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Gender-diverse board and the relevance of voluntary CSR reporting
Accepted Manuscript Gender-diverse board and the relevance of voluntary CSR reporting
Mehdi Nekhili, Haithem Nagati, Tawhid Chtioui, Ali Nekhili PII: DOI: Reference:
S1057-5219(17)30022-4 doi: 10.1016/j.irfa.2017.02.003 FINANA 1079
To appear in:
International Review of Financial Analysis
Received date: Revised date: Accepted date:
2 September 2016 24 December 2016 10 February 2017
Please cite this article as: Mehdi Nekhili, Haithem Nagati, Tawhid Chtioui, Ali Nekhili , Gender-diverse board and the relevance of voluntary CSR reporting. The address for the corresponding author was captured as affiliation for all authors. Please check if appropriate. Finana(2016), doi: 10.1016/j.irfa.2017.02.003
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ACCEPTED MANUSCRIPT
Gender-diverse board and the relevance of voluntary CSR reporting Mehdi Nekhilia, Haithem Nagatib, Tawhid Chtiouic, Ali Nekhilid a
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University of Maine (GAINS-ARGUMANS), Avenue Olivier Messiaen, 72085 Le Mans, France. Email: [email protected] b ICD International Business School, 12 rue Alexandre Parodi, 75010 Paris, France. Email: [email protected] b emlyon business school, Campus Casablanca, La Marina Tour Cristal 1, Casablanca, Morocco. Email: [email protected] d University of Monastir, ISAMM, Avenue Tahar Hadded, 5100 Mahdia, Tunisia. Email: [email protected]
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ABSTRACT
In this paper, we focus on voluntary corporate social responsibility (CSR) disclosure, and we test the extent to which the value relevance of CSR reporting is affected by the appointment
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of female directors. Using a sample of French listed companies belonging to the SBF 120
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index from 2001 to 2011, we control for differences in firm characteristics between firms with and without female board membership by using propensity score matching. Our results show that high CSR reporting is more relevant in terms of market value for firms with gender-
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diverse boards than for firms with completely male directors. This finding holds when we use the accounting-based performance measures, namely, return on assets (ROA) and return on
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equity (ROE). We also highlight that engaging an external assurance provider for CSR reporting is value relevant for firms without female directors but not value relevant for firms with female directors, suggesting a substitute relationship between gender-diverse boards and CSR assurance. Our results are stable when we consider the presence of at least two and three female directors.
Keywords: female directorship, CSR reporting, relevance, CSR assurance, market value. JEL classification: G30, M41
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ACCEPTED MANUSCRIPT
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Gender-diverse board and the relevance of voluntary CSR reporting
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ABSTRACT
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In this paper, we focus on voluntary corporate social responsibility (CSR) disclosure, and we test the extent to which the value relevance of CSR reporting is affected by the appointment
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of female directors. Using a sample of French listed companies belonging to the SBF 120 index from 2001 to 2011, we control for differences in firm characteristics between firms with
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and without female board membership by using propensity score matching. Our results show that high CSR reporting is more relevant in terms of market value for firms with genderdiverse boards than for firms with completely male directors. This finding holds when we use
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the accounting-based performance measures, namely, return on assets (ROA) and return on
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equity (ROE). We also highlight that engaging an external assurance provider for CSR reporting is value relevant for firms without female directors but not value relevant for firms with female directors, suggesting a substitute relationship between gender-diverse boards and
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female directors.
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CSR assurance. Our results are stable when we consider the presence of at least two and three
Keywords: female directorship, CSR reporting, relevance, CSR assurance, market value. JEL classification: G30, M41
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ACCEPTED MANUSCRIPT 1. Introduction Reporting on corporate social responsibility (CSR) is an important tool to improve corporate accountability for a wider range of stakeholders (Gray, Javad, Power, & Sinclair, 2001). However, a better level of CSR disclosure is not usually indicative of a better managed
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organization; some managers might make superficial and cosmetic adjustments in order to enhance the reporting quality and to fulfil stakeholders’ wishes (Gray, 2006). Bebbington,
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Larrinaga and Moneva (2008) attribute mixed results regarding the relationship between CSR
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reporting and firm performance to the differences in stakeholders’ perception of CSR information, relevant for building firms’ reputation. Disclosures may thus be a simple
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response to the information requests of stakeholders and need not actually reflect a company’s
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CSR commitment (Adams, 2002, 2004; Gray et al., 2001; O'Dwyer, Unerman, & Hession, 2005). Consequently, disclosure of CSR duties may be detrimental for the firm and the
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challenge is therefore to minimize stakeholder scepticism (Gray et al., 2001). Stakeholders
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would need to apply filters to assess the credibility of voluntary CSR information (Cho, Guidry, Hageman, & Patten, 2012). Adams (2004) considers that rigorous governance
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structures are crucial to limit the reporting-performance portrayal gap. The role of the board is to convince shareholders that their participation in CSR activities
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is in their interest (Hafsi & Turgut, 2013). Indeed, the shareholders may agree to free up cash to invest in CSR if these expenditures improve the company's reputation. The CSR perspectives are related to board involvement in CSR issues and primarily to whether women (and employees) are integrated in the decision-making process (Huse, Nielsen, & Hagen, 2009). Accordingly, the characteristics of the board, namely gender diversity, influence the CSR policy. Notably, women contribute to improving the efficiency of boards of directors because they are interested in all economic, social and societal issues (Huse et al., 2009;
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ACCEPTED MANUSCRIPT Miller & Triana, 2009; Bear, Rahman, & Post, 2010; Post, Rahman, & Rubow, 2011; Handajani, Subroto, Sutrisno, & Saraswati, 2014; Isidro & Sobral, 2015; Liao, Lin, & Zhang, 2016). Moreover, board gender diversity increases public and private disclosure to investors through better monitoring, and makes stock prices more informative (Gul, Srinidhi, & Ng,
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2011). Recently, some investigations have focused on the fundamental role of women directors in
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the disclosure of social, environmental and/or sustainability activities (Post et al., 2011; Liao,
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Luo, & Tang, 2015; Ben-Amar, Chang, & McIlkenny, 2015). Bear et al. (2010) support the moderating role of CSR in the relationship between gender diversity and corporate reputation.
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Hafsi and Turgut (2013) investigate several demographic attributes of board directors (gender, age, ethnicity, tenure, experience) and find that gender diversity leads to better social
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performance. Having a more diverse board signals the firm’s commitment to social laws and values, as well as its ability to acquiesce to stakeholders’ needs (Miller & Triana, 2009).
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Moreover, women directors may contribute to meaningfully enhancing the credibility of CSR information by limiting CSR malpractice (Boulouta, 2013) and making CSR-related reporting more relevant. For Liao et al. (2016), women directors contribute to the quality of CSR
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reporting by influencing the propensity of firms to provide assurance of their CSR reports.
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In our paper, we complement previous studies by testing whether board gender diversity, as an important part of corporate governance (Srinidhi, Gul, & Tsui, 2011), may be helpful for market participants to assess the relevance of CSR information. Following Cahan, De Villiers, Jeter, Naiker, and Van Staden (2016), we use Tobin’s q to measure the market’s assessment of a firm’s long-term expected value. Subsequently, we consider the relation between CSRrelated information disclosure and firm value as an indicator of the market participants’ perception of the CSR-related information credibility. The moderating role of female directors is then assessed by comparing the value relevance of CSR reporting in firms with and without 4
ACCEPTED MANUSCRIPT a gender diverse board. Beyond the originality of our research setting, our study is also interesting for at least three reasons. First, both CSR reporting and female directorship are endogenously determined by using an appropriate econometric specification. As argued by Ding, Ferreira, and Wongchoti (2016), failing to account for firm-specific characteristics could bias the relationship between CSR and firm value if these characteristics are
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significantly linked to the proxies for CSR. Therefore, it is important to study the factors
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influencing corporate social reporting when looking at the CSR disclosures effect. Second, we
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also consider female directorship as endogenously determined by several variables related to firm governance, ownership patterns, and other firm characteristics. The issue of endogeneity
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may arise because the appointment of female directors was voluntary during the period of our study.1 The potential impact of female directorship on value relevance of CSR reporting may
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be driven by the firms’ characteristics that affect both performance and the appointment of female directors.2 To control for omitted variables, we perform Propensity Score Matching
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between firms with at least one female director and firms without female directors. We also
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control for endogeneity biases by using a system GMM estimation model applied to the matched sample (Roodman, 2009a). This method provides consistent and efficient coefficient
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estimators, and controls for both omitted variables and endogeneity issues (Wintoki, Linck, & Netter, 2012). Finally, in order to consider the change of CSR expectations over time
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(Deegan, 2002), and given that the benefits of superior CSR on firm value are more likely to manifest in the long run (Cahan et al., 2016), our study covers a period of 11 years from 2001 to 2011, allowing us to conduct our analysis in a dynamic setting.
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In January 2011, French parliament established quotas for the gender balance of company boards. This law established that, within three years, 20% of a firm’s board members must be women, and this percentage should rise to 40 within the following 6 years. 2 As reported by Ahern and Dittmar (2012) and Adams and Ferreira (2009), the characteristics of female directors appointed after the quota law took effect may also be different from those appointed on a voluntary basis.
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ACCEPTED MANUSCRIPT To assess CSR reporting, we develop a content analysis index based on items as defined by the French Grenelle II Act in accordance with the Global Reporting Initiative (GRI) guidelines.3 Using a sample of French listed companies belonging to the SBF 120 index from 2001 to 2011, we control for differences in firm characteristics between firms with and without female board membership by using propensity score matching. Our results show that
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female directorship enhances the credibility of the information disclosed, leading CSR
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reporting to be more economically viable in terms of higher firm value. Our results
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demonstrate that the inherent benefit of appointing women directors does not lie in directly increasing the market value, but in significantly enhancing the value relevance of the
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voluntary reporting of CSR-related information. Meaningfully, we find that the marginal effect of female directorship on the value relevance of a high level of CSR reporting (using
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joint test procedure) is positive and significant. This finding holds when we use accountingbased measures of performance, namely, return on assets (ROA) and return on equity (ROE).
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We also highlight that providing CSR assurance is economically valuable for firms without
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women directors but invaluable for firms with women directors. Indeed, the demand for CSR assurance seems to act as substitute for non-gender diverse boards. Our results are stable
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when we consider the presence of at least two and three female directors.
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The French context is of interest for three reasons. First, several previous studies suggest that the informativeness of CSR disclosures may vary across countries depending on the country‐specific context (e.g., Cormier & Magnan, 2007; Cahan et al., 2016). Hence, our results add evidence about a new institutional context, given that the present literature is based specifically on Anglo-American countries (Reverte, 2009). Second, the KPMG international
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The GRI is a global sustainability leader that promotes the use of sustainability reporting as a way to enhance organizations’ sustainability practices and help them engage in sustainable development.
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ACCEPTED MANUSCRIPT survey of corporate responsibility reporting in 20084 shows that market share improvement is one of the top key drivers of the CSR reporting strategy of French companies, while ethical considerations and innovation emerged as the most common drivers for the rest of the world’s largest companies. This reinforces the doubt about managerial motivations, and supports the conjecture of stakeholder scepticism about CSR disclosure by French companies. Third,
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France is one of the few countries to have enacted legislation (i.e., the New Economic
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Regulations Act in 2001) requiring the disclosure of social and environmental information.
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Although initial compliance with the law was low (Chauvey, Giordano-Spring, Cho, & Patten, 2015), such a requirement has, as highlighted by Reverte (2009), the advantage of
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offering much richer and more extensive information on CSR duties in comparison with the period before. In this context it is worth noting that, in our investigation, we consider CSR
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reporting to be in accordance with the GRI guidelines. Disclosure by French companies in accordance with the GRI guidelines between 2001 and 2011 were made totally on a voluntary
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basis (Chelli, Durocher, & Fortin, 2016).
Our paper is structured as follows. We begin by questioning the relationship between voluntary CSR reporting and firm performance. We then highlight the role of women
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directors in moderating the relationship between CSR reporting and firm performance. After
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the description of the assessment methodology, we present and analyse the results. Lastly, we conclude and specify some research avenues.
2. CSR Reporting and Firm Performance: A Questionable Relationship The examination of motivations associated with CSR disclosure has attracted considerable attention in the management and accounting literature (Adams, 2002; Deegan, 2002; Owen, 2008). Legitimacy theory, stakeholder theory and voluntary disclosure theory are probably the 4
KPMG, T. (2008). KPMG International survey of corporate responsibility reporting 2008. KPMG, Amsterdam, The Netherlands.
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ACCEPTED MANUSCRIPT most widely used theories to explain environmental and social disclosures (Deegan, 2002; Brammer & Pavelin, 2006; Owen, 2008; Bouten, Everaert, & Roberts, 2012). CSR reporting aims to provide information that will influence stakeholders', and eventually society's, perceptions of the company and the managers (Surroca & Tribo, 2008). A challenge for firms is to manage not only their CSR reporting, but also perceptions of their CSR reporting (Cahan
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et al., 2016). Studying the French case between 2004 and 2010, Chauvey et al. (2015) find
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that differences in disclosure space and quality of CSR information are associated with
the disclosure of negative performance information.
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legitimacy-based variables such as firm size, membership in a socially exposed industry, and
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The evolution of CSR practices has led to massive publication of information in annual reports. Firms’ social and environmental communication efforts through CSR disclosures in
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annual reports represent opportunities to meet the expectations of different stakeholder groups in general and shareholders in particular (Dhaliwal, Radhakrishnan, Tsang, & Yang, 2012).
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Indeed, investors can infer useful information from nonfinancial disclosures such as those
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concerning CSR activities (Cormier & Magnan, 2007; Dhaliwal et al., 2012). Maximizing stakeholders’ awareness of a firm’s CSR practices is likely to be value-relevant for a number
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of reasons. Increasing an organization’s communication with external stakeholders about its level of CSR initiatives may contribute to building a positive image (Adams, 2002).
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Disclosure of CSR-related information helps improve the accuracy of the earnings forecasts of sell-side financial analysts (Dhaliwal et al., 2012). Firms with a superior CSR record can receive better treatment from regulators and favourable coverage from the media (Aerts & Cormier, 2009), which helps to build corporate branding and improve firm reputation (Bebbington et al., 2008). Building and maintaining a good reputation with stakeholders can confer a competitive advantage for firms by accelerating revenue and profit growth and attracting new investors, who are likely to view the firms more favourably (Gray, 2006). 8
ACCEPTED MANUSCRIPT Internally, reporting on CSR duties supports managers in strategic planning, risk management, governance, decision-making processes, and the implementation of performance measurement (Bebbington et al., 2008; Adams, 2008). Although research on CSR is growing, there is little academic evidence regarding the value of CSR reporting for stakeholders in general and shareholders in particular (Dhaliwal et al.,
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2012). Both individual and institutional investors are becoming more interested in CSR
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disclosures when formulating their investment policies. Meanwhile, there are potential capital
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market benefits for firms engaging in CSR initiatives. The first stream of research on this theme looked at the association between the level of environmental and social disclosure and
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the cost of equity capital. However, the findings are mixed. For example, Richardson and Welker (2001) observe a positive relationship between social disclosures and the cost of
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equity capital. Aerts et al. (2008) have shown that improved environmental information disclosed by European and North American firms is associated with more precise analysts’
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earnings forecasts, which might reduce the cost of equity capital. Cormier and Magnan (2007)
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examine country‐specific context and find that environmental reporting reduces German firms' cost of equity capital, as captured by the net income/stock market price relation, yet it
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has a neutral effect for French and Canadian firms. These differences can be explained by the German companies’ greater involvement with stakeholders (Adams, 2002). More recently,
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Plumlee, Brown, Hayes, & Marshall (2015) give evidence of a positive association between voluntary environmental disclosure quality and two components of firm value: cost of equity capital and expected future cash flows. Despite the continued effort, empirical studies have also provided mixed results on the relationship between the level of CSR disclosures and market-based performance and have largely focused on environmental disclosures (Cahan et al., 2016). Here is a partial summary of previous empirical results. Belkaoui (1976) observed a positive effect on stock prices of 9
ACCEPTED MANUSCRIPT firms that communicated environmental information compared with firms that published no such information. Klassen and McLaughlin (1996) analysed market reactions to the announcement of positive environmental events such as environmental awards and negative environmental events such as oil spills. They identified a positive and statistically significant association between a firm’s stock market return and the announcement of a third-party
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environmental award. Murray, Sinclair, Power, and Gray (2006) found no association
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between the level of social and environment disclosure and the share price return, suggesting
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that there is no clear reason that shareholders have interest in the social and/or environmental aspects of their investment. Considering accounting-based measures, De Villiers and Van
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Staden (2011) found that ROA is negatively related to environmental disclosures, while Qiu, Shaukat and Tharyan (2016) found no significant relationship between CSR disclosure and
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accounting-based performance (ROA and ROE).
Obviously, the lack of sufficient theoretical support for models that explain corporate
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social responsibility activity (Roberts, 1992; Gray et al., 2001) and misspecification problems
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due to the neglect of endogenous properties of CSR (Adams, Hill, & Roberts, 1998; Jo & Harjoto, 2012; Ding et al., 2016) led to mixed empirical results. Gray (2006) and Bebbington
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et al. (2008) attribute the inconclusiveness of empirical results to the trivial character of the vast majority of current CSR reporting practices and the differences in stakeholders’
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perception of CSR information, respectively.
3. The Moderating Role of Female Directors Public disclosure may be used to reinforce the community’s perceptions of the organization’s responsiveness to specific social or environmental issues, or alternatively to divert attention from adverse situations (Wilmshurst & Frost, 2000; Deegan, 2002). Meanwhile, when reporting on their CSR activities, one of the greatest challenges for the firm is to reduce stakeholders’ scepticism and to assess the credibility of voluntary CSR 10
ACCEPTED MANUSCRIPT information (Gray et al., 2006; Cho et al., 2012). Indeed, the voluntary nature of CSR reports has led to irregularities in reporting formats and treatment, inclusion of diverse contextual elements, and difficulties in implementing robust measures to assess the quality and accuracy of the reports’ content (Sethi, Martell, & Demir, 2015). The board of directors plays an important role in the implementation of corporate
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strategy, including CSR involvement (Huse et al. 2009). Specifically, a well-governed board
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of directors should ensure reporting effectiveness and reporting quality (Liao et al., 2016).
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Gender diversity, and specifically the presence of women directors, is synonymous with quality during discussions, which improves the chances that different perspectives and
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ideas will be considered in the decision-making process (Huse et al., 2009; Post et al., 2011). In particular, women influence the social and societal achievement of the organization (Bear
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et al., 2010; Post et al., 2011). Zhang, Zhu, and Ding (2013) assert that women directors would significantly increase the number of charities and social actions in the community and
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would allow companies to have a better image with regard to stakeholders. Unlike men
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(who are more interested in economic matters), women are always deeply involved in the CSR steps. They are more ethical (Arun, Almahrog, & Aribi, 2 0 1 5 ) , more cooperative, and
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they dedicate more attention to social responsibility and philanthropy (Huse et al., 2009; Bear
2016).
