Do Board Characteristics Moderate the Relationship between CSR Practices and Firm Value? Empirical Evidence from United Kingdom

Abstract

The objective of this study is to gather empirical evidence on how Corporate Social Responsibility (CSR) influences a company's financial performance, with corporate governance (CG) acting as a moderating variable in this relationship. Specifically, the article aims to explore how the characteristics of the board of directors strengthen the link between CSR initiatives and financial performance. To investigate the impact of board characteristics on the relationship between CSR practices and financial performance, we conducted linear regressions with panel data on 357 firms located in United Kingdom countries using the Thomson Reuters ASSET4 database from 2018 to 2022. Our findings support expectations that certain board characteristics impact the relationship between CSR practices and financial performance. This study indicates that the association between CSR practices and financial performance is positively moderated by board independence and size. Firms that prioritize CSR have better financial performance. The study findings introduced a novel aspect to governance research, potentially offering policymakers and regulators a valuable information resource to enhance corporate governance mechanisms and thereby improve corporate financial performance. To the best of the authors’ knowledge, this is among the first empirical attempts at examining the extent to which corporate governance mechanisms may drive corporate performance. Unlike previous studies that primarily focused on the direct impact of corporate governance on financial performance, this research delves into the moderating effect of governance mechanisms within the ESG (Environmental, Social, and Governance) framework. This contribution expands the understanding by exploring how governance practices interact with ESG factors to influence corporate outcomes.