap and

provide preliminary examination into the impact of board diversity on quality of CSR

disclosure in the context of Pakistan. This study has combined quantitative disclosure and

qualitative disclosure of 57 firms listedin the Pakistan Stock Exchange (PSX) that produced

sustainability reports overthe period of eight years from 2010 to 2017 (inclusive).

This paper offers many contributions. First, to the best of our knowledge and a thorough

review of existing literature, the present study is the first that presents preliminary

examination into the impact of board diversity on CSR disclosure quality in the case of

Pakistan. Second, the study focuses on all listed firms (financial and non-financial) in the

PSX that have published exclusive sustainability reports consecutively for at least three

years. Third, the present study improves our knowledge about the potential value and

growing literature on board diversityand CSR disclosure in the case of Pakistan. Fourth, this

study is expected to fill the gap by contributing to the existing literature on CSR disclosure

quality assessment, which is a relativelyunexplored research area.

Literature review and hypotheses development

CG is focused on the principles of transparency, accountability, fairness and firm’s

management responsibilities (Ehikioya, 2009), which depend on the board of directors

(Jamali et al., 2007), which is considered the foundation of the CG framework (Darko

et al., 2016;Bueno et al., 2018). Among various factors that indicate different dimensions

of the corporate board, board diversity is emerging as the most significant issue in the

field of CG (Rhode and Packel, 2014;Ibrahim and Hanefah, 2016;McIntyre et al., 2007).

Board diversity is the heterogeneity among board members (Ayuso and Argandona,

2009). It involves various categories such as diversity in age, gender, ethnicity,

nationality, education, task, skill, expertise, experience, preferences (political and sexual

preference) and religion (Van Knippenberg et al., 2004). Based on the resource-based

view (RBV) theory, Kyaw et al. (2017) demonstrated that a more diverse board is capable

of attracting more resources. Diverse boards improve the firm’s strategic decision quality

(Rathnayaka Mudiyanselageb, 2018;Michelon and Parbonetti, 2012), identify and fulfill

stakeholder’s requirements (de Jong and van der Meer, 2017) and improve the firm’s

reputation and performance (Makkonen et al., 2018;Arora and Sharma, 2016) and global

existence (Butler, 2012). Diversity in board composition ensures that novel ideas are

brought forward by the board and that a variety of values and behaviors are represented

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