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et al., 2010; Hafsi & Turgut, 2013; Handajani et al., 2014; Isidro & Sobral, 2015; Liao et al.,
Although the literature on female representation on boards of directors is abundant on the international level (Terjesen, Couto, & Francisco, 2016), few studies have explored the role of female directors regarding CSR and CSR reporting (Rao & Tilt, 2016). Women’s presence on the board of directors is therefore important because it affects the extent of information disclosure (Gul et al., 2011). The nature of the relationship between the presence of women on the board of directors and CSR reporting divides authors. Some studies find no positive 11
ACCEPTED MANUSCRIPT relationship between the presence of female directors and social and/or environmental reporting (Giannarakis, 2014; Prado-Lorenzo & Garcia-Sanchez, 2010). For Post et al. (2011), the positive link between female directorship and CSR reporting practices is conditional on the presence of three or more women on the board. Liao et al. (2015) find a significant positive association between the percentage of female directors and the propensity to disclose
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greenhouse gas emission information. Handajani et al. (2014) investigate the Indonesian
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context and find a negative and significant relationship between board gender diversity and
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CSR disclosure in accordance with the GRI guidelines. They attribute their finding to the low number of female directors without adequate expertise or experience. Finally, Ben-Amar et al.
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(2015) study the impact of board diversity on voluntary disclosure of information on climate change-related risks by Canadian firms. Their results show that the more female directors
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there are, the higher the probability of having more information on climate change-related risks in annual reports.
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Bear et al. (2010) consider CSR as moderating the relationship between gender diversity
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and corporate reputation. They find that the higher the number of women on boards of directors, the more the company cares about the environmental consequences of its
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activities, which improves its reputation. Boulouta (2013) studied the relationship between board gender diversity and corporate social practices. She examined the impact of women
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directors on social performance. Using a sample of 126 firms from companies of the S&P 500 over the period 1999-2003, she found that the diversity of the board limits CSR malpractices. This result is explained by the fact that social practices considered as very bad receive special attention from women directors. Through a more diverse board, firms strongly signal their commitment to upholding social laws and values, and their desire to emulate stakeholders and market participants, which influences firm reputation (Miller & Triana, 2009). Finally, Isidro and Sobral (2015) find that the indirect effect of female directors on firm 12
ACCEPTED MANUSCRIPT performance partly comes from stronger compliance with ethical and social principles adopted by the firm. Importantly, Huse et al. (2009) state that board effectiveness toward CSR involvement is enhanced when women and employees are appointed on the board. These arguments, if substantiated, would lead us to expect that female directorship enhances the value relevance of CSR information. Our paper complements previous studies
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by examining the moderating role of women directors in the relationship between CSR
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reporting and firm performance.
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Hypothesis H1: CSR reporting is more relevant for firms with female directors than for firms without female directors.
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Firms can also provide assurance of their reports through independent third parties.
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According to Simnett et al. (2009), firms looking for better credibility of their CSR reporting are more prone to demand assurance of their CSR reports. However, such credibility is not always fully restored (Adams, 2004) and the decision to assure is generally made on a cost-
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benefit basis (Cohen & Simnett, 2014). Simnett et al. (2009) find that the quality of assurance reports is higher when supplied by Big-4 auditors, who are more effective at monitoring than non-Big-4 auditors. Ultimately, CSR assurance is used by investors improving firm reputation
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and making it easier to acquire resources (O’Dwyer, Owen, & Unerman, 2011). Nevertheless,
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Cho, Michelon, Patten and Roberts (2014) find no association between assurance and market value for US firms issuing standalone CSR reports. For Wong and Millington (2014), stakeholders clearly prefer specialist assurors rather than financial auditors, choosing independence at the expense of competence in CSR auditing procedures. Recently, Liao et al. (2016) investigate the relationship between board characteristics and the demand for CSR assurance and find a positive association between the propensity to undertake voluntary CSR assurance and the percentage of women on the board. Our approach is somewhat different from the one taken by Liao et al. (2016), in that we focus on the 13
ACCEPTED MANUSCRIPT substitutability between gender diversity and CSR assurance as two mechanisms that may enhance the quality of CSR reporting. This substitutability is assessed by determining the value relevance in terms of market value of CSR assurance depending on whether there are women on the board or not. Conditional on accepting hypothesis 1, providing CSR assurance could be considered by
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market participants as less relevant for firms with gender-diverse boards than for firms with
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completely male boards.
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Hypothesis H2: Providing CSR assurance is less value relevant for firms with women directors
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than for firms without women directors.
3. Data and Methodology
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3.1. Sample and Data
The basic sample contains the French listed companies in the SBF 120 from 2001 to
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2011. Financial, insurance and real estate firms were excluded because they have special and
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specific regulations. After this filtering, we retained a sample of 91 companies covered over an 11-year period, for a total of 940 unba l an c ed firm-year observations. Corporate
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governance and ownership variables were collected from firms’ annual reports. Financial and accounting data were obtained from the ThomsonOne database. For the construction of
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our CSR disclosure index, we used data hand-collected from firms’ voluntary CSR information provided within the firms’ annual report or within a stand-alone report (frequently labeled a corporate sustainability report). 5 As reference, we used the grid of the Grenelle II Act, entered into effect in April 2012, in accordance with the GRI guidelines (see Appendix A). Consequently, we collected data on a total of 42 items related to social (19 items), environmental (14 items) and sustainability (9 items) information. Disclosure by companies
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The methodology used in the construction of the CSR disclosure index is discussed in sub-section 3.2.2.
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ACCEPTED MANUSCRIPT on these items between 2001 and 2011 was made on a totally voluntary basis (Chelli et al., 2016). Our sample period starts in 2001, the year of the implementation of the NER mandatory regulations. Article 116 of the NER (New Economic Regulations) Act establishes that listed French companies in a regulated market must submit data on the environmental and social
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consequences of their activities in their management report (Chelli, Durocher, & Richard,
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2014). Through this regulation, France became one of the few countries to require CSR
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reporting. The advantage of analysing the period following the first compulsory regulation is that it provides more extensive and richer information than in the previous period, in which
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information on CSR is generally very scarce and anecdotal (Reverte, 2009). However, the NER Act tends to be limited in scope. Chauvey et al. (2015) study CSR disclosure by French
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firms from 2004 to 2010. Although they find significant increases in the space, they argue that the informational quality of the disclosures remains quite low. The major limitations of the
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NER Act are: (1) the absence of sanctions for non-compliance, (2) the lack of controls, (3) the
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absence of a precise definition of the perimeter concerned (holding or group; global or national) and (4) the silence on the sustainability component. These regulatory limits tarnish
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the credibility of CSR information. The NER Act has been criticized because of the small proportion of companies that obey the law and the inherent limitations of current practices in
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terms of relevance, reliability and comparability of the disclosed information.6 Our period ends in 2011, prior to the Grenelle II Act, which came into effect in 2012. Grenelle II extends the non-financial reporting system introduced by the NER Act and requires that listed companies mention key indicators of non-financial performance relating to social, environmental and sustainability activities in their report. Article 225 of the Grenelle II Act requires French firms to report and to question the social and environmental impacts of 6
See ARESE’s (a leading French social and environmental rating agency) report on NER, accessible at the ARESE website: http://www.arese.org
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ACCEPTED MANUSCRIPT their activities in their 2012 annual report and to describe their societal commitments for sustainable development duties. Prior to 2012, reporting on CSR information in accordance with the GRI guidelines was made on a voluntary basis; no other responsibility reporting practice was used by listed French firms during the years 2001–2011 (Chelli et al., 2016). This study focuses on purely voluntary disclosure of CSR information. Given that value
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relevance depends on the market participants’ perceptions and managers are concerned about
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that valuation, mandatory CSR reporting reduces a firm's expected gain in market share from
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disclosing impacts (Kalkanci, Ang, & Plambeck, 2016).7 Statistically, the lack of variation over time in the mandatory period may be problematic if we want to investigate any
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phenomenon in a dynamic setting.8 The voluntary character of CSR reporting is an important line of research leading scholars to question why companies disclose such information
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(Bouten et al., 2012). There are several benefits of voluntary CSR reporting: (1) managing legitimacy (e.g., Patten, 1991; Woodward, Edwards, & Birkin, 2001; Campbell, 2000;
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Deegan, 2002); (2) enhancing reputation (e.g., Mahoney, Thorne, Cecil, & LaGore, 2013);
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and (3) sustaining corporate competiveness (e.g., Lo & Sheu, 2007; Prado-Lorenzo & GarciaSanchez, 2010). A direct effect for firms initiating voluntary CSR disclosure is that they can
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attract dedicated institutional investors and raise more equity capital (Dhaliwal, Li, Tsang, & Yang, 2011). An indirect effect is it may alter investors’ perceptions of the firm value because
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the benefits of CSR engagements on firm value are more likely to manifest in the long-run (Cahan et al., 2016). Notwithstanding, managers have incentives to act opportunistically, making superficial and cosmetic adjustments in order to enhance the reporting quality and to
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This also occurs when considering accounting-based measures of performance. Meng, Zeng, and Tam (2013) investigate the relationship between economic performance, as measured by return on equity, and the environmental information disclosure in voluntary and mandatory periods. They find that in voluntary periods, economic performance is positively related to the disclosure level of environmental information. No significance is found in the mandatory period. 8
Elsayed and Paton (2005) highlight that when a lack of variation over time arises, we are not able to control for firm heterogeneity using the random effects estimator and are not able to estimate fixed effects models.
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ACCEPTED MANUSCRIPT fulfil stakeholders’ wishes (Gray, 2006). In this sense, the voluntary disclosure of CSR information may be used to divert attention from adverse situations (Wilmshurst & Frost, 2000; Deegan, 2002).
3.2.Variables
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3.2.1. Dependent Variables
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For our investigation, we use Tobin’s q as a measure of firm performance. Many reasons can be advanced for the use of this measure. First, Tobin’s q is a market-based measure of
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firm performance that reflects investors’ expectations and incorporates potential growth
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opportunities and future operating performance (McConnell & Servaes, 1990; Claessens, Djankov, Fan, & Lang, 2002; King & Lenox, 2002). Second, Tobin’s q is considered an
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assessment of reputational effects (Surroca, Tribo, & Waddock, 2010) and is therefore more appropriate than accounting-based measures for apprehending the financial benefits of CSR
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(Hillman & Keim, 2001). Third, the advantage in using market-based performance is that it is
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not affected by accounting conventions (Chakravarthy, 1986). Tobin’s q is calculated as a firm’s market capitalization plus book value of debt, divided by book value of total assets.
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3.2.2. Endogenous Variable: CSR-Related Reporting
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To measure the level of CSR-related reporting, we use the unweighted disclosure index methodology proposed by Botosan (1997). For item identification, we chose the grid of the Grenelle II as reference for our study given its accuracy, inherent simplicity and its compliance with international standards such as the (GRI) guidelines.9 In this grid, which comprises 42 items, we split CSR disclosures into three categories: social (19 items), environmental (14 items) and sustainability reporting (9 items). Appendix A shows the
9
Another advantage of this compliance is that GRI is a multi-stakeholder organization, improving corporate accountability (Adams, 2004).
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ACCEPTED MANUSCRIPT complete list of items. Social information lists all practices in employment and decent work. Environmental information includes the environmental policy and actions for the protection of biodiversity and the measures of adaptation to climate change. Sustainability refers to the territorial impact of the firm’s operations, relations with suppliers, the loyalty of practices and actions in favour of human rights.
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For each firm, we first develop a disclosure score based on information contained in annual
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reports or in a stand-alone sustainability (CSR) type reports. Bouten et al. (2012) list several
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benefits associated with the use of annual reports, such as availability, regularity, and their consideration by companies and stakeholders as an important tool to communicate on CSR
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duties. Following Bansal (2005) and Khan, Muttakin and Siddiqui (2013), we consider items as dichotomous according to whether the information is clearly identified in the
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annual report or not. The use of dichotomous items is simple and considers all the information to be of equal importance even if its content may vary considerably (Bansal,
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2005). Indeed, weighting items could not reflect the preferences of the different annual
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report users. The level of disclosure is the sum of the scores for the three categories of CSR information (social, environmental and sustainability). For the measure of CSR
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reporting, we compute an index as the ratio of the assigned total score to the maximum score equal to the sum of relevant items presented in Appendix A.10
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In sum, the CSR disclosure index for the jth firm-year (CSR_REPj) is measured as follows: ∑𝑛𝑗 𝑋 CSR_REP𝑗 = 𝑡=1 𝑖𝑗⁄𝑛𝑗
Where:
10
The reliability of our CSR reporting index was assessed with Cronbach’s alpha. The Cronbach alpha coefficient computed for different items is 0.899. This value can be considered as acceptable. Khan et al. (2013) compute a coefficient alpha of 0.701 for their CSR reporting index containing 20 items.
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ACCEPTED MANUSCRIPT nj = number of items expected for the jth firm-year. Xij = 1 if the ith item is disclosed by the jth firm-year, and 0 if the ith item is not disclosed. For example, when scrutinising the 2010 annual report of Danone, a world leading food company, we find that the firm in question voluntarily and explicitly discusses CSR duties
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corresponding to 31 items of a total of 42 items as defined by the French Grenelle II Act. The sum of the scores (nj) for the three categories of CSR information (social, environmental and
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sustainability) is therefore 31. The CSR disclosure index (CSR_REP) is the ratio of the
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assigned total score (nj = 31) to the maximum score of relevant items (Xij = 42), a ratio of
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73.82%. Consequently, we consider that Danone is voluntarily disclosing more on its CSR activities in 2010 than in a firm-year displaying a lower CSR disclosure index and less than in
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a firm-year displaying a higher CSR disclosure index.
To measure the level of CSR disclosure, Bouten et al. (2012) highlight that different
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measurement approaches exist: (1) the extent of disclosure (e.g., number of words, sentences,
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pages or proportion of pages), (2) the disclosure index based on the breadth (e.g., number of items a company reports on), and (3) the disclosure index based on the breadth and depth by
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considering both the number of items and the specificity of the disclosure (i.e., information type, which can be qualitative and quantitative). The disclosure index used in our study can be
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considered to be based on the breadth and depth of CSR disclosures, because items as defined by the Grenelle II Act are related to specific qualitative and quantitative information (see Appendix A). This category of index is used in several related studies (e.g., Alnajjar, 2000; Al-Tuwaijri, Christensen, & Hughes, 2004; Aerts et al., 2008; Aerts & Cormier, 2009). 3.2.3. Moderating Variable: Female Directorship To consider the moderating effect of female directorship on the relationship between the level of CSR reporting and market-based performance, we first limit our sample to firms with 19
ACCEPTED MANUSCRIPT at least one female director (FEM_DIRB1). For robustness checks, we also consider firms with at least two female directors (FEM_DIRB2) and firms with at least three female directors (FEM_DIRB3). 3.2.4. Control Variables
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Several corporate governance variables for the determination of both CSR reporting and firm performance are considered in our study. We first identify firms that provide assurance
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of their reports (CSR assurance) through independent third parties. Firms looking for better
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credibility of their CSR reporting are more prone to demand assurance of their CSR reports (Simnett et al., 2009). We also examine the effect of the presence of a CSR committee as a
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prevailing factor in a firm’s propensity to disclose information on CSR activities (Cowen,
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Ferreri, & Parker, 1987). For Giannarakis (2014), board size positively impacts CSR reporting such that a larger board contributes to a wider exchange and brings diverse and vital resources
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promoting CSR activities. Haniffa and Cooke (2005) argue that firms with more independent
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boards are more likely to emphasize societal interests. Accordingly, Khan et al. (2013) find a positive and significant impact of board independence on CSR reporting. The number of board meetings is a proxy of diligence and an indicator of directors’ preoccupations with
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things such as CSR duties (Gul et al., 2011; Giannarakis, 2014). CEO/chair role duality could
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influence the effectiveness of supervision of the board, leading to negligence of additional involvement in social activities and hence by extension of the transparency level concerning these activities (Bear et al., 2010; Khan et al., 2013; Giannarakis, 2014). Lewis, Walls, and Dowell (2014) provide evidence that high-tenured CEOs are less likely than newly appointed CEOs to acquiesce to stakeholder pressure regarding voluntary environmental disclosure. With regard to ownership structure, we consider three control variables: family ownership, institutional and employee share ownership. Family firms consider social actions very important because they seek to be legitimized by increasing their visibility in order to improve 20
ACCEPTED MANUSCRIPT their reputation with customers, suppliers and society (Bingham, Dyer, Smith, & Adams, 2011). Institutional investors increase the firm’s propensity to engage in CSR activities (Jo & Harjoto, 2012). Dhaliwal et al. (2011) establish that voluntary CSR disclosure attracts dedicated institutional investors that have long investment horizons and that play monitoring and governance roles. Employees are more dependent on the long-term survival of the firm
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than shareholders (Huse et al., 2009). Their involvement in the capital is linked to a growing
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interest in CSR activities and counterbalances the shareholder supremacy orientation
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(Poulain-Rehm & Lepers, 2013).
We also consider other consistent control variables. Roberts (1992) states that managers
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are more likely to respond to creditors’ expectations regarding their role in CSR activities. Accordingly, Bouten et al. (2012) find a positive relationship between leverage and the
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disclosure level of social and environmental information. We also control for foreign assets to examine the relationship between the degree of internationalization and, simultaneously, CSR
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reporting and firm performance. Roberts (1992) argues that firms with low systematic risk, as
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measured by beta, are economically stable and invest more in socially responsible activities. King and Lenox (2002) and Al-Tuwaijri et al. (2004) stress the need to control for R&D in
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any study on the relationship between CSR and financial performance. Several studies have shown that firm size is the most significant explanatory variable of CSR reporting. While
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large companies may disclose more CSR information for reasons related to reputation and economies of scale, smaller firms might opt to disclose CSR information through less formal channels than the annual report (Cowen et al., 1987). Almost unanimously, previous studies dealing with CSR reporting control for industry to take stakeholders’ diverse interests into account. To code the industry in which each firm operates, we use the Industry Classification Benchmark (ICB) developed in January 2005 by Dow Jones and FTSE and used by Euronext since 2006. Finally, to comply with the French regulatory context, we control for the law 21
ACCEPTED MANUSCRIPT known as Grenelle I adopted on July 23, 2009. Article 53 of the Grenelle I law stipulates that: “Quality of information on how companies take into account the social and environmental consequences of their activity and the access to information are essential conditions for good corporate governance”. To the extent that CSR reporting is legally embedded in corporate governance, the Grenelle I Act can be perceived as a substitute for governance mechanisms
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that are supposed to affect CSR reporting.
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Table 1 below summarizes the variables used in our model, and their measurement.
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--------------------------------------------Please insert Table 1 here ---------------------------------------------
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3.3.Estimation Method
Based on the matched sample, we estimate the relationship between performance and
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CSR reporting conditional on their respective endogeneity. The potential impact of CSRrelated reporting and female directorship may be driven by firms’ characteristics that affect
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their performance. This is the archetypical endogeneity effect because of reverse causalities or
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omitted variables. The standard approach to deal with endogeneity is the use of the instrumental variables regression method (Larcker & Rusticus, 2010). The idea is to find an
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instrument that is simultaneously correlated with its corresponding endogenous variables (CSR reporting and female directorship) and uncorrelated with firm performance (dependent
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variable). When the study period is short relative to the number of individuals, consistent and efficient coefficients can be obtained by using the lagged levels of the endogenous variables as instruments (Roodman, 2009a). The results of the Wooldridge (2002) test strongly reject the null hypothesis and indicate the presence of serial correlations of both endogenous variables (CSR reporting and female directorship) and the dependent variable (Tobin’s q). In a GMM framework, the treatment of multiple endogenous variables of interest (CSR reporting and female directorship in our case) is less problematic than in other estimation 22
ACCEPTED MANUSCRIPT methods (Roodman, 2009b). Specifically, we estimate the following equation capturing the impact of the level of CSR reporting on the market-based value as measured by Tobin’s q (TQ) and by controlling for the auto-correlated structure of the variable TQ.
TQit = β0 + β1LagTQit + β2CSR_REPit + β3FEM_DIRB1it + β4CSR_ASSit + β5CSR_COMit +
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β6BOARD_SIZEit + β7BOARD_INDit + β8BOARD_MEETit + β9DUALit + β10TENUREit + β16RISK + β17SIZEit + β18GRE1t + β19INDUSTRY + εit
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β11FAM_OWNit + β12INST_OWNit + β13EMPL_OWNit + β14LEVit + β15FOR_ASSit +
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Where εit is the error term. TQ is the stock market capitalization plus book value of liabilities
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as a ratio of total assets. CSR_REP is the aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). FEM_DIRB1 is a
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binary variable coded 1 if the company has at least one female director and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee
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and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides
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assurance of their CSR reports through independent third parties and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND
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is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings.
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DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the market risk as measured by beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is 23
ACCEPTED MANUSCRIPT a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. To address the consistency of the GMM estimator, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test
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of over-identifying restrictions which tests the overall validity of instruments.
4. Results
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4.1. Descriptive Statistics
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Table 2 presents descriptive statistics and analysis of the dependent, endogenous,
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governance, ownership and control variables for the entire sample. The average of Tobin’s q (TQ) is 1.135. This suggests that the market value of our sample firm-years is on average
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higher than the amount invested. For our period analysis, French listed companies report 44.27% of the corresponding items as defined by the Grenelle II Act on social, environmental
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sustainability reporting (52.62%) than in social (45.31%) and
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engage in
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and sustainability activities. Results in Table 2 show that the sampled firms are prone to
environmental reporting (39.71%).
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Table 2 also provides detailed information about the distribution of female directorship. The mean percentage of female directors (FEM_DIRP) is 8.85%, which is higher than those
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reported by Nekhili and Gatfaoui (2013) for French listed companies (6.27% in 2000 and 7.20% in 2004). Furthermore, the mean number of female directors (FEM_DIRN) equals 0.960 and is very close to the median number of 1. The number of female directors varies from a minimum of 0 to a maximum of 7. Even though the number of female board members is increasing in France, the changes are small and incremental. While firm-years with at least one female director (FEM_DIRB1) represent 62.26% (589 cases out of 940 observations), firms with two (FEM_DIRB2) and three female directors (FEM_DIRB3) represent 26.27% (263 cases) and 12.88% (129 cases), respectively. 24
ACCEPTED MANUSCRIPT Despite the promulgation of the NER law in 2001 encouraging the voluntary disclosure of more social and societal information, few companies have found it useful to create CSR committees (27.84%) to implement their social and environmental policies. Also, only 18.76% of our sampled firm-years provide assurance of their CSR reports (CSR_ASS) through independent third parties, most often Big 4 accounting firms.11 This low demand may
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be due to French firms not perceiving that the benefits of CSR assurance exceed the costs.
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The average number of directors (BOARD_SIZE) is 11.613 members. The mean of board
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independence (BOARD_IND) is 42.74%. In our sample firms, the average number of board meetings (BOARD_MEET) is slightly more than 7 per year. Moreover, 54.10% of our sample
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firm-years have duality governance structures (DUAL) and the average tenure of the CEO (TENURE) is about 9 years. Family (FAM_OWN), institutional (INST_OWN) and employee
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(EMPL_OWN) ownerships represent on average 26.64%, 15.45% and 2.49%, respectively. The average level of corporate debt (LEV) is 26.27%. Foreign assets (FOR_ASS) represent
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on average 38.81% of total assets. The average market risk (RISK) as measured by beta is less
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than one (0.885), indicating that the equity price of French firms tends to be less volatile than the stock market. Sampled firm-years invest on average 1.98% of their sales in research and
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development (R&D). Finally, average firm size (SIZE) is €16.717 billion. --------------------------------------------Please insert Table 2 here ---------------------------------------------
4.2. Univariate Analysis Table 3 presents the results of the mean difference tests between panels with and without female directors for the entire sample. No significant difference is observed regarding Tobin’s q (TQ) between firm-years with and without female directors. This result is consistent with Srinidhi et al. (2011). We also observe that firm-years with gender-diverse boards display a 11
Among our sampled firms, only four firms engaged a non-accounting assurance provider for their CSR reporting, three through Vigeo and one through Bureau Veritas.
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ACCEPTED MANUSCRIPT slightly but significantly lower ROA than firm-years without female directors. No significant difference is observed for ROE between the two sub-samples. Firm-years with at least one woman on their board of directors publish more CSR information than firm-years without a woman on the board. This result is confirmed by Ben-Amar et al. (2015) in the Canadian context, for one aspect of CSR activities, namely that of environmental reporting.
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Consistently, we find that firm-years with at least one woman on the board are more likely to
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implement a CSR committee (CSR_COM) than firm-years without women on the board.
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They are also more prone to engage an external assurance provider for their CSR reporting (CSR_ASS). This result is not consistent with the finding of Liao et al. (2016) in the Chinese
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context. The authors investigate the critical mass theory of female directors and find that the presence of one or two women on the board has no significant influence on the propensity to
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provide CSR assurance by external third parties. Liao et al conclude that the presence of three or more female directors is required to influence the decision of voluntary CSR assurance.
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Table 3 indicates that boards with at least one woman director are larger. This result is
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consistent with most previous studies (e.g. Adams & Ferreira, 2009). We also find that less independent boards are more likely to have female directors, which implies that female
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directorship may act as a substitute for a less effective board. Their presence enhances the board decision-making process in that they exhibit a different perspective and demand
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different information than men do (Srinidhi et al., 2011). Table 3 also indicates that boards with at least one female director hold more frequent meetings (BOARD_MEET) and are more prone to allow the CEO to serve as board chairperson (DUAL). This result is consistent with Adams and Ferreira (2009). Moreover, in line with Srinidhi et al. (2011), CEO power, as measured by CEO duality and CEO tenure, is higher in firm-years with women directors. Regarding ownership structure, firm-years with at least one woman director have more institutional investors that hold capital. Surprisingly, family shareholders are less prevalent in 26
ACCEPTED MANUSCRIPT firm-years with at least one female director than in firm-years without female directors. This result suggests that the most recent appointments in French companies are more independent, reducing the relative weight of family connections. This phenomenon is also observed by Bianco, Ciavarella, and Signoretti (2015) in the Italian context. We finally find that employee ownership is slightly more important in firms without female directors. However, it is worth
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noting that the proportion of employee ownership is very small in the two panels.
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With respect to other control variables, we find that firm-years with female directors tend
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to be less internationalized, as measured by the ratio of foreign assets to total assets, and are less R&D intensive than firms without female directors. The result observed for market risk
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(RISK) implies that operating in riskier environments gives firms more incentive to appoint
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women to their board. Finally, we find that firm-years with at least one female director have greater total assets.
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--------------------------------------------Please insert Table 3 here ---------------------------------------------
4.3. Multivariate Analysis
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4.3.1. Propensity Score Matching
Disproportional samples and notably substantial differences between firm-years with
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women directors and without women directors (Table 3) justify the use of the propensity score matching approach. A direct comparison of the performance between firms with women directors and firms without women directors is less informative because performance might be explained by dissimilarities in characteristics between the two groups. In an attempt to control for differences in firm characteristics between firms with and without women board members, we use the propensity score matching of Rosenbaum and Rubin (1983). This methodology provides a widely used framework to capture the effects of female directorship and firm 27
ACCEPTED MANUSCRIPT characteristics (governance, ownership and other control variables as defined in Table 1) on the relationship between CSR reporting and firm performance, and involves two stages. To obtain a matched sample, we first estimate a logit model that predicts whether the company appoints at least one female director. The propensity score is the probability of appointing a female director given a vector of firm characteristics. Each firm with no women on the board
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is then matched to a firm with at least one female director that has the closest propensity score.
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The matching allows us to construct two groups of firms that are similar in observable
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characteristics but that show differences in board gender diversity. Different matching criteria were used to prevent undesirable matches. Using a caliper distance of 3%, we matched
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74.07% of firms without female directors (260 comparison cases) that are statistically indistinguishable along a number of dimensions from firms with at least one female director
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(260 treatment cases).
Table 4 shows that the post-match pairwise differences of the exogenous and control
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variables decrease in magnitude with respect to the pre-match case and become statistically
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non-significant. We also find no significant difference for the endogenous variable, CSR reporting, nor for each of its components between treatment and control groups. So,
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differences in CSR reporting and each of its components observed for the entire sample in Table 3 between the two categories of firms may not be inherently due to the presence of
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women on the board but probably due to the overlaps between the appointment of women on boards and the others firms’ characteristics. --------------------------------------------Please insert Table 4 here --------------------------------------------Results of Table 5 for the matched sample suggest that no correlation exceeds the value of 0.5. The Variance Inflation Factors (VIFs) do not exceed the thorough limit of 3. Hence, there are no strong multicollinearity problems that could influence the estimation results. 28
ACCEPTED MANUSCRIPT Being non-correlated with the dependent variable is a necessary condition for the validity of the instrument. The correlation between CSR reporting (CSR_REP) and its one-year lagged value (Lag CSR_REP) is equal to 0.934 (Table 5). CSR reporting is related primarily to past social responsibility activities (Roberts, 1992). The correlation between Lag CSR_REP and the performance variable (Tobin’s q) is equal to –0.094.12 Therefore, we chose to use the two-
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step General Methods of Moments (GMM) estimation approach following Blundell and Bond
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(1998). This method is also referred to as “system GMM”.
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--------------------------------------------Please insert Table 5 here ---------------------------------------------
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4.3.2. Preliminary Results on the relation between female directorship and Tobin’s q Table 6 provides the results of the system GMM regression of the effect of CSR reporting
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(CSR_REP) on market-based performance (TQ) by considering three different measures of board gender diversity. Model 1 considers the percentage of female directors (FEM_DIRP),
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while Model 2 considers the number of female directors (FEM_DIRN) and Model 3 the
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presence (or lack thereof) of at least one female director (FEM_DIRB1). In Model 1, we also follow Nguyen et al. (2016) to check empirically for possible non-linearity and, similar to
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their results, we find no significance for the quadratic (squared) term of female directorship (FEM_DIRP_SQUARED). Nevertheless, a negative and significant relationship is found
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between each measure considered for gender diversity and Tobin’s q. These results are in line with several previous studies (e.g., Adams & Ferreira, 2010; Haslam, Ryan, Kulich, Trojanowski, & Atkins, 2010; Ahern & Dittmar, 2012),13 suggesting that the interest in having women on the board is not related to how market participants evaluate their
12
This result is also valid when we consider accounting-based measures of performance. For the female directorship as endogenous variable, we also find a high correlation with its lagged value (0.843) and low significance with each measure of the dependent variable. 13 As highlighted by Nguyen et al. (2015), mixed results are undeniably due to differences in research contexts and econometric techniques used.
29
ACCEPTED MANUSCRIPT appointment on the board but is merely related to the extent to which they may affect the corporate strategy, including CSR involvement, and how much they may influence the social and societal achievement of the organization (Bear et al., 2010; Post et al., 2011; Liao et al., 2016). The results for the impact of CSR reporting on performance do not vary depending on
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the measure used for board gender diversity.
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-------------------------------------------------Please insert Table 6 --------------------------------------------------
related to Tobin’s q.
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For the three models, the level of CSR reporting is stable and negatively and significantly For further investigation, we run our models by considering each
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component of CSR reporting in accordance with the Grenelle 2 Act (see Appendix A), such as
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social (SOC_REP), environmental (ENV_REP) and sustainability reporting (SUS_REP). Our findings for the matched sample are mixed, relating fundamentally to the type of CSR reporting used. Results of Table 7 show a positive relationship between the levels of social and
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environmental reporting and market-based performance (Tobin’s q).14 This result is consistent with the finding of Cahan et al. (2016). Reporting less information on social and environmental issues may result from poor social and environmental performance, which
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lowers the value of intangible assets, as captured by Tobin’s q (Konar & Cohen, 2001).
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However, when dealing with sustainability reporting (SUS_REP), we find a negative and significant relationship with Tobin’s q. One explanation is that sustainability issues as defined by the Grenelle II Act may be subject to more ambiguous terms than social or environmental issues, leading to misinterpretation by shareholders. Some ethical items of sustainability reporting like “Honesty in practices” and “Measures in favour of human rights” (Appendix A) may be considered as less related to the CSR demands of primary stakeholders and are 14
In Table 7, we consider only female directorship as a binary variable. In an untabulated analysis, we also consider the two other measures of female directorship used in Table 6. Results are unchanged.
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ACCEPTED MANUSCRIPT performed by managers largely to improve their image as being good global citizens (Adams, 2002). This result raises the question of managerial motivations and supports the conjecture of stakeholder scepticism about this type of information. Consequently, if sustainability issues are considered as less related to primary stakeholders, raising corporate funds for these issues may not create value for shareholders (Hillman & Keim, 2001).
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-------------------------------------------------Please insert Table 7 --------------------------------------------------
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4.3.3. Test of hypothesis H1
Here, we test the extent to which a higher level of CSR reporting is more relevant for firms
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with gender-diverse boards than for firms with completely male boards. To do this, we derive
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a dummy variable to represent a high CSR reporting level: firms with a level of CSR reporting greater than the median (47.62% in Table 2) are coded 1, and 0 otherwise.
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To determine how a high level of CSR reporting (HCSR_REP) and female directorship
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(FEM_DIRB1) conjunctively affect the market value, we perform a joint test technique to estimate the following model (Model 2):
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Tobin’s q = f {HCSR_REP, FEM_DIRB1, FEM_DIRB1* HCSR_REP, control variables}
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The results of Model 2 in Table 8 point out that the impact of the interaction term (FEM_DIRB1*HCSR_REP) on Tobin’s q is positive (β = 0.968) and significant at the 0.01 level (t = 15.32). Given that we aim to measure the marginal effect of female directorship on the value relevance of high CSR reporting, the prominent test is the joint test of the sum of the coefficients (HCSR_REP + (FEM_DIRB1*HCSR_REP)) on Tobin’s q. The results of Model 2 show that the joint coefficients are positive (0.447) and significant (t = 7.64) on Tobin’s q, suggesting that a higher level of CSR reporting, when provided by firms with gender-diverse boards, is rewarded by a higher valuation in the financial markets. In an untabulated analysis, 31
ACCEPTED MANUSCRIPT we find that the result obtained for the higher level of aggregate CSR reporting (HCSR_REP) also holds for the social, environmental and sustainability reporting as described in Appendix A. These results support our hypothesis H1.
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-------------------------------------------------Please insert Table 8 -------------------------------------------------To shed more light on this result, we divide the sample into two subsamples depending on
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whether there is at least one woman on the board. Results of Table 9 highlight a positive (β =
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0.478) and significant (t = 4.51) relationship between market-based performance as measured by Tobin’s q and a high level of CSR reporting (HCSR_REP) for firm-years with at least one
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woman on the board and a negative (β = –0.368) and significant (t = –6.82) relationship for
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firm-years with only male directors. The relevance of a high level of CSR reporting for investors thus depends meaningfully on the presence of women on the board. Indeed, women
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directors limit CSR malpractices (Boulouta, 2013), and their presence should therefore
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enhance the economic benefits of CSR duties and the relevance of CSR information. In accordance with our hypothesis H1, women directors are willing to produce more reliable CSR-related information. Conversely, CSR information disclosed by firms without women
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board members is considered less reliable by the market. Our result is consistent with the
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presumption that a gender diverse board can better convince shareholders of the consistency of the firm’s CSR policy (Hafsi & Turgut, 2013). Our result is also in line with the finding of Isidro and Sobral (2015) that the indirect effect of female board representation on firm performance partly comes from stronger compliance with ethical principles. The presence of women directors plays an important role not only in increasing the extent of CSR reporting (e.g. Post et al., 2011; Liao et al., 2015; Ben-Amar et al., 2015) but also in moderating the relation between the level of CSR reporting and firm performance.
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ACCEPTED MANUSCRIPT -------------------------------------------------Please insert Table 9 -------------------------------------------------With respect to control variables, Table 9 indicates that the CSR committee (CSR_COM), which supposedly guides the CSR policy, is negatively associated with Tobin’s q for firms with at least one woman on the board (Model 1) and negatively related to firm performance
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for the control group (Model 2). The same result is also found for CSR assurance. CSR
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committees and CSR assurance are thus viewed as useless by market participants in firms
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with a gender-diverse board.15 Our results also indicate that board independence is negatively related to market-based performance as measured by Tobin’s q for firm-years with at least
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one woman on the board and positively related to Tobin’s q for firms without women on the board. This finding is consistent with that of Terjesen et al. (2016), suggesting that female
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directorship, by providing additional monitoring (Adams & Ferreira, 2009; Gul et al., 2011), acts as a substitute governance mechanism to board independence. Nonetheless, our results
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show a negative association between board meetings (BOARD_MEET) and longer-tenured-
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CEOs (TENURE) and Tobin’s q in firms with gender-diverse boards. No significant impact is found for CEO duality (DUAL). These results contrast with Terjesen et al.’s (2016) finding
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that the presence of women on the board positively moderates the association of board
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meetings and CEO power to firm performance. Regarding ownership patterns, results in Table 9 also show that family ownership (FAM_OWN) is positively associated with market performance as measured by Tobin’s q for the control group (Model 2). For the treatment group (Model 1), the impact of family ownership is not significant. No significant impact is found for institutional ownership
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Cho et al. (2014) investigate the impact of CSR assurance on market value and find a negative but insignificant relationship. They also point out that none of the previous studies related to CSR assurance investigate the impact of assurance with regard to market valuation effects.
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ACCEPTED MANUSCRIPT (INST_OWN) for the two panels, and employee ownership is strongly and negatively related to Tobin’s q for both treatment and control groups. For the rest of the control variables, we find that debt level (LEV) is negatively related to Tobin’s q for firms with female directorship (Model 1). In contrast to the treatment group, firms without gender-diverse boards exhibit a positive and significant relationship between
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R&D intensity and Tobin’s q (Model 2). Market risk (RISK) as measured by beta is positively
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associated with Tobin’s q for the control group (Model 2). Taken together, these findings are
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in line with the widely accepted idea that women are more risk averse than men (Arun et al., 2015), leading riskier choices and situations to be economically less viable in terms of market
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value for firms with women on the board. Results for foreign assets (FOR_ASS) are mixed
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and no meaningful conclusions can be drawn when we compare the treatment group to the control group. Regarding firm size (SIZE), we find a negative relationship with financial performance as measured by Tobin’s q, albeit not significant for the treatment group. Finally,
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Table 9 shows a positive impact of Grenelle I (GRE1) on Tobin’s q for the control groups (Model 2). No significant impact is observed for the treatment group (Model 1). This may be due to the fact that market participants perceive firms with gender-diverse boards as well
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governed and deeply involved in the CSR steps, so the Grenelle 1 Act does not produce
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significant change.
4.3.4. Test of hypothesis H2 Our hypothesis H2 states that providing CSR assurance (CSR_ASS) is more valuable for firms without women directors than for firms with women directors. The results of Model 1 in Table 10 show that the coefficients for the main effect of female directorship (FEM_DIRB1) and CSR assurance (CSR_ASS) on Tobin’s q (TQ) are significantly negative and positive, respectively. To determine how female directorship (FEM_DIRB1) and CSR assurance
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ACCEPTED MANUSCRIPT (CSR_ASS) conjunctively affect the market value, we perform a joint test technique to estimate the following model (Model 1): Tobin’s q = f {FEM_DIRB1, CSR_ASS, FEM_DIRB1*CSR_ASS, control variables} The results of Model 1 (Table 10) point out that the impact of the interaction term
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(FEM_DIRB1*CSR_ASS) on Tobin’s q is negative (β = –0.510) and significant at the 1% level (t = –5.56). Given that we aim to measure the marginal effect of the demand of CSR
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assurance on market-based performance for firms with at least one woman on the board, the
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prominent test is the joint test of the sum of the coefficients (CSR_ASS + (FEM_DIRB1*CSR_ASS)) on Tobin’s q. The results of Model 1 show that the joint
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coefficients are highly negative (β = –0.142) and significant at the 1% level (t = –2.93) on
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Tobin’s q, suggesting that providing CSR assurance is considered by shareholders to be economically valuable in terms of market value for firms without a gender-diverse board and
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not valuable for firms with a gender-diverse board. These results support our hypothesis H2.
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-------------------------------------------------Please insert Table 10 --------------------------------------------------
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For further investigation, and to compare the marginal effect of gender-diverse boards (i.e. result of Table 8) with the marginal effect of CSR assurance on the value relevance of high
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CSR reporting, we perform the following model (Model 2): Tobin’s q = f {HCSR_REP, CSR_ASS, CSR_ASS*HCSR_REP, control variables} The results of Model 2 in Table 10 show that the impact of the interaction term (CSR_ASS*HCSR_REP) on Tobin’s q is strongly negative (β = –2.409) and highly significant at the 0.01 level (t = –10.52). The marginal effect of CSR assurance on the value relevance of a higher level of CSR reporting is assessed by the joint test of the sum of the coefficients (CSR_ASS + (CSR_ASS*HCSR_REP)) on Tobin’s q. The results of Model 2 35
ACCEPTED MANUSCRIPT show that the joint coefficients are strongly negative (β = –2.269) and highly significant (t = – 10.12) on Tobin’s q, suggesting that market participants penalize a higher level of CSR reporting provided by firms with CSR assurance. This result is the opposite of that observed for female directorship (Model 2, Table 8), giving more evidence of the presence of a
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substitutability relationship between female directorship and CSR assurance.
4.4. Robustness Checks
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4.4.1. The Impact of CSR Reporting on Accounting-based Performance
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Jo and Harjoto (2012) note that the impact of CSR activities on firm performance is a
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long-standing but still unanswered question. To contribute to a better understanding of the relationship between CSR reporting and firm performance, we also use return on assets
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(ROA) and return on equity (ROE) as measures of operating and financial performance, respectively. Accounting performance measures are not switchable with market-based
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performance (Jo & Harjoto, 2012). ROA is a standard accounting measure of operating
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performance calculated by the ratio of operating income to total assets. ROE is more commonly used as a proxy for financial performance related to equity holders’ accounting
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performance and measured by the ratio of net income to stockholders’ equity (Boulouta, 2013). Although both ROE and ROA incorporate firms’ levels of profitability and represent
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measures of relative efficiency, ROE is extensively used in the CSR performance literature but not widely used in the non-financial disclosure literature (Qiu et al., 2016). According to Van der Laan, Van Ees and Van Witteloostuijn (2008), accounting-based performance measures reflect the CSR valuation by primary stakeholders such as consumers, employees and investors. Meaningfully, disregarding the wishes of primary stakeholders with regard to CSR duties contributes negatively to accounting performance measures.
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ACCEPTED MANUSCRIPT The results of Model 2 in Table 11 highlight a negative and significant relationship between accounting-based performance, as measured by ROA and ROE, and a high level of voluntary CSR reporting. Our result is in line with De Villiers and Van Staden’s (2011) finding of a negative association between environmental disclosures in the annual report and ROA, and inconsistent with Qiu et al. (2016), who report no significant relationship between
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environmental and social disclosure and both ROA and ROE. This result may be due to the
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fact that CSR reporting policy paid insufficient heed to the wishes of primary stakeholders (Van der Laan et al., 2008) and in this case the costs to disclose CSR information may
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outweigh the benefits. As for Tobin’s q, the impact of the presence of at least one female
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director (FEM_DIRB1) is also negative and significant on ROA and ROE, respectively. This result is quite similar to that found by several previous studies considering different gender
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diversity and performance measures (e.g., Shrader, Blackburn, & Iles, 1997; Adams & Ferreira, 2009; Böhren & Ström, 2010; He & Huang, 2011). However, the results of Model 2
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point out that the impacts of the interaction term (FEM_DIRB1*HCSR_REP) on ROA and
Importantly,
the
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ROE are positive (0.033 and 0.268, respectively) and both significant at the 0.01 level. joint
tests
of
the
sum
of
the
coefficients
(HCSR_REP
+
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FEM_DIRB1*HCSR_REP) on ROA and ROE are positive (0.023 and 0.088, respectively) and both significant at the 1% level. These results provide more evidence that there is a
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positive marginal effect of the appointment of women on boards on the relationship between CSR reporting and accounting performance. It is, however, noteworthy that the sums of the coefficients observed for ROA and ROE are less than those obtained for Tobin’s q (0.447 in Table 7). Our finding highlights that increasing the level of CSR reporting is more likely to boost financial market performance than to improve accounting performance, which suggests that maximizing market value is the prevailing objective of the CSR reporting policy. -------------------------------------------------Please insert Table 11 37
ACCEPTED MANUSCRIPT -------------------------------------------------4.4.2. Does the Number of Female Directors Matter? For sensitivity tests, we investigate the critical mass theory of female directors and we test whether the number of female directors matters in moderating the relationship between the level of CSR reporting and market-based performance. To do this, we follow Liu et al. (2014)
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and Nguyen et al. (2015) and we limit our sample to firms with at least two and three female
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directors. Of most interest is the marginal effect of the presence of at least two female
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directors on the value relevance of a high level of CSR reporting (HCSR_REP + (FEM_DIRB2*HCSR_REP)) and the marginal effect of at least three female directors
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(HCSR_REP + (FEM_DIRB3*HCSR_REP)). As reported in Model 2 of Tables 12 and 13, we find a positive joint coefficient (0.477 and 0.465, respectively) statistically significant at
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the 1% level. In support of our hypothesis H1, these coefficients are quite similar to that
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Model 2 of Table 8 (𝛽 = 0.447).
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found for the marginal effect of the presence of at least one female director, as reported in
Results of Model 3 give more evidence to support our hypothesis H2. Indeed, the marginal effect of the demand of CSR assurance on market-based performance for firms with at least
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two female directors (CSR_ASS + (FEM_DIRB2*CSR_ASS)) and for firms with at least
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three female directors (CSR_ASS + (FEM_DIRB3*CSR_ASS)) on Tobin’s q are strongly negative (–1.044 and –0.652, respectively) and both are significant at the 1% level. These joint coefficients are more important than those observed in Model 1 of Table 10 for firms with at least one woman on the board (β = –0.142; t = –2.93). -------------------------------------------------Please insert Tables 12 & 13 --------------------------------------------------
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ACCEPTED MANUSCRIPT 5. Conclusion This paper examines the relationship between CSR reporting and the financial performance of companies with and without female board members. Gray (2006) argues that a better level of CSR disclosure is not usually indicative of a better-managed organization and that some managers might make superficial and cosmetic adjustments in order to enhance the reporting
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quality. Disclosures may thus be a simple response to the information needs of shareholders
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and need not actually reflect CSR performance (Adams, 2002, 2004; Gray et al., 2001).
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Moreover, the voluntary nature of CSR reports has led to several irregularities in reporting formats, treatment, and inclusion of diverse contextual elements. The voluntary approach has
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also led to difficulties implementing robust measures for assessing the quality and accuracy of the reports’ content (Sethi et al., 2015). In this conjecture, stakeholders need to apply filters to
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assess the credibility of voluntary CSR information (Cho et al., 2012). Rigorous governance structures are crucial to confirm that the stakeholder dialogue process is robust, and to limit
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the reporting-performance portrayal gap (Adams, 2004). Accordingly, Jo and Harjoto (2012)
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assert that the prospect that CSR engagements positively impact firm performance depends on the use of effective governance mechanisms. Meanwhile, having a more diverse board signals
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the firm’s commitment to social laws and values and its ability to comply with stakeholders’ needs (Huse et al., 2009; Miller & Triana, 2009; Bear et al., 2010; Hafsi & Turgut, 2013;
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Handajani et al., 2014; Isidro & Sobral, 2015; Liao et al., 2016). Our paper complements previous studies by examining the moderating role of women directors in the relationship between CSR reporting and firm performance. Using a sample of 91 French firms from 2001 to 2011, we perform propensity score matching technique in order to control for differences between firms with and without at least one woman director. Our results show that female directorship enhances the credibility of the information disclosed, leading CSR reporting to be more economically viable in terms of 39
ACCEPTED MANUSCRIPT higher firm value. Consistent with the idea that women directors intrinsically enhance the board's ability to effectively address CSR activities (Huse et al., 2009; Miller & Triana, 2009; Bear et al., 2010; Hafsi & Turgut, 2013; Handajani et al., 2014; Isidro & Sobral, 2015; Liao et al., 2016), we find that the marginal effect of female directorship on the value relevance of a high level of CSR reporting (using joint test procedure) is positive and significant. This
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finding holds when we use accounting-based measures of performance: specifically, return on
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assets (ROA) and return on equity (ROE). However, the coefficients obtained for ROA and
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ROE are less important than those observed for Tobin’s q, suggesting that increasing the level of CSR reporting is more likely to boost financial market performance than to improve
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accounting performance. We also find that the demand for CSR assurance through independent third parties is considered by shareholders to be economically valuable for firms
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without women directors and invaluable for firms with gender-diverse boards. This result suggests that hiring women directors acts as a substitute for CSR assurance to assess the
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two and three female directors.
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credibility of CSR reporting. Our results are stable when we consider the presence of at least
As discussed in Bouten et al. (2012), different measurement approaches of voluntary
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disclosure may lead to different empirical results. Disclosure index based on breadth and/or depth can be criticized because a company that uses few words to cover a specific item of
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information is treated in a similar manner to a company that uses many more words (or pages) to report on the same item. As an extension of our study, we think it would be worthwhile to consider the extent of reporting (number of words dedicated to a specific item) in addition to a disclosure index. Another research avenue is to investigate the value relevance of CSR performance ratings according to whether firms have a gender-diverse board or not, and to show if the marginal effect of the presence of female directors varies from the voluntary period (before the application of the Grenelle II Act in 2012) to the mandatory period. 40
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ACCEPTED MANUSCRIPT Reverte, C. (2009). Determinants of corporate social responsibility disclosure ratings by Spanish listed firms. Journal of Business Ethics, 88(2), 351–366. Richardson, A. J., & Welker, M. (2001). Social disclosure, financial disclosure and the cost of equity capital. Accounting, Organizations & Society, 26(7), 597–616. Roberts, R. W. (1992). Determinants of corporate social responsibility disclosure: An application of stakeholder theory. Accounting, Organizations & Society, 17(6), 595–612.
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Roodman, D. M. (2009a). How to do xtabond2: An introduction to difference and system GMM in Stata. The Stata Journal, 9, 86–136. Roodman, D. (2009b). A note on the theme of too many instruments. Oxford Bulletin of Economics and statistics, 71(1), 135–158.
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Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41–55. Sethi, S. P., Martell, T. F., & Demir, M. (2015). Enhancing the role and effectiveness of corporate social responsibility reports: The missing element of content verification and integrity assurance. Journal of Business Ethics, DOI: 10.1007/s10551-015-2862-3.
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Simnett, R., Vanstraelen, A., & Chua, W. F. (2009). Assurance on sustainability reports: An international comparison. The Accounting Review, 84(3), 937–967. Shrader, C. B., Blackburn, V. B., & Iles, P. (1997). Women in management and firm financial performance: An exploratory study. Journal of Managerial Issues, 9(3), 355–376.
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Srinidhi, B., Gul, F. A., & Tsui, J. (2011). Female directors and earnings quality. Contemporary Accounting Research, 28(5), 1610–644. Surroca, J., & Tribo, J. A. (2008). Managerial entrenchment and corporate social performance. Journal of Business Finance & Accounting, 35(5–6), 748–789.
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Surroca, J., Tribo, J., & Waddock, S. (2010). Corporate responsibility and financial performance: The role of intangible resources. Strategic Management Journal, 315(5), 463–490. Terjesen, S., Couto, E. B., & Francisco, P. M. (2016). Does the presence of independent and female directors impact firm performance? A multi-country study of board diversity. Journal of Management & Governance. 20(3), 447–483. Van der Laan, G., Van Ees, H., & Van Witteloostuijn, A. (2008). Corporate social and financial performance: An extended stakeholder theory, and empirical test with accounting measures. Journal of Business Ethics, 79(3), 299–310. Wilmshurst, T. D., & Frost, G. R. (2000). Corporate environmental reporting: A test of legitimacy theory. Accounting, Auditing & Accountability Journal, 13(1), 10–26. Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581–606. 48
ACCEPTED MANUSCRIPT Wong, R., & Millington, A. (2014). Corporate social disclosures: A user perspective on assurance. Accounting, Auditing & Accountability Journal, 27(5), 863–887. Woodward, D. G., Edwards, P., & Birkin, F. (1996). Organizational legitimacy and stakeholder information provision. British Journal of Management, 7, 329–347. Wooldridge, J. M. (2002), Econometric Analysis of Cross Section and Panel Data (MIT Press, Cambridge).
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Zhang, J. Q., Zhu, H., & Ding, H. B. (2013). Board composition and corporate social responsibility: An empirical investigation in the post Sarbanes-Oxley era. Journal of Business Ethics, 114(3), 381–392.
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ACCEPTED MANUSCRIPT Appendix A. Items of the Grenelle II Act
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Components Description 1 Social Reporting (19 items) 1.1 Employment 1.1.1 Number of employees and how they are split up according to age, gender and geographic distribution (based on numbered data and diagram) 1.1.2 Hiring and firing 1.1.3 Remuneration and their evolution 1.2 Organization of work 1.2.1 Organization of working time (flexibility of working hours, weekly working hours...) 1.2.2 Absenteeism 1.3 Labour relations 1.3.1 Social dialogue (information procedures, consultation of the staff and negotiating with employers) 1.3.2 Outcome of the collective agreements 1.4 Occupational Health and 1.4.1 Health and safety conditions at work safety 1.4.2 Outcome of the collective agreements signed with trade unions and the representatives of the staff regarding occupational health and safety 1.4.3 Frequency and seriousness of accidents 1.5 Training 1.5.1 Policies implemented regarding training 1.5.2 Total number of training hours 1.6 Equal treatment 1.6.1 Measures promoting equality between women and men 1.6.2 Measures promoting the employment and the integration of people with 1.6.3 Policy against discrimination disabilities 1.7 Respect of the clauses of 1.7.1 Respect for the right to organize and collective bargaining fundamental conventions of 1.7.2 Abolition of discrimination in employment and occupation 1.7.3 Abolition of forced or compulsory labour the International Labour 1.7.4 Abolition of child labour Organization (ILO) 2 Environmental Reporting (14 items) 2.1 Environment policy 2.1.1 Organization of the company to take into account environmental concerns, and, if applicable, environmental evaluation and verification approaches 2.1.2 Training and information towards employees on environmental protection 2.1.3 Budget devoted to environmental protection and environmental risk 2.1.4 Financial provisions for environmental risks mitigation 2.2 Pollution and 2.2.1 Prevention, reduction and fixing of air/water/soil emissions 2.2.2 Prevention, recycling and cutting waste Waste Management 2.2.3 Noise pollution and other type of pollution 2.3 Sustainable 2.3.1 Water consumption and supply considering local resources 2.3.2 Consumption of raw materials and measures taken to improve the use of resources efficiency of raw materials use 2.3.3 Energy consumption and measures to improve energy efficiency and the use of renewable energy 2.3.4 Land use 2.4 Climate change 2.4.1 Greenhouse gases emissions 2.4.2 Measures to adapt to climate change 2.5 Protection of 2.5.1 Measures taken to save and develop biodiversity biodiversity 3 Sustainability reporting (9 items) 3.1 Territorial, economic 3.1.1 Measures in favour of environment, employment and regional development 3.1.2 Measures taken towards population living in the area around the business and social impact of the 3.2 Relationships with 3.2.1 Conditions for dialogue with stakeholders activity 3.2.2 Measures promoting partnership or sponsorship stakeholders 3.3 Subcontracting 3.3.1 Importance of subcontracting 3.3.2 Taking into account social and environmental responsibility with suppliers and suppliers and subcontractors 3.4 Honesty in practices 3.4.1 Measures to prevent corruption 3.4.2 Measures in favour of health consumers’ security 3.5 Measures in favour of 3.5.1 Measures preventing all forms of discrimination and promoting equal human rights treatment
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ACCEPTED MANUSCRIPT Table 1. Variables used in the model and their measurement Measure16
Definition
Dependent variables: TQ Tobin’s q ROA ROE
Stock market capitalization plus book value of liabilities as a ratio of total assets Ratio of operating income to total assets Ratio of net income to stockholders’ equity
Return on assets Return on equity
Endogenous variables: CSR_REP CSR reporting
FEM_DIRB2
Female directorship
Governance variables CSR_COM CSR committee CSR assurance
BOARD_SIZE BOARD_IND BOARD_MEET DUAL
Board size Board independence Board meeting CEO duality
TENURE
CEO tenure
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Ownership variables FAM_OWN Family ownership INST_OWN Institutional ownership EMPL_OWN Employee ownership Others control variables LEV Leverage FOR_ASS Foreign assets RISK Market risk R&D R&D intensity SIZE Firm size GRE1 Grenelle I Industry
16
Binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise Binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise Natural logarithm of the number of directors on the board Ratio of number of non-executive independent directors to total number of board directors Natural logarithm of the number of annual board meetings Dummy variable coded 1 if the CEO serves as board chair and 0 otherwise. Number of years at the company before appointed to a CEO position
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CSR_ASS
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Female directorship
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FEM_DIRB2
Binary variable coded 1 if the company has at least one female director and 0 otherwise Binary variable coded 1 if the company has at least two female directors and 0 otherwise Binary variable coded 1 if the company has at least three female directors and 0 otherwise
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Moderating variables FEM_DIRB1 Female directorship
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High CSR reporting level
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HCSR_REP
Aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A) Binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise
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Variable
Industry
Percentage of capital held by family Percentage of capital held by institutional investors Percentage of capital held by employees
Ratio of total financial debt to total assets Ratio of foreign assets to total assets Equity beta Ratio of research and development to total sales Natural logarithm of the total assets Binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Binary variable that takes the value 1 if the company belongs to the sector in question and 0 otherwise.
Variables from ThomsonOne are winsorized at the 1% and 99% levels.
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ACCEPTED MANUSCRIPT Table 2. Descriptive statistics
0.887 4.10% 11.41% 47.62% 52.63% 35.71% 50% 7.14% 1 1 0 0 0 0 12 42.86% 7 1 7.14 22.91% 5% 0.99% 25.28% 37.99% 0.899 0 5.185
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1.135 4.74% 11.41% 44.27% 45.31% 39.71% 52.62% 8.85% 0.960 62.26% 26.27% 12.88% 18.76% 27.84% 11.613 42.74% 7.219 54.10% 9.089 26.64% 15.45% 2.49% 26.27% 38.81% 0.885 1.98% 16.717
Standard Deviation 0.827 3.69% 15.79% 25.10% 29.05% 27.88% 31.29% 9.30% 1.020 48.50% 44.03% 33.52% 38.28% 44.84% 3.961 23.46% 3.547 49.86% 6.988 26.20% 22.65% 4.73% 13.84% 29.21% 0.278 4.84% 29.784
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Median
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TQ ROA ROE CSR_REP SOC_REP ENV_REP SUS_REP FEM_DIRP FEM_DIRN FEM_DIRB1 FEM_DIRB2 FEM_DIRB3 CSR_ASS CSR_COM BOARD_SIZE (number of directors) BOARD_IND BOARD_MEET (number of meetings) DUAL TENURE (number of years) FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE (in billions of euros)
Mean
SC
Variables
Minimum
Maximum
0.255 –4.46% –44% 0 0 0 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0.063 0 4
4.556 15.71% 72.70% 90.48% 100% 92.86% 100% 43.75% 7 1 1 1 1 1 26 94.12% 30 1 43 99.37% 90.08% 32.75% 73.88% 99.68% 1.815 42.11% 240.559
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Note: Table 2 presents descriptive statistics and analysis of the dependent, endogenous, and control variables for the entire sample. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. ROA is the ratio of operating income to total assets. ROE is the ratio of net income to stockholders’ equity. CSR_REP is the aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). SOC_REP is the social reporting index as the ratio of the assigned total score to the maximum social score (19 items, see Appendix A). ENV_REP is the environmental reporting index as the ratio of the assigned total score to the maximum environmental score (14 items, see Appendix A). SUS_REP is the sustainability reporting index as the ratio of the assigned total score to the maximum sustainability score (9 items, see Appendix A). FEM_DIRP is the percentage of female on the board. FEM_DIRN is the number of female directors. FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director and 0 otherwise. FEM_DIRB2 is a binary variable coded 1 if the company has at least two female directors and 0 otherwise. FEM_DIRB3 is a binary variable coded 1 if the company has at least three female directors and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of nonexecutive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets.
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ACCEPTED MANUSCRIPT Table 3. Mean difference test
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TQ ROA ROE CSR_REP SOC_REP ENV_REP SUS_REP CSR_ASS CSR_COM BOARD_SIZE (number of directors) BOARD_IND BOARD_MEET (number of meetings) DUAL TENURE (number of years) FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D intensity SIZE (in billions of euros)
Firm-years without female directors (N = 351)
t-test
1.198 5.11% 12.01% 38.56% 39.39% 35.31% 45.24% 14.57% 19.05% 10.928 45.75% 6.688 47.43% 7.243 30.10% 13.04% 1.79% 25.18% 44.44% 0.856 2.76% 11.619
1.938* 2.559** 0.786 5.607*** 4.884*** 3.749*** 6.383*** 3.626*** 5.149*** 2.701*** a 2.879*** 4.134*** a 3.153*** 6.362*** a 3.212*** 2.532** 3.610*** 1.630 4.492*** 3.021*** 3.989*** 2.544** a
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Firm-years with at least one female director (N = 589) 1.088 4.47% 11.14% 47.96% 48.87% 42.36% 58.32% 24.36% 34.46% 12.049 41.23% 7.541 57.99% 10.208 24.47% 16.88% 2.93% 26.67% 35.68% 0.912 1.47% 20.235
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Variables
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Note: Table 3 presents the results of the mean difference tests between panels with and without women directors for the entire sample. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. ROA is the ratio of operating income to total assets. ROE is the ratio of net income to stockholders’ equity. CSR_REP is the CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). SOC_REP is the social reporting index as the ratio of the assigned total score to the maximum social score (19 items, see Appendix A). ENV_REP is the environmental reporting index as the ratio of the assigned total score to the maximum environmental score (14 items, see Appendix A). SUS_REP is the sustainability reporting index as the ratio of the assigned total score to the maximum sustainability score (9 items, see Appendix A). CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively. a t-tests are based on natural logarithm transformed values.
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ACCEPTED MANUSCRIPT Table 4. Mean difference test between treatment and control groups
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TQ ROA ROE CSR_REP SOC_REP ENV_REP SUS_REP CSR_ASS CSR_COM BOARD_SIZE (number of directors) BOARD_IND BOARD_MEET (number of meetings) DUAL TENURE (number of years) FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE (in billions of euros)
Control (N = 260) 1.148 4.90% 10.53% 40.50% 41.26% 36.09% 49.24% 17.18% 24.81% 11.148 45.37% 7.007 54.58% 7.826 26.42% 14.36% 2.11% 25.65% 43.65% 0.901 1.93% 13.107
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Treatment (N = 260) 1.132 4.79% 10.58% 41.23% 42.51% 33.86% 52.91% 12.98% 20.61% 11.030 45.70% 6.901 52.40% 8.164 28.02% 13.38% 2.23% 25.26% 44.84% 0.879 2.31% 14.264
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Variables
t-test 0.229 0.337 0.033 0.347 0.495 0.979 1.380 1.134 1.146 0.751 a 0.173 0.063 a 0.468 0.363 a 0.685 0.543 0.320 0.333 0.473 0.343 0.872 1.441 a
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Note: Table 4 presents the results of the mean difference tests between panels with and without women directors for the matched sample. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. ROA is the ratio of operating income to total assets. ROE is the ratio of net income to stockholders’ equity. CSR_REP is the aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). SOC_REP is the social reporting index as the ratio of the assigned total score to the maximum social score (19 items, see Appendix A). ENV_REP is the environmental reporting index as the ratio of the assigned total score to the maximum environmental score (14 items, see Appendix A). SUS_REP is the sustainability reporting index as the ratio of the assigned total score to the maximum sustainability score (9 items, see Appendix A). CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. a t-tests are based on natural logarithm transformed values.
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ACCEPTED MANUSCRIPT Table 5. Pairwise Correlation Matrix 1. TQ 2. Lag TQ 3. ROA 4. Lag ROA 5. ROE 6. Lag ROE 7. CSR_REP 8. Lag CSR_REP 9. FEM_DIRB1 10. Lag FEM_DIRB1 11. CSR_ASS 12. CSR_COM 13. BOARD_SIZE 14. BOARD_IND 15. BOARD_MEET 16. DUAL 17. TENURE 18. FAM_OWN 19. INST_OWN 20. EMPL_OWN 21. LEV 22. FOR_ASS 23. RISK 24. R&D 25. SIZE
1 1.000 0.774* 0.627* 0.533* 0.401* 0.328* –0.157* –0.162* –0.065 –0.055 –0.079 –0.067 –0.253* –0.179* –0.059 –0.085 0.083 0.282* –0.192* –0.236* –0.206* –0.062 0.019 0.226* –0.281*
2
3
4
1.000 0.549* 0.625* 0.342* 0.400* –0.150* –0.144* –0.055 0.047 –0.055 –0.047 –0.248* –0.184* –0.046 –0.087 0.099* 0.278* –0.197* –0.233* –0.209* –0.045 0.005 0.251* –0.258*
1.000 0.775* 0.702* 0.529* –0.049 –0.052 –0.084 –0.077 –0.029 0.014 –0.115* 0.027 –0.057 –0.110* 0.158* 0.284* –0.122* –0.136* –0.211* 0.036 –0.089* 0.091* –0.155*
1.000 0.525* 0.702* –0.032 –0.031 –0.062 –0.091* –0.004 0.030 –0.098* 0.022 –0.037 –0.106* 0.159* 0.284* –0.105* –0.127* –0.191* 0.038 –0.100* 0.091* –0.135*
1.000 0.644* –0.010 –0.014 –0.027 –0.023 –0.016 –0.000 –0.009 0.019 0.032 –0.122* 0.064 0.208* –0.078 0.010 –0.037 –0.030 –0.128* –0.062 –0.073
6
7
1.000 –0.018 –0.010 –0.015 –0.024 –0.004 –0.004 –0.004 0.008 0.042 –0.123* 0.068 0.207* –0.078 0.021 –0.008 –0.027 –0.138* –0.070 –0.041
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T P E
C C
A
5
9
10
11
12
13
1.000 0.141* 0.248* 0.280* 0.130* –0.044 0.223* –0.193* 0.183* 0.021 0.014 0.018 0.172* 0.118* 0.421*
1.000 0.238* 0.086* 0.157* –0.094* 0.136* –0.069 0.049 0.031 –0.051 –0.022 0.040 0.003 0.273*
1.000 0.096* 0.045 0.038 0.163* –0.148* 0.060 0.179* 0.023 0.059 0.002 –0.044 0.659*
T P
1.000 0.946* 0.179* 0.139* 0.442* 0.389* 0.376* 0.215* 0.157* 0.071 0.265* –0.083 0.178* 0.127* 0.007 0.007 0.073 0.097* 0.465*
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8
1.000 0.178* 0.152* 0.434* 0.385* 0.381* 0.183* 0.136* 0.065 0.236* –0.065 0.175* 0.118* 0.014 0.004 0.086 0.094* 0.467*
1.000 0.843* 0.117* 0.165* 0.087* –0.093* 0.133* 0.102* 0.203* –0.104* 0.082 0.116* 0.053 –0.144* 0.098* –0.129* 0.082
1.000 0.090* 0.134* 0.066 –0.156* 0.125* 0.100* 0.186* –0.100* 0.081 0.123* 0.056 –0.156* 0.101* –0.109* 0.068
VIF ---1.30 ---1.27 ---1.19 1.69 1.65 1.02 1.20 1.36 1.38 1.93 1.42 1.21 1.16 1.32 1.56 1.34 1.20 1.22 1.25 1.40 1.26 2.77
ACCEPTED MANUSCRIPT Table 5. Continued 14. BOARD_IND 15. BOARD_MEET 16. DUAL 17. TENURE 18. FAM_OWN 19. INST_OWN 20. EMPL_OWN 21. LEV 22. FOR_ASS 23. RISK 24. R&D 25. SIZE
13 1.000 –0.011 –0.175* 0.028 –0.278* 0.301* –0.017 –0.005 0.247* 0.104* 0.070 0.308*
14
15
16
17
18
19
1.000 –0.025 –0.074 –0.093* –0.055 0.034 0.045 0.078 0.254* 0.016 0.140*
1.000 0.172* –0.020 0.046 0.188* 0.043 –0.117* –0.033 –0.058 –0.079
1.000 0.017 –0.061 0.110* –0.084* 0.107* 0.042 0.169* 0.146*
1.000 –0.426* –0.173* –0.047 –0.106* –0.224* 0.034 –0.265*
1.000 0.083 0.050 0.063 –0.017 –0.070 0.091*
1.000 –0.094* –0.168* –0.071 –0.098* 0.100*
20
1.000 –0.055 –0.034 –0.190* 0.105*
21
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23
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1.000 0.093* 0.016 0.127*
1.000 0.084* 0.200*
1.000 –0.021
Note: Table 5 provides the Pearson correlation analysis and variance inflation factors for all variables considered in our study. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. ROA is the ratio of operating income to total assets. Lag ROA is the one-year lagged value of ROA. ROE is the ratio of net income to stockholders’ equity. Lag ROE is the one-year lagged value of ROE. CSR_REP is the aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). Lag CSR_REP is the one-year lagged value of the aggregate CSR reporting index. FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director and 0 otherwise. Lag FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director in the past year and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. * represent significance at the 0.01 level.
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ACCEPTED MANUSCRIPT Table 6. System GMM regression of Tobin’s q on CSR reporting and female directorship Model 2 Coef. t-test 0.649*** 73.30 –0.264*** –3.48 –0.094***
Model 3 Coef. t-test 0.648*** 74.77 –0.362*** –5.97
–15.19 –0.188*** –14.83 0.250*** 6.53 –0.013 –0.57 0.029 1.17 0.010 0.31 –0.069*** –3.55 –0.060*** –3.91 0.048*** 3.49 0.261*** 5.87 0.113*** 3.35 –0.715*** –2.85 –0.311*** –5.12 0.052** 2.24 –0.049* –1.68 –0.008 –0.03 –0.041*** –4.22 0.054*** 4.32 1.230*** 11.78 Yes 462 14138.87 (p = 0.000) –1.96 (p = 0.005)
1.38 (p = 0.169)
1.35 (p = 0.178)
1.34 (p = 0.179)
369.59 (p = 0.000) 72.85 (p = 0.444)
370.32 (p = 0.000) 69.57 (p = 0.441)
369.96 (p = 0.000) 72.16 (p = 0.465)
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0.265*** 6.72 0.014 0.46 0.058* 1.90 –0.012 –0.42 –0.067*** –3.73 –0.067*** –4.12 0.046*** 4.43 0.287*** 5.66 0.139*** 3.29 –0.582*** –2.85 –0.243*** –5.27 0.036 1.18 –0.012 –0.53 –0.163* –1.66 –0.050*** –5.27 0.055*** 4.97 1.176*** 12.16 Yes 462 7676.38 (p = 0.000) –1.97 (p = 0.004)
0.162*** 6.00 –0.036 –1.01 –0.008 –0.29 –0.019 –0.39 –0.058*** –3.83 –0.076*** –5.82 0.058*** 4.20 0.229*** 4.59 0.123*** 3.71 –0.779*** –4.82 –0.298*** –6.30 0.014 0.56 –0.056** –2.16 –0.202* –1.91 –0.046*** –4.87 0.049*** 5.71 1.350*** 15.45 Yes 462 7416.32 (p = 0.000) –1.98 (p = 0.004)
PT E
Lag TQ CSR_REP FEM_DIRP FEM_DIRP_SQUARED FEM_DIRN FEM_DIRB1 CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p– value): Arellano–Bond test AR(2) (z, p– value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value):
Model 1 Coef. t-test 0.653*** 68.30 –0.210*** –4.24 –1.068** –2.02 –0.276 –0.12
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Note: Table 6 provides the results of the system GMM regression of the effect of aggregate CSR reporting (CSR_REP) on market value (TQ). Models 1, 2 & 3 report results relating to the effect of CSR reporting (CSR_REP) on market value (TQ) while considering the percentage of female directorship (FEM_DIRP), the number of female directors, and the presence or not of at least one female director (FEM_DIRB1), respectively. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. CSR_REP is the aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). FEM_DIRP is the percentage of females on the board. FEM_DIRN is the number of female directors. FEM_DIRP_SQUARED is the quadratic term of the percentage of females on the board. FEM_DIRN is the number of female directors. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise.
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*, **, *** represent significance at 0.05, 0.01 and 0.001 levels, respectively.
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ACCEPTED MANUSCRIPT Table 7. System GMM regression of Tobin’s q on each component of CSR reporting Model 2 Environmental Reporting Coef. t-test 0.632*** 80.77 0.952***
Model 3 Sustainability Reporting Coef. t-test 0.581*** 43.68
15.88 –1.318*** –17.30 –0.256*** –14.87 0.102*** 2.74 0.055 1.41 –0.085** –2.23 0.037 0.73 –0.033 –1.06 –0.064*** –3.13 0.105*** 5.41 0.417*** 9.77 0.285*** 4.59 0.637** 2.00 –0.448*** –5.45 0.234*** 5.96 0.042 1.23 1.335*** 9.24 0.038*** 3.10 0.119*** 13.02 0.494*** 3.43 Yes 462 32710.07 (p = 0.000) –1.93 (p = 0.054)
1.31 (p = 0.189)
1.42 (p = 0.156)
1.43 (p = 0.154)
371.87 (p = 0.000) 68.91 (p = 0.379)
374.49 (p = 0.000) 70.13 (p = 0.341)
364.10 (p = 0.000) 71.85 (p = 0.290)
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–0.233*** –10.47 –0.018 –0.43 –0.079* –1.78 0.127*** 4.38 –0.148*** –2.63 –0.102*** –3.32 –0.148*** –6.49 –0.003 –0.23 0.090* 1.74 0.015 0.34 –0.583** –2.71 –0.150** –2.50 –0.009 –0.24 0.120*** 2.57 –0.351*** –2.89 –0.108*** –11.64 0.031*** 2.62 1.830*** 16.92 Yes 462 29574.71 (p = 0.000) –2.03 (p = 0.042)
–0.307*** –20.88 0.396*** 8.16 0.078*** 2.94 0.057 1.52 0.083* 1.95 –0.068*** –3.33 –0.054*** –3.88 0.020* 1.74 0.340*** 8.85 0.176*** 3.66 –0.358 –1.47 –0.256*** –5.13 0.051 1.73 0.046 1.22 0.041 0.30 –0.058*** –4.79 0.044*** 3.94 1.444*** 12.80 Yes 462 70904.76 (p = 0.000) –1.94 (p = 0.052)
PT E
Lag TQ SOC_REP ENV_REP SUS_REP FEM_DIRP CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p– value): Arellano–Bond test AR(2) (z, p– value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value):
Model 1 Social Reporting Coef. t-test 0.627*** 80.62 0.542*** 10.64
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Note: Table 7 provides the results of the system GMM regression of Tobin’s q on each component of CSR reporting. Models 1, 2 & 3 reports results relating to the effect of social reporting (SOC_REP), environmental reporting (ENV_REP) and sustainability reporting (SUS_REP) on Tobin’s q, respectively.
AC
Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. SOC_REP is the social reporting index as the ratio of the assigned total score to the maximum score (19 items, see Appendix A). FEM_DIRP is the percentage of females on the board. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary
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variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
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ACCEPTED MANUSCRIPT Table 8. System GMM regression results for the interaction between high level of CSR reporting and female directorship (at least one woman on the board) Variables
Model 2 Coef. t-test 0.647*** 72.46 –0.521*** –10.62 –0.718*** –21.39 0.968*** 15.32 0.164*** 3.62 0.248*** 6.48 0.086*** 2.70 –0.032 –0.74 –0.162*** –6.97 –0.008 –0.44 –0.001 –0.07 0.122** 2.37 –0.129** –2.39 –0.564* –1.75 –0.203*** –3.14 –0.119*** –3.15 0.055 1.11 –0.621*** –5.72 –0.072*** –5.92 –0.024* –1.66 2.011*** 15.02 Yes 462 35457.25 (p = 0.000) –1.95 (p = 0.005) 1.25 (p = 0.213) 352.03 (p = 0.000) 70.19 (p = 0.496) 0.447*** 7.64
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0.087** 2.23 –0.108*** –4.29 0.057*** 3.03 0.001 0.01 –0.064*** –4.33 –0.095*** –5.94 0.044*** 2.85 0.176*** 3.51 0.094*** 4.07 –0.759*** –3.40 –0.236*** –3.03 0.055* 1.91 –0.098** –2.39 0.414 1.00 –0.054*** –9.11 0.038*** 4.74 1.315*** 14.06 Yes 462 33355.41 (p = 0.000) –2.00 (p = 0.004) 1.39 (p = 0.165) 366.78 (p = 0.000) 69.74 (p = 0.436)
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Lag TQ HCSR_REP FEM_DIRB1 FEM_DIRB1*HCSR_REP CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p–value): Arellano–Bond test AR(2) (z, p–value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value): Joint test: HCSR_REP + (FEM_DIRB1* HCSR_REP)
Model 1 Coef. t-test 0.644*** 54.00 0.027 0.72 –0.191*** –11.84
AC
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Note: Table 8 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on market-based performance (Tobin’s q). Model 1 reports results relating to the effect of high CSR reporting (HCSR_REP) on Tobin’s q. Model 2 includes the interaction between female directorship as measured by the presence of at least one female director (FEM_DIRB1) and high CSR reporting (HCSR_REP) necessary to perform the joint test of the sum of the coefficients (HCSR_REP + FEM_DIRB1*HCSR_REP) on Tobin’s q. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise. FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meeting. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
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ACCEPTED MANUSCRIPT Table 9. System GMM regression results for firms with and without at least one female director Model 2 Control group (Firms without female directors) Coef. t-test 0.455*** 21.33 –0.368*** –6.82 0.532*** 4.33 0.556*** 6.42 0.124 1.49 0.275** 2.00 –0.076 –1.17 0.013 0.19 0.008 0.18 0.460*** 4.37 0.060 0.46 –1.125* –1.69 0.088 0.41 –0.160 –1.42 0.185** 2.42 2.492*** 6.10 –0.146*** –4.62 0.090*** 4.29 2.192*** 5.77 Yes 231 1199.40 (p = 0.000) –2.63 (p = 0.003) 1.22 (p = 0.224) 174.94 (p = 0.000) 37.63 (p = 0.192)
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Lag TQ HCSR_REP CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p–value): Arellano–Bond test AR(2) (z, p–value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value):
Model 1 Treatment group (Firms with at least one female director) Coef. t-test 0.789*** 27.97 0.478*** 4.51 –0.373*** –4.88 –0.716*** –5.87 –0.019 –0.24 –0.323*** –2.57 –0.077* –1.74 –0.074 –1.40 –0.093*** –2.74 0.122 1.00 0.090 0.67 –1.841*** –5.34 –0.749*** –4.60 0.046 0.40 –0.101 –0.90 –0.550 –1.12 0.022 1.05 –0.102 –1.58 0.369 1.56 Yes 231 632.59 (p = 0.000) –3.05 (p = 0.002) 0.65 (p = 0.517) 171.75 (p = 0.000) 37.88 (p = 0.219)
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Note: Table 9 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on market-based performance (TQ) for the treatment group (Model 1) and control group (Model 2). Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second–order autocorrelation test for the error term, which checks the null hypothesis of absence of second–order autocorrelation. The second is the Sargan/Hansen test of over–identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid.
AC
TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one–year lagged value of Tobin’s q. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non–executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
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–0.184*** –4.63 0.034 0.92 –0.023 –0.32 –0.065** –2.21 –0.088*** –3.44 0.043*** 2.55 0.303*** 5.06 0.131** 2.40 –0.922*** –3.13 –0.391*** –4.29 0.035 0.73 –0.045 –1.19 0.261** 2.04 –0.038*** –3.45 0.072*** 3.56 1.095*** 7.53 Yes 462 2835.91 (p = 0.000) –2.02 (p = 0.004) 1.44 (p = 0.150) 358.44 (p = 0.000) 61.68 (p = 0.124) –0.142*** –2.93
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Lag TQ HCSR_REP FEM_DIRB1 CSR_ASS FEM_DIRB1*CSR_ASS CSR_ASS*HCSR_REP CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p–value): Arellano–Bond test AR(2) (z, p–value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value): Joint test: CSR_ASS + (FEM_DIRB1*CSR_ASS) Joint test: HCSR_REP + (CSR_ASS*HCSR_REP)
Model 1 Coef. 0.655*** –0.009 –0.171*** 0.367*** –0.510***
Model 2 Coef. t–test 0.713*** 34.83 0.139*** 4.35 –0.236*** –7.96 2.190*** 10.86 –2.409*** –10.52 0.024 0.73 0.118*** 2.48 –0.091 –1.23 –0.132*** –3.83 –0.080*** –2.93 0.029 1.46 0.052 0.77 0.060 1.19 –0.566 –1.59 –0.131 –1.31 –0.092 –1.65 –0.054 –1.24 –0.192 –1.52 –0.042*** –3.41 0.114*** 5.22 1.086*** 6.14 Yes 462 1491.28 (p = 0.000) –2.07 (p = 0.003) 1.17 (p = 0.242) 323.91 (p = 0.000) 57.50 (p = 0.217)
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Variables
–2.269***
–10.12
AC
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Note: Table 10 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on market-based performance (Tobin’s q). Model 1 includes the interaction between female directorship as measured by the presence of at least one female director (FEM_DIRB1) and CSR assurance (CSR_ASS) necessary to perform the joint test of the sum of the coefficients (CSR_ASS + FEM_DIRB1*CSR_ASS) on Tobin’s q. Model 2 includes the interaction between high CSR reporting (HCSR_REP) and CSR assurance (CSR_ASS) necessary to perform the joint test of the sum of the coefficients (HCSR_REP + CSR_ASS*HCSR_REP) on Tobin’s q. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second–order autocorrelation test for the error term, which checks the null hypothesis of absence of second–order autocorrelation. The second is the Sargan/Hansen test of over–identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one–year lagged value of Tobin’s q. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise. FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non–executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0
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otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
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ACCEPTED MANUSCRIPT Table 11. System GMM regression results using ROA and ROE as measures of firm performance ROA Variables Lag ROA Lag ROE HCSR_REP FEM_DIRB1 HCSR_REP* FEM_DIRB1 CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p–value): Arellano–Bond test AR(2) (z, p–value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value): Joint test: HCSR_REP + (FEM_DIRB1* HCSR_REP)
0.004 –0.011***
Model 2 Coef. 0.705***
–0.010*** –3.34 0.007*** 3.26 0.002 0.93 0.011*** 3.80 –0.003** –2.28 –0.002* –1.92 0.005*** 6.38 0.004 1.34 0.005 1.44 –0.015 –1.33 –0.011** –2.05 0.002 1.14 –0.003 –1.19 –0.021* –1.80 –0.002*** –3.11 –0.008*** –7.82 0.037*** 5.88 Yes 462 386.01 (p = 0.000) –2.94 (p = 0.003) 0.89 (p = 0.355) 368.45 (p = 0.000) 62.69 (p = 0.121)
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Model 1 t-test 38.79
–0.010*** –3.02 –0.031*** –9.42 0.033*** 7.74 –0.006 –1.12 0.014*** 3.09 0.003 1.10 0.009*** 2.74 –0.007*** –4.04 –0.001 –0.10 0.004*** 3.15 0.005 1.39 –0.002 –0.42 –0.007 –0.45 –0.008 –1.33 –0.001 –0.46 0.002 0.50 –0.041*** –3.00 –0.003*** –3.02 –0.010*** –9.41 0.063*** 5.23 Yes 462 559.39 (p = 0.000) –2.94 (p = 0.003) 0.92 (p = 0.254) 357.06 (p = 0.000) 63.10 (p = 0.101) 0.023*** 6.44
1.46 –8.73
Coef.
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Model 2 t-test
T P
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Model 1 Coef. t-test 0.698*** 51.49
27.83 –5.13 –1.54
–0.061** –2.44 0.071*** 3.36 0.013 0.99 0.084*** 4.09 0.018** 1.99 –0.005 –0.76 0.019*** 4.54 0.061*** 3.74 0.076*** 3.23 0.003 0.05 0.056* 1.70 –0.015 –1.14 –0.015 –1.10 –0.013 –0.21 0.003 0.87 –0.024*** –4.21 –0.115** –2.47 Yes 462 565.25 (p = 0.000) –2.91 (p = 0.004) 0.87 (p = 0.383) 359.15 (p = 0.000) 58.48 (p = 0.102)
Coef.
t-test
0.599*** 25.06 –0.180*** –5.27 –0.179*** –8.53 0.268*** 6.20 –0.070** –2.19 0.117*** 4.67 0.025 1.38 0.063** 2.32 –0.001 –0.05 0.001 0.01 0.017** 2.48 0.054* 1.92 0.026 0.78 –0.035 –0.32 0.023 0.47 –0.057** –2.40 0.028 1.43 –0.300*** –2.96 –0.001 –0.22 –0.029*** –4.77 0.040 0.47 Yes 462 231.46 (p = 0.000) –2.97 (p = 0.003) 0.85 (p = 0.396) 333.51 (p = 0.000) 56.70 (p = 0.113) 0.088*** 3.09
Note: Table 11 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on accounting-based performance (ROA and ROE). Model 1 reports results relating to the effect of high CSR reporting (HCSR_REP) on ROA and ROE, respectively. Model 2 includes the interaction between female directorship as measured by the presence of at least one female director (FEM_DIRB1) and high CSR reporting (HCSR_REP) necessary to perform the joint test of the sum of the coefficients (HCSR_REP + FEM_DIRB1*HCSR_REP) on ROA
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ACCEPTED MANUSCRIPT and ROE, respectively. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. ROA is the ratio of operating income to total assets. Lag ROA is the one-year lagged value of ROA. ROE is the ratio of net income to stockholders’ equity. Lag ROE is the one-year lagged value of ROE. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise. FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
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–0.253*** –3.64 0.089** 2.43 –0.124 –1.44 –0.047 –1.60 –0.098*** –3.90 0.033 1.38 0.187*** 2.97 0.092 1.43 –1.097*** –3.50 –0.279*** –3.65 –0.038 –0.74 –0.137*** –2.55 –0.152 –1.18 –0.026* –1.75 0.074*** 3.13 0.883*** 5.08 Yes 462 9653.46 (p = 0.000) –2.01 (p = 0.005)
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CSR_COM –0.217*** –4.10 BOARD_SIZE 0.052* 1.91 BOARD_IND –0.045 –0.61 BOARD_MEET –0.057** –2.36 DUAL –0.091*** –4.34 TENURE 0.034* 1.65 FAM_OWN 0.220*** 4.36 INST_OWN 0.165*** 2.58 EMPL_OWN –0.995*** –4.22 LEV –0.416*** –6.50 FOR_ASS 0.010 0.22 RISK –0.116*** –2.68 R&D –0.067 –0.60 SIZE –0.034*** –2.59 GRE1 0.062*** 2.77 Intercept 0.998*** 6.36 Industry Yes N 462 Fisher (Prob > F) 6315.81 (p = 0.000) Arellano–Bond test AR(1) (z, p– –2.02 (p = 0.004) value): Arellano–Bond test AR(2) (z, p– 1.41 (p = 0.165) value): Sargan test (Chi–square, p–value): 357.61 (p = 0.000) Hansen test (Chi–square, p–value): 57.16 (p = 0.171) Joint test: HCSR_REP + (FEM_DIRB2* HCSR_REP) Joint test: CSR_ASS + (FEM_DIRB2*CSR_ASS)
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0.061
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Lag TQ HCSR_REP FEM_DIRB2 FEM_DIRB2*HCSR_REP CSR_ASS FEM_DIRB2* CSR_ASS
Model 2 Coef. t-test 0.674*** 45.25 0.033 1.03 –0.433*** –5.70 0.444*** 4.95 0.056 1.06
t-test 50.75 2.15 –3.97
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1.38 (p = 0.167) 355.46 (p = 0.000) 59.51 (p = 0.104) 0.477*** 4.99
Model 3 Coef. t-test 0.644*** 39.75 0.105*** 2.71 0.305*** 5.57 0.405***
4.41 – 13.86 –6.55 –0.63 –0.15 –2.88 –3.87 2.28 5.75 2.44 –4.82 –7.48 2.49 –1.18 2.77 –2.67 2.19 5.47
–1.449*** –0.435*** –0.018 –0.011 –0.086*** –0.110*** 0.058** 0.312*** 0.162** –1.479*** –0.717*** 0.136** –0.068 0.465*** –0.036*** 0.060** 1.140*** Yes 462 2849.14 (p = 0.000) –2.05 (p = 0.004)
1.40 (p = 0.163) 348.30 (p = 0.000) 54.68 (p = 0.206) –1.044***
–9.88
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Note: Table 12 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on market-based performance (Tobin’s q). Model 1 reports results relating to the effect of high CSR reporting (HCSR_REP) on Tobin’s q. Model 2 includes the interaction between female directorship as measured by the presence of at least two female directors (FEM_DIRB2) and high CSR reporting (HCSR_REP) necessary to perform the joint test of the sum of the coefficients (HCSR_REP + FEM_DIRB2*HCSR_REP) on Tobin’s q. Model 3 includes the interaction between female directorship as measured by the presence of at least two female directors and CSR assurance (FEM_DIRB2*CSR_ASS), necessary to perform the joint test of the sum of the coefficients (CSR_ASS + FEM_DIRB2*CSR_ASS) on Tobin’s q. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise. FEM_DIRB2 is a binary variable coded 1 if the company has at least two female directors and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital
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ACCEPTED MANUSCRIPT held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
Table 13. System GMM regression results using firms with at least three female directors
1.83
–0.235** 0.041 –0.058 –0.055* –0.095*** 0.037* 0.227*** 0.171** –1.013*** –0.455*** 0.048 –0.087 –0.066
–2.45 1.15 –0.73 –1.96 –3.61 1.76 3.65 2.15 –3.41 –4.79 0.83 –1.42 –0.48
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–0.068** 0.079*** –0.008 –0.044*** –0.090*** 0.060*** 0.241*** 0.053 –0.972*** –0.262*** –0.019 –0.029 –0.279***
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0.141*
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Lag TQ HCSR_REP FEM_DIRB3 FEM_DIRB3*HCSR_REP CSR_ASS FEM_DIRB3* CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE
Model 2 Coef. t-test 0.648*** 53.69 0.018 0.68 –0.465*** –4.45 0.447*** 3.98 0.051* 1.67
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Model 1 Coef. t-test 0.659*** 44.26 0.109** 2.44 –0.052 –0.72
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Variables
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–0.047*** –2.79 GRE1 0.024 0.92 Intercept 1.168*** 6.21 Industry Yes N 462 Fisher (Prob > F) 1979.49 (p = 0.000) Arellano–Bond test AR(1) (z, p– –2.04 (p = 0.004) value): Arellano–Bond test AR(2) (z, p– 1.38 (p = 0.168) value): Sargan test (Chi–square, p–value): 357.81 (p = 0.000) Hansen test (Chi–square, p–value): 54.23 (p = 0.117) Joint test: HCSR_REP + (FEM_DIRB3* HCSR_REP) Joint test: CSR_ASS + (FEM_DIRB3*CSR_ASS)
–2.45 3.37 –0.20 –2.70 –4.28 4.31 4.46 1.45 –5.28 –4.46 –0.57 –1.04 –2.80 – 10.03 –0.76 9.91
Model 3 Coef. t-test 0.661*** 45.47 –0.191*** –7.23 0.109** 2.00 0.265*** –0.917*** 0.212*** 0.008 0.066 –0.086*** –0.007 0.037 0.263*** 0.145*** –0.808*** –0.184*** –0.005 0.038 –0.344***
4.38 –4.87 5.22 0.23 1.68 –3.48 –0.42 2.42 4.13 2.66 –3.38 –3.44 –0.14 1.20 –3.24
–0.050*** –0.009 1.037*** Yes 462 4386.81 (p = 0.000) –2.01 (p = 0.004)
–0.050*** –4.48 0.043** 2.13 1.123*** 8.34 Yes 462 4577.91 (p = 0.000) –1.97 (p = 0.005)
1.34 (p = 0.179)
1.34 (p = 0.179)
367.26 (p = 0.000) 67.05 (p = 0.340) 0.465*** 3.93
168.04 (p = 0.000) 65.97 (p = 0.409) –0.652***
–3.17
Note: Table 13 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on market-based performance (Tobin’s q). Model 1 reports results relating to the effect of high CSR reporting (HCSR_REP) on Tobin’s q. Model 2 includes the interaction between female directorship as measured by the presence of at least three female directors (FEM_DIRB3) and high CSR reporting (HCSR_REP) necessary to perform the joint test of the sum of the coefficients (HCSR_REP + FEM_DIRB3*HCSR_REP) on Tobin’s q. Model 3 includes the interaction between female directorship as measured by the presence of at least three female directors and CSR assurance (FEM_DIRB3*CSR_ASS), necessary to perform the joint test of the sum of the coefficients (CSR_ASS + FEM_DIRB3*CSR_ASS) on Tobin’s q. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0
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otherwise. FEM_DIRB3 is a binary variable coded 1 if the company has at least three female directors and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
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Research Highlights We provide valuable insights into how female directorship is of major importance for the relevance of voluntary CSR reporting.
Both CSR reporting and female directorship are endogenously determined.
We control for differences in firm characteristics between firms with and without female board membership by using propensity score matching
Our finding holds when we use the accounting-based performance measures, namely, return on assets and return on equity.
Results provide a substitute relationship between gender-diverse boards and CSR assurance through independent third parties.
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Mehdi Nekhili, Haithem Nagati, Tawhid Chtioui, Ali Nekhili PII: DOI: Reference:
S1057-5219(17)30022-4 doi: 10.1016/j.irfa.2017.02.003 FINANA 1079
To appear in:
International Review of Financial Analysis
Received date: Revised date: Accepted date:
2 September 2016 24 December 2016 10 February 2017
Please cite this article as: Mehdi Nekhili, Haithem Nagati, Tawhid Chtioui, Ali Nekhili , Gender-diverse board and the relevance of voluntary CSR reporting. The address for the corresponding author was captured as affiliation for all authors. Please check if appropriate. Finana(2016), doi: 10.1016/j.irfa.2017.02.003
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Gender-diverse board and the relevance of voluntary CSR reporting Mehdi Nekhilia, Haithem Nagatib, Tawhid Chtiouic, Ali Nekhilid a
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University of Maine (GAINS-ARGUMANS), Avenue Olivier Messiaen, 72085 Le Mans, France. Email: [email protected] b ICD International Business School, 12 rue Alexandre Parodi, 75010 Paris, France. Email: [email protected] b emlyon business school, Campus Casablanca, La Marina Tour Cristal 1, Casablanca, Morocco. Email: [email protected] d University of Monastir, ISAMM, Avenue Tahar Hadded, 5100 Mahdia, Tunisia. Email: [email protected]
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ABSTRACT
In this paper, we focus on voluntary corporate social responsibility (CSR) disclosure, and we test the extent to which the value relevance of CSR reporting is affected by the appointment
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of female directors. Using a sample of French listed companies belonging to the SBF 120
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index from 2001 to 2011, we control for differences in firm characteristics between firms with and without female board membership by using propensity score matching. Our results show that high CSR reporting is more relevant in terms of market value for firms with gender-
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diverse boards than for firms with completely male directors. This finding holds when we use the accounting-based performance measures, namely, return on assets (ROA) and return on
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equity (ROE). We also highlight that engaging an external assurance provider for CSR reporting is value relevant for firms without female directors but not value relevant for firms with female directors, suggesting a substitute relationship between gender-diverse boards and CSR assurance. Our results are stable when we consider the presence of at least two and three female directors.
Keywords: female directorship, CSR reporting, relevance, CSR assurance, market value. JEL classification: G30, M41
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ACCEPTED MANUSCRIPT
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Gender-diverse board and the relevance of voluntary CSR reporting
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ABSTRACT
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In this paper, we focus on voluntary corporate social responsibility (CSR) disclosure, and we test the extent to which the value relevance of CSR reporting is affected by the appointment
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of female directors. Using a sample of French listed companies belonging to the SBF 120 index from 2001 to 2011, we control for differences in firm characteristics between firms with
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and without female board membership by using propensity score matching. Our results show that high CSR reporting is more relevant in terms of market value for firms with genderdiverse boards than for firms with completely male directors. This finding holds when we use
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the accounting-based performance measures, namely, return on assets (ROA) and return on
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equity (ROE). We also highlight that engaging an external assurance provider for CSR reporting is value relevant for firms without female directors but not value relevant for firms with female directors, suggesting a substitute relationship between gender-diverse boards and
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female directors.
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CSR assurance. Our results are stable when we consider the presence of at least two and three
Keywords: female directorship, CSR reporting, relevance, CSR assurance, market value. JEL classification: G30, M41
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ACCEPTED MANUSCRIPT 1. Introduction Reporting on corporate social responsibility (CSR) is an important tool to improve corporate accountability for a wider range of stakeholders (Gray, Javad, Power, & Sinclair, 2001). However, a better level of CSR disclosure is not usually indicative of a better managed
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organization; some managers might make superficial and cosmetic adjustments in order to enhance the reporting quality and to fulfil stakeholders’ wishes (Gray, 2006). Bebbington,
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Larrinaga and Moneva (2008) attribute mixed results regarding the relationship between CSR
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reporting and firm performance to the differences in stakeholders’ perception of CSR information, relevant for building firms’ reputation. Disclosures may thus be a simple
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response to the information requests of stakeholders and need not actually reflect a company’s
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CSR commitment (Adams, 2002, 2004; Gray et al., 2001; O'Dwyer, Unerman, & Hession, 2005). Consequently, disclosure of CSR duties may be detrimental for the firm and the
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challenge is therefore to minimize stakeholder scepticism (Gray et al., 2001). Stakeholders
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would need to apply filters to assess the credibility of voluntary CSR information (Cho, Guidry, Hageman, & Patten, 2012). Adams (2004) considers that rigorous governance
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structures are crucial to limit the reporting-performance portrayal gap. The role of the board is to convince shareholders that their participation in CSR activities
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is in their interest (Hafsi & Turgut, 2013). Indeed, the shareholders may agree to free up cash to invest in CSR if these expenditures improve the company's reputation. The CSR perspectives are related to board involvement in CSR issues and primarily to whether women (and employees) are integrated in the decision-making process (Huse, Nielsen, & Hagen, 2009). Accordingly, the characteristics of the board, namely gender diversity, influence the CSR policy. Notably, women contribute to improving the efficiency of boards of directors because they are interested in all economic, social and societal issues (Huse et al., 2009;
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ACCEPTED MANUSCRIPT Miller & Triana, 2009; Bear, Rahman, & Post, 2010; Post, Rahman, & Rubow, 2011; Handajani, Subroto, Sutrisno, & Saraswati, 2014; Isidro & Sobral, 2015; Liao, Lin, & Zhang, 2016). Moreover, board gender diversity increases public and private disclosure to investors through better monitoring, and makes stock prices more informative (Gul, Srinidhi, & Ng,
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2011). Recently, some investigations have focused on the fundamental role of women directors in
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the disclosure of social, environmental and/or sustainability activities (Post et al., 2011; Liao,
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Luo, & Tang, 2015; Ben-Amar, Chang, & McIlkenny, 2015). Bear et al. (2010) support the moderating role of CSR in the relationship between gender diversity and corporate reputation.
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Hafsi and Turgut (2013) investigate several demographic attributes of board directors (gender, age, ethnicity, tenure, experience) and find that gender diversity leads to better social
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performance. Having a more diverse board signals the firm’s commitment to social laws and values, as well as its ability to acquiesce to stakeholders’ needs (Miller & Triana, 2009).
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Moreover, women directors may contribute to meaningfully enhancing the credibility of CSR information by limiting CSR malpractice (Boulouta, 2013) and making CSR-related reporting more relevant. For Liao et al. (2016), women directors contribute to the quality of CSR
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reporting by influencing the propensity of firms to provide assurance of their CSR reports.
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In our paper, we complement previous studies by testing whether board gender diversity, as an important part of corporate governance (Srinidhi, Gul, & Tsui, 2011), may be helpful for market participants to assess the relevance of CSR information. Following Cahan, De Villiers, Jeter, Naiker, and Van Staden (2016), we use Tobin’s q to measure the market’s assessment of a firm’s long-term expected value. Subsequently, we consider the relation between CSRrelated information disclosure and firm value as an indicator of the market participants’ perception of the CSR-related information credibility. The moderating role of female directors is then assessed by comparing the value relevance of CSR reporting in firms with and without 4
ACCEPTED MANUSCRIPT a gender diverse board. Beyond the originality of our research setting, our study is also interesting for at least three reasons. First, both CSR reporting and female directorship are endogenously determined by using an appropriate econometric specification. As argued by Ding, Ferreira, and Wongchoti (2016), failing to account for firm-specific characteristics could bias the relationship between CSR and firm value if these characteristics are
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significantly linked to the proxies for CSR. Therefore, it is important to study the factors
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influencing corporate social reporting when looking at the CSR disclosures effect. Second, we
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also consider female directorship as endogenously determined by several variables related to firm governance, ownership patterns, and other firm characteristics. The issue of endogeneity
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may arise because the appointment of female directors was voluntary during the period of our study.1 The potential impact of female directorship on value relevance of CSR reporting may
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be driven by the firms’ characteristics that affect both performance and the appointment of female directors.2 To control for omitted variables, we perform Propensity Score Matching
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between firms with at least one female director and firms without female directors. We also
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control for endogeneity biases by using a system GMM estimation model applied to the matched sample (Roodman, 2009a). This method provides consistent and efficient coefficient
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estimators, and controls for both omitted variables and endogeneity issues (Wintoki, Linck, & Netter, 2012). Finally, in order to consider the change of CSR expectations over time
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(Deegan, 2002), and given that the benefits of superior CSR on firm value are more likely to manifest in the long run (Cahan et al., 2016), our study covers a period of 11 years from 2001 to 2011, allowing us to conduct our analysis in a dynamic setting.
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In January 2011, French parliament established quotas for the gender balance of company boards. This law established that, within three years, 20% of a firm’s board members must be women, and this percentage should rise to 40 within the following 6 years. 2 As reported by Ahern and Dittmar (2012) and Adams and Ferreira (2009), the characteristics of female directors appointed after the quota law took effect may also be different from those appointed on a voluntary basis.
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ACCEPTED MANUSCRIPT To assess CSR reporting, we develop a content analysis index based on items as defined by the French Grenelle II Act in accordance with the Global Reporting Initiative (GRI) guidelines.3 Using a sample of French listed companies belonging to the SBF 120 index from 2001 to 2011, we control for differences in firm characteristics between firms with and without female board membership by using propensity score matching. Our results show that
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female directorship enhances the credibility of the information disclosed, leading CSR
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reporting to be more economically viable in terms of higher firm value. Our results
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demonstrate that the inherent benefit of appointing women directors does not lie in directly increasing the market value, but in significantly enhancing the value relevance of the
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voluntary reporting of CSR-related information. Meaningfully, we find that the marginal effect of female directorship on the value relevance of a high level of CSR reporting (using
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joint test procedure) is positive and significant. This finding holds when we use accountingbased measures of performance, namely, return on assets (ROA) and return on equity (ROE).
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We also highlight that providing CSR assurance is economically valuable for firms without
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women directors but invaluable for firms with women directors. Indeed, the demand for CSR assurance seems to act as substitute for non-gender diverse boards. Our results are stable
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when we consider the presence of at least two and three female directors.
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The French context is of interest for three reasons. First, several previous studies suggest that the informativeness of CSR disclosures may vary across countries depending on the country‐specific context (e.g., Cormier & Magnan, 2007; Cahan et al., 2016). Hence, our results add evidence about a new institutional context, given that the present literature is based specifically on Anglo-American countries (Reverte, 2009). Second, the KPMG international
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The GRI is a global sustainability leader that promotes the use of sustainability reporting as a way to enhance organizations’ sustainability practices and help them engage in sustainable development.
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ACCEPTED MANUSCRIPT survey of corporate responsibility reporting in 20084 shows that market share improvement is one of the top key drivers of the CSR reporting strategy of French companies, while ethical considerations and innovation emerged as the most common drivers for the rest of the world’s largest companies. This reinforces the doubt about managerial motivations, and supports the conjecture of stakeholder scepticism about CSR disclosure by French companies. Third,
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France is one of the few countries to have enacted legislation (i.e., the New Economic
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Regulations Act in 2001) requiring the disclosure of social and environmental information.
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Although initial compliance with the law was low (Chauvey, Giordano-Spring, Cho, & Patten, 2015), such a requirement has, as highlighted by Reverte (2009), the advantage of
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offering much richer and more extensive information on CSR duties in comparison with the period before. In this context it is worth noting that, in our investigation, we consider CSR
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reporting to be in accordance with the GRI guidelines. Disclosure by French companies in accordance with the GRI guidelines between 2001 and 2011 were made totally on a voluntary
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basis (Chelli, Durocher, & Fortin, 2016).
Our paper is structured as follows. We begin by questioning the relationship between voluntary CSR reporting and firm performance. We then highlight the role of women
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directors in moderating the relationship between CSR reporting and firm performance. After
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the description of the assessment methodology, we present and analyse the results. Lastly, we conclude and specify some research avenues.
2. CSR Reporting and Firm Performance: A Questionable Relationship The examination of motivations associated with CSR disclosure has attracted considerable attention in the management and accounting literature (Adams, 2002; Deegan, 2002; Owen, 2008). Legitimacy theory, stakeholder theory and voluntary disclosure theory are probably the 4
KPMG, T. (2008). KPMG International survey of corporate responsibility reporting 2008. KPMG, Amsterdam, The Netherlands.
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ACCEPTED MANUSCRIPT most widely used theories to explain environmental and social disclosures (Deegan, 2002; Brammer & Pavelin, 2006; Owen, 2008; Bouten, Everaert, & Roberts, 2012). CSR reporting aims to provide information that will influence stakeholders', and eventually society's, perceptions of the company and the managers (Surroca & Tribo, 2008). A challenge for firms is to manage not only their CSR reporting, but also perceptions of their CSR reporting (Cahan
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et al., 2016). Studying the French case between 2004 and 2010, Chauvey et al. (2015) find
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that differences in disclosure space and quality of CSR information are associated with
the disclosure of negative performance information.
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legitimacy-based variables such as firm size, membership in a socially exposed industry, and
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The evolution of CSR practices has led to massive publication of information in annual reports. Firms’ social and environmental communication efforts through CSR disclosures in
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annual reports represent opportunities to meet the expectations of different stakeholder groups in general and shareholders in particular (Dhaliwal, Radhakrishnan, Tsang, & Yang, 2012).
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Indeed, investors can infer useful information from nonfinancial disclosures such as those
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concerning CSR activities (Cormier & Magnan, 2007; Dhaliwal et al., 2012). Maximizing stakeholders’ awareness of a firm’s CSR practices is likely to be value-relevant for a number
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of reasons. Increasing an organization’s communication with external stakeholders about its level of CSR initiatives may contribute to building a positive image (Adams, 2002).
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Disclosure of CSR-related information helps improve the accuracy of the earnings forecasts of sell-side financial analysts (Dhaliwal et al., 2012). Firms with a superior CSR record can receive better treatment from regulators and favourable coverage from the media (Aerts & Cormier, 2009), which helps to build corporate branding and improve firm reputation (Bebbington et al., 2008). Building and maintaining a good reputation with stakeholders can confer a competitive advantage for firms by accelerating revenue and profit growth and attracting new investors, who are likely to view the firms more favourably (Gray, 2006). 8
ACCEPTED MANUSCRIPT Internally, reporting on CSR duties supports managers in strategic planning, risk management, governance, decision-making processes, and the implementation of performance measurement (Bebbington et al., 2008; Adams, 2008). Although research on CSR is growing, there is little academic evidence regarding the value of CSR reporting for stakeholders in general and shareholders in particular (Dhaliwal et al.,
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2012). Both individual and institutional investors are becoming more interested in CSR
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disclosures when formulating their investment policies. Meanwhile, there are potential capital
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market benefits for firms engaging in CSR initiatives. The first stream of research on this theme looked at the association between the level of environmental and social disclosure and
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the cost of equity capital. However, the findings are mixed. For example, Richardson and Welker (2001) observe a positive relationship between social disclosures and the cost of
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equity capital. Aerts et al. (2008) have shown that improved environmental information disclosed by European and North American firms is associated with more precise analysts’
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earnings forecasts, which might reduce the cost of equity capital. Cormier and Magnan (2007)
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examine country‐specific context and find that environmental reporting reduces German firms' cost of equity capital, as captured by the net income/stock market price relation, yet it
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has a neutral effect for French and Canadian firms. These differences can be explained by the German companies’ greater involvement with stakeholders (Adams, 2002). More recently,
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Plumlee, Brown, Hayes, & Marshall (2015) give evidence of a positive association between voluntary environmental disclosure quality and two components of firm value: cost of equity capital and expected future cash flows. Despite the continued effort, empirical studies have also provided mixed results on the relationship between the level of CSR disclosures and market-based performance and have largely focused on environmental disclosures (Cahan et al., 2016). Here is a partial summary of previous empirical results. Belkaoui (1976) observed a positive effect on stock prices of 9
ACCEPTED MANUSCRIPT firms that communicated environmental information compared with firms that published no such information. Klassen and McLaughlin (1996) analysed market reactions to the announcement of positive environmental events such as environmental awards and negative environmental events such as oil spills. They identified a positive and statistically significant association between a firm’s stock market return and the announcement of a third-party
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environmental award. Murray, Sinclair, Power, and Gray (2006) found no association
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between the level of social and environment disclosure and the share price return, suggesting
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that there is no clear reason that shareholders have interest in the social and/or environmental aspects of their investment. Considering accounting-based measures, De Villiers and Van
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Staden (2011) found that ROA is negatively related to environmental disclosures, while Qiu, Shaukat and Tharyan (2016) found no significant relationship between CSR disclosure and
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accounting-based performance (ROA and ROE).
Obviously, the lack of sufficient theoretical support for models that explain corporate
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social responsibility activity (Roberts, 1992; Gray et al., 2001) and misspecification problems
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due to the neglect of endogenous properties of CSR (Adams, Hill, & Roberts, 1998; Jo & Harjoto, 2012; Ding et al., 2016) led to mixed empirical results. Gray (2006) and Bebbington
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et al. (2008) attribute the inconclusiveness of empirical results to the trivial character of the vast majority of current CSR reporting practices and the differences in stakeholders’
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perception of CSR information, respectively.
3. The Moderating Role of Female Directors Public disclosure may be used to reinforce the community’s perceptions of the organization’s responsiveness to specific social or environmental issues, or alternatively to divert attention from adverse situations (Wilmshurst & Frost, 2000; Deegan, 2002). Meanwhile, when reporting on their CSR activities, one of the greatest challenges for the firm is to reduce stakeholders’ scepticism and to assess the credibility of voluntary CSR 10
ACCEPTED MANUSCRIPT information (Gray et al., 2006; Cho et al., 2012). Indeed, the voluntary nature of CSR reports has led to irregularities in reporting formats and treatment, inclusion of diverse contextual elements, and difficulties in implementing robust measures to assess the quality and accuracy of the reports’ content (Sethi, Martell, & Demir, 2015). The board of directors plays an important role in the implementation of corporate
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strategy, including CSR involvement (Huse et al. 2009). Specifically, a well-governed board
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of directors should ensure reporting effectiveness and reporting quality (Liao et al., 2016).
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Gender diversity, and specifically the presence of women directors, is synonymous with quality during discussions, which improves the chances that different perspectives and
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ideas will be considered in the decision-making process (Huse et al., 2009; Post et al., 2011). In particular, women influence the social and societal achievement of the organization (Bear
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et al., 2010; Post et al., 2011). Zhang, Zhu, and Ding (2013) assert that women directors would significantly increase the number of charities and social actions in the community and
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would allow companies to have a better image with regard to stakeholders. Unlike men
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(who are more interested in economic matters), women are always deeply involved in the CSR steps. They are more ethical (Arun, Almahrog, & Aribi, 2 0 1 5 ) , more cooperative, and
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they dedicate more attention to social responsibility and philanthropy (Huse et al., 2009; Bear
2016).
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et al., 2010; Hafsi & Turgut, 2013; Handajani et al., 2014; Isidro & Sobral, 2015; Liao et al.,
Although the literature on female representation on boards of directors is abundant on the international level (Terjesen, Couto, & Francisco, 2016), few studies have explored the role of female directors regarding CSR and CSR reporting (Rao & Tilt, 2016). Women’s presence on the board of directors is therefore important because it affects the extent of information disclosure (Gul et al., 2011). The nature of the relationship between the presence of women on the board of directors and CSR reporting divides authors. Some studies find no positive 11
ACCEPTED MANUSCRIPT relationship between the presence of female directors and social and/or environmental reporting (Giannarakis, 2014; Prado-Lorenzo & Garcia-Sanchez, 2010). For Post et al. (2011), the positive link between female directorship and CSR reporting practices is conditional on the presence of three or more women on the board. Liao et al. (2015) find a significant positive association between the percentage of female directors and the propensity to disclose
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greenhouse gas emission information. Handajani et al. (2014) investigate the Indonesian
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context and find a negative and significant relationship between board gender diversity and
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CSR disclosure in accordance with the GRI guidelines. They attribute their finding to the low number of female directors without adequate expertise or experience. Finally, Ben-Amar et al.
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(2015) study the impact of board diversity on voluntary disclosure of information on climate change-related risks by Canadian firms. Their results show that the more female directors
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there are, the higher the probability of having more information on climate change-related risks in annual reports.
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Bear et al. (2010) consider CSR as moderating the relationship between gender diversity
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and corporate reputation. They find that the higher the number of women on boards of directors, the more the company cares about the environmental consequences of its
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activities, which improves its reputation. Boulouta (2013) studied the relationship between board gender diversity and corporate social practices. She examined the impact of women
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directors on social performance. Using a sample of 126 firms from companies of the S&P 500 over the period 1999-2003, she found that the diversity of the board limits CSR malpractices. This result is explained by the fact that social practices considered as very bad receive special attention from women directors. Through a more diverse board, firms strongly signal their commitment to upholding social laws and values, and their desire to emulate stakeholders and market participants, which influences firm reputation (Miller & Triana, 2009). Finally, Isidro and Sobral (2015) find that the indirect effect of female directors on firm 12
ACCEPTED MANUSCRIPT performance partly comes from stronger compliance with ethical and social principles adopted by the firm. Importantly, Huse et al. (2009) state that board effectiveness toward CSR involvement is enhanced when women and employees are appointed on the board. These arguments, if substantiated, would lead us to expect that female directorship enhances the value relevance of CSR information. Our paper complements previous studies
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by examining the moderating role of women directors in the relationship between CSR
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reporting and firm performance.
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Hypothesis H1: CSR reporting is more relevant for firms with female directors than for firms without female directors.
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Firms can also provide assurance of their reports through independent third parties.
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According to Simnett et al. (2009), firms looking for better credibility of their CSR reporting are more prone to demand assurance of their CSR reports. However, such credibility is not always fully restored (Adams, 2004) and the decision to assure is generally made on a cost-
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benefit basis (Cohen & Simnett, 2014). Simnett et al. (2009) find that the quality of assurance reports is higher when supplied by Big-4 auditors, who are more effective at monitoring than non-Big-4 auditors. Ultimately, CSR assurance is used by investors improving firm reputation
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and making it easier to acquire resources (O’Dwyer, Owen, & Unerman, 2011). Nevertheless,
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Cho, Michelon, Patten and Roberts (2014) find no association between assurance and market value for US firms issuing standalone CSR reports. For Wong and Millington (2014), stakeholders clearly prefer specialist assurors rather than financial auditors, choosing independence at the expense of competence in CSR auditing procedures. Recently, Liao et al. (2016) investigate the relationship between board characteristics and the demand for CSR assurance and find a positive association between the propensity to undertake voluntary CSR assurance and the percentage of women on the board. Our approach is somewhat different from the one taken by Liao et al. (2016), in that we focus on the 13
ACCEPTED MANUSCRIPT substitutability between gender diversity and CSR assurance as two mechanisms that may enhance the quality of CSR reporting. This substitutability is assessed by determining the value relevance in terms of market value of CSR assurance depending on whether there are women on the board or not. Conditional on accepting hypothesis 1, providing CSR assurance could be considered by
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market participants as less relevant for firms with gender-diverse boards than for firms with
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completely male boards.
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Hypothesis H2: Providing CSR assurance is less value relevant for firms with women directors
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than for firms without women directors.
3. Data and Methodology
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3.1. Sample and Data
The basic sample contains the French listed companies in the SBF 120 from 2001 to
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2011. Financial, insurance and real estate firms were excluded because they have special and
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specific regulations. After this filtering, we retained a sample of 91 companies covered over an 11-year period, for a total of 940 unba l an c ed firm-year observations. Corporate
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governance and ownership variables were collected from firms’ annual reports. Financial and accounting data were obtained from the ThomsonOne database. For the construction of
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our CSR disclosure index, we used data hand-collected from firms’ voluntary CSR information provided within the firms’ annual report or within a stand-alone report (frequently labeled a corporate sustainability report). 5 As reference, we used the grid of the Grenelle II Act, entered into effect in April 2012, in accordance with the GRI guidelines (see Appendix A). Consequently, we collected data on a total of 42 items related to social (19 items), environmental (14 items) and sustainability (9 items) information. Disclosure by companies
5
The methodology used in the construction of the CSR disclosure index is discussed in sub-section 3.2.2.
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ACCEPTED MANUSCRIPT on these items between 2001 and 2011 was made on a totally voluntary basis (Chelli et al., 2016). Our sample period starts in 2001, the year of the implementation of the NER mandatory regulations. Article 116 of the NER (New Economic Regulations) Act establishes that listed French companies in a regulated market must submit data on the environmental and social
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consequences of their activities in their management report (Chelli, Durocher, & Richard,
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2014). Through this regulation, France became one of the few countries to require CSR
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reporting. The advantage of analysing the period following the first compulsory regulation is that it provides more extensive and richer information than in the previous period, in which
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information on CSR is generally very scarce and anecdotal (Reverte, 2009). However, the NER Act tends to be limited in scope. Chauvey et al. (2015) study CSR disclosure by French
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firms from 2004 to 2010. Although they find significant increases in the space, they argue that the informational quality of the disclosures remains quite low. The major limitations of the
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NER Act are: (1) the absence of sanctions for non-compliance, (2) the lack of controls, (3) the
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absence of a precise definition of the perimeter concerned (holding or group; global or national) and (4) the silence on the sustainability component. These regulatory limits tarnish
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the credibility of CSR information. The NER Act has been criticized because of the small proportion of companies that obey the law and the inherent limitations of current practices in
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terms of relevance, reliability and comparability of the disclosed information.6 Our period ends in 2011, prior to the Grenelle II Act, which came into effect in 2012. Grenelle II extends the non-financial reporting system introduced by the NER Act and requires that listed companies mention key indicators of non-financial performance relating to social, environmental and sustainability activities in their report. Article 225 of the Grenelle II Act requires French firms to report and to question the social and environmental impacts of 6
See ARESE’s (a leading French social and environmental rating agency) report on NER, accessible at the ARESE website: http://www.arese.org
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ACCEPTED MANUSCRIPT their activities in their 2012 annual report and to describe their societal commitments for sustainable development duties. Prior to 2012, reporting on CSR information in accordance with the GRI guidelines was made on a voluntary basis; no other responsibility reporting practice was used by listed French firms during the years 2001–2011 (Chelli et al., 2016). This study focuses on purely voluntary disclosure of CSR information. Given that value
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relevance depends on the market participants’ perceptions and managers are concerned about
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that valuation, mandatory CSR reporting reduces a firm's expected gain in market share from
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disclosing impacts (Kalkanci, Ang, & Plambeck, 2016).7 Statistically, the lack of variation over time in the mandatory period may be problematic if we want to investigate any
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phenomenon in a dynamic setting.8 The voluntary character of CSR reporting is an important line of research leading scholars to question why companies disclose such information
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(Bouten et al., 2012). There are several benefits of voluntary CSR reporting: (1) managing legitimacy (e.g., Patten, 1991; Woodward, Edwards, & Birkin, 2001; Campbell, 2000;
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Deegan, 2002); (2) enhancing reputation (e.g., Mahoney, Thorne, Cecil, & LaGore, 2013);
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and (3) sustaining corporate competiveness (e.g., Lo & Sheu, 2007; Prado-Lorenzo & GarciaSanchez, 2010). A direct effect for firms initiating voluntary CSR disclosure is that they can
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attract dedicated institutional investors and raise more equity capital (Dhaliwal, Li, Tsang, & Yang, 2011). An indirect effect is it may alter investors’ perceptions of the firm value because
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the benefits of CSR engagements on firm value are more likely to manifest in the long-run (Cahan et al., 2016). Notwithstanding, managers have incentives to act opportunistically, making superficial and cosmetic adjustments in order to enhance the reporting quality and to
7
This also occurs when considering accounting-based measures of performance. Meng, Zeng, and Tam (2013) investigate the relationship between economic performance, as measured by return on equity, and the environmental information disclosure in voluntary and mandatory periods. They find that in voluntary periods, economic performance is positively related to the disclosure level of environmental information. No significance is found in the mandatory period. 8
Elsayed and Paton (2005) highlight that when a lack of variation over time arises, we are not able to control for firm heterogeneity using the random effects estimator and are not able to estimate fixed effects models.
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ACCEPTED MANUSCRIPT fulfil stakeholders’ wishes (Gray, 2006). In this sense, the voluntary disclosure of CSR information may be used to divert attention from adverse situations (Wilmshurst & Frost, 2000; Deegan, 2002).
3.2.Variables
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3.2.1. Dependent Variables
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For our investigation, we use Tobin’s q as a measure of firm performance. Many reasons can be advanced for the use of this measure. First, Tobin’s q is a market-based measure of
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firm performance that reflects investors’ expectations and incorporates potential growth
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opportunities and future operating performance (McConnell & Servaes, 1990; Claessens, Djankov, Fan, & Lang, 2002; King & Lenox, 2002). Second, Tobin’s q is considered an
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assessment of reputational effects (Surroca, Tribo, & Waddock, 2010) and is therefore more appropriate than accounting-based measures for apprehending the financial benefits of CSR
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(Hillman & Keim, 2001). Third, the advantage in using market-based performance is that it is
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not affected by accounting conventions (Chakravarthy, 1986). Tobin’s q is calculated as a firm’s market capitalization plus book value of debt, divided by book value of total assets.
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3.2.2. Endogenous Variable: CSR-Related Reporting
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To measure the level of CSR-related reporting, we use the unweighted disclosure index methodology proposed by Botosan (1997). For item identification, we chose the grid of the Grenelle II as reference for our study given its accuracy, inherent simplicity and its compliance with international standards such as the (GRI) guidelines.9 In this grid, which comprises 42 items, we split CSR disclosures into three categories: social (19 items), environmental (14 items) and sustainability reporting (9 items). Appendix A shows the
9
Another advantage of this compliance is that GRI is a multi-stakeholder organization, improving corporate accountability (Adams, 2004).
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ACCEPTED MANUSCRIPT complete list of items. Social information lists all practices in employment and decent work. Environmental information includes the environmental policy and actions for the protection of biodiversity and the measures of adaptation to climate change. Sustainability refers to the territorial impact of the firm’s operations, relations with suppliers, the loyalty of practices and actions in favour of human rights.
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For each firm, we first develop a disclosure score based on information contained in annual
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reports or in a stand-alone sustainability (CSR) type reports. Bouten et al. (2012) list several
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benefits associated with the use of annual reports, such as availability, regularity, and their consideration by companies and stakeholders as an important tool to communicate on CSR
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duties. Following Bansal (2005) and Khan, Muttakin and Siddiqui (2013), we consider items as dichotomous according to whether the information is clearly identified in the
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annual report or not. The use of dichotomous items is simple and considers all the information to be of equal importance even if its content may vary considerably (Bansal,
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2005). Indeed, weighting items could not reflect the preferences of the different annual
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report users. The level of disclosure is the sum of the scores for the three categories of CSR information (social, environmental and sustainability). For the measure of CSR
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reporting, we compute an index as the ratio of the assigned total score to the maximum score equal to the sum of relevant items presented in Appendix A.10
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In sum, the CSR disclosure index for the jth firm-year (CSR_REPj) is measured as follows: ∑𝑛𝑗 𝑋 CSR_REP𝑗 = 𝑡=1 𝑖𝑗⁄𝑛𝑗
Where:
10
The reliability of our CSR reporting index was assessed with Cronbach’s alpha. The Cronbach alpha coefficient computed for different items is 0.899. This value can be considered as acceptable. Khan et al. (2013) compute a coefficient alpha of 0.701 for their CSR reporting index containing 20 items.
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ACCEPTED MANUSCRIPT nj = number of items expected for the jth firm-year. Xij = 1 if the ith item is disclosed by the jth firm-year, and 0 if the ith item is not disclosed. For example, when scrutinising the 2010 annual report of Danone, a world leading food company, we find that the firm in question voluntarily and explicitly discusses CSR duties
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corresponding to 31 items of a total of 42 items as defined by the French Grenelle II Act. The sum of the scores (nj) for the three categories of CSR information (social, environmental and
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sustainability) is therefore 31. The CSR disclosure index (CSR_REP) is the ratio of the
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assigned total score (nj = 31) to the maximum score of relevant items (Xij = 42), a ratio of
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73.82%. Consequently, we consider that Danone is voluntarily disclosing more on its CSR activities in 2010 than in a firm-year displaying a lower CSR disclosure index and less than in
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a firm-year displaying a higher CSR disclosure index.
To measure the level of CSR disclosure, Bouten et al. (2012) highlight that different
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measurement approaches exist: (1) the extent of disclosure (e.g., number of words, sentences,
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pages or proportion of pages), (2) the disclosure index based on the breadth (e.g., number of items a company reports on), and (3) the disclosure index based on the breadth and depth by
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considering both the number of items and the specificity of the disclosure (i.e., information type, which can be qualitative and quantitative). The disclosure index used in our study can be
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considered to be based on the breadth and depth of CSR disclosures, because items as defined by the Grenelle II Act are related to specific qualitative and quantitative information (see Appendix A). This category of index is used in several related studies (e.g., Alnajjar, 2000; Al-Tuwaijri, Christensen, & Hughes, 2004; Aerts et al., 2008; Aerts & Cormier, 2009). 3.2.3. Moderating Variable: Female Directorship To consider the moderating effect of female directorship on the relationship between the level of CSR reporting and market-based performance, we first limit our sample to firms with 19
ACCEPTED MANUSCRIPT at least one female director (FEM_DIRB1). For robustness checks, we also consider firms with at least two female directors (FEM_DIRB2) and firms with at least three female directors (FEM_DIRB3). 3.2.4. Control Variables
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Several corporate governance variables for the determination of both CSR reporting and firm performance are considered in our study. We first identify firms that provide assurance
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of their reports (CSR assurance) through independent third parties. Firms looking for better
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credibility of their CSR reporting are more prone to demand assurance of their CSR reports (Simnett et al., 2009). We also examine the effect of the presence of a CSR committee as a
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prevailing factor in a firm’s propensity to disclose information on CSR activities (Cowen,
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Ferreri, & Parker, 1987). For Giannarakis (2014), board size positively impacts CSR reporting such that a larger board contributes to a wider exchange and brings diverse and vital resources
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promoting CSR activities. Haniffa and Cooke (2005) argue that firms with more independent
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boards are more likely to emphasize societal interests. Accordingly, Khan et al. (2013) find a positive and significant impact of board independence on CSR reporting. The number of board meetings is a proxy of diligence and an indicator of directors’ preoccupations with
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things such as CSR duties (Gul et al., 2011; Giannarakis, 2014). CEO/chair role duality could
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influence the effectiveness of supervision of the board, leading to negligence of additional involvement in social activities and hence by extension of the transparency level concerning these activities (Bear et al., 2010; Khan et al., 2013; Giannarakis, 2014). Lewis, Walls, and Dowell (2014) provide evidence that high-tenured CEOs are less likely than newly appointed CEOs to acquiesce to stakeholder pressure regarding voluntary environmental disclosure. With regard to ownership structure, we consider three control variables: family ownership, institutional and employee share ownership. Family firms consider social actions very important because they seek to be legitimized by increasing their visibility in order to improve 20
ACCEPTED MANUSCRIPT their reputation with customers, suppliers and society (Bingham, Dyer, Smith, & Adams, 2011). Institutional investors increase the firm’s propensity to engage in CSR activities (Jo & Harjoto, 2012). Dhaliwal et al. (2011) establish that voluntary CSR disclosure attracts dedicated institutional investors that have long investment horizons and that play monitoring and governance roles. Employees are more dependent on the long-term survival of the firm
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than shareholders (Huse et al., 2009). Their involvement in the capital is linked to a growing
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interest in CSR activities and counterbalances the shareholder supremacy orientation
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(Poulain-Rehm & Lepers, 2013).
We also consider other consistent control variables. Roberts (1992) states that managers
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are more likely to respond to creditors’ expectations regarding their role in CSR activities. Accordingly, Bouten et al. (2012) find a positive relationship between leverage and the
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disclosure level of social and environmental information. We also control for foreign assets to examine the relationship between the degree of internationalization and, simultaneously, CSR
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reporting and firm performance. Roberts (1992) argues that firms with low systematic risk, as
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measured by beta, are economically stable and invest more in socially responsible activities. King and Lenox (2002) and Al-Tuwaijri et al. (2004) stress the need to control for R&D in
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any study on the relationship between CSR and financial performance. Several studies have shown that firm size is the most significant explanatory variable of CSR reporting. While
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large companies may disclose more CSR information for reasons related to reputation and economies of scale, smaller firms might opt to disclose CSR information through less formal channels than the annual report (Cowen et al., 1987). Almost unanimously, previous studies dealing with CSR reporting control for industry to take stakeholders’ diverse interests into account. To code the industry in which each firm operates, we use the Industry Classification Benchmark (ICB) developed in January 2005 by Dow Jones and FTSE and used by Euronext since 2006. Finally, to comply with the French regulatory context, we control for the law 21
ACCEPTED MANUSCRIPT known as Grenelle I adopted on July 23, 2009. Article 53 of the Grenelle I law stipulates that: “Quality of information on how companies take into account the social and environmental consequences of their activity and the access to information are essential conditions for good corporate governance”. To the extent that CSR reporting is legally embedded in corporate governance, the Grenelle I Act can be perceived as a substitute for governance mechanisms
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that are supposed to affect CSR reporting.
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Table 1 below summarizes the variables used in our model, and their measurement.
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--------------------------------------------Please insert Table 1 here ---------------------------------------------
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3.3.Estimation Method
Based on the matched sample, we estimate the relationship between performance and
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CSR reporting conditional on their respective endogeneity. The potential impact of CSRrelated reporting and female directorship may be driven by firms’ characteristics that affect
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their performance. This is the archetypical endogeneity effect because of reverse causalities or
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omitted variables. The standard approach to deal with endogeneity is the use of the instrumental variables regression method (Larcker & Rusticus, 2010). The idea is to find an
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instrument that is simultaneously correlated with its corresponding endogenous variables (CSR reporting and female directorship) and uncorrelated with firm performance (dependent
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variable). When the study period is short relative to the number of individuals, consistent and efficient coefficients can be obtained by using the lagged levels of the endogenous variables as instruments (Roodman, 2009a). The results of the Wooldridge (2002) test strongly reject the null hypothesis and indicate the presence of serial correlations of both endogenous variables (CSR reporting and female directorship) and the dependent variable (Tobin’s q). In a GMM framework, the treatment of multiple endogenous variables of interest (CSR reporting and female directorship in our case) is less problematic than in other estimation 22
ACCEPTED MANUSCRIPT methods (Roodman, 2009b). Specifically, we estimate the following equation capturing the impact of the level of CSR reporting on the market-based value as measured by Tobin’s q (TQ) and by controlling for the auto-correlated structure of the variable TQ.
TQit = β0 + β1LagTQit + β2CSR_REPit + β3FEM_DIRB1it + β4CSR_ASSit + β5CSR_COMit +
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β6BOARD_SIZEit + β7BOARD_INDit + β8BOARD_MEETit + β9DUALit + β10TENUREit + β16RISK + β17SIZEit + β18GRE1t + β19INDUSTRY + εit
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β11FAM_OWNit + β12INST_OWNit + β13EMPL_OWNit + β14LEVit + β15FOR_ASSit +
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Where εit is the error term. TQ is the stock market capitalization plus book value of liabilities
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as a ratio of total assets. CSR_REP is the aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). FEM_DIRB1 is a
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binary variable coded 1 if the company has at least one female director and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee
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and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides
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assurance of their CSR reports through independent third parties and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND
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is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings.
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DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the market risk as measured by beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is 23
ACCEPTED MANUSCRIPT a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. To address the consistency of the GMM estimator, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test
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of over-identifying restrictions which tests the overall validity of instruments.
4. Results
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4.1. Descriptive Statistics
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Table 2 presents descriptive statistics and analysis of the dependent, endogenous,
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governance, ownership and control variables for the entire sample. The average of Tobin’s q (TQ) is 1.135. This suggests that the market value of our sample firm-years is on average
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higher than the amount invested. For our period analysis, French listed companies report 44.27% of the corresponding items as defined by the Grenelle II Act on social, environmental
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sustainability reporting (52.62%) than in social (45.31%) and
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engage in
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and sustainability activities. Results in Table 2 show that the sampled firms are prone to
environmental reporting (39.71%).
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Table 2 also provides detailed information about the distribution of female directorship. The mean percentage of female directors (FEM_DIRP) is 8.85%, which is higher than those
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reported by Nekhili and Gatfaoui (2013) for French listed companies (6.27% in 2000 and 7.20% in 2004). Furthermore, the mean number of female directors (FEM_DIRN) equals 0.960 and is very close to the median number of 1. The number of female directors varies from a minimum of 0 to a maximum of 7. Even though the number of female board members is increasing in France, the changes are small and incremental. While firm-years with at least one female director (FEM_DIRB1) represent 62.26% (589 cases out of 940 observations), firms with two (FEM_DIRB2) and three female directors (FEM_DIRB3) represent 26.27% (263 cases) and 12.88% (129 cases), respectively. 24
ACCEPTED MANUSCRIPT Despite the promulgation of the NER law in 2001 encouraging the voluntary disclosure of more social and societal information, few companies have found it useful to create CSR committees (27.84%) to implement their social and environmental policies. Also, only 18.76% of our sampled firm-years provide assurance of their CSR reports (CSR_ASS) through independent third parties, most often Big 4 accounting firms.11 This low demand may
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be due to French firms not perceiving that the benefits of CSR assurance exceed the costs.
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The average number of directors (BOARD_SIZE) is 11.613 members. The mean of board
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independence (BOARD_IND) is 42.74%. In our sample firms, the average number of board meetings (BOARD_MEET) is slightly more than 7 per year. Moreover, 54.10% of our sample
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firm-years have duality governance structures (DUAL) and the average tenure of the CEO (TENURE) is about 9 years. Family (FAM_OWN), institutional (INST_OWN) and employee
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(EMPL_OWN) ownerships represent on average 26.64%, 15.45% and 2.49%, respectively. The average level of corporate debt (LEV) is 26.27%. Foreign assets (FOR_ASS) represent
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on average 38.81% of total assets. The average market risk (RISK) as measured by beta is less
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than one (0.885), indicating that the equity price of French firms tends to be less volatile than the stock market. Sampled firm-years invest on average 1.98% of their sales in research and
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development (R&D). Finally, average firm size (SIZE) is €16.717 billion. --------------------------------------------Please insert Table 2 here ---------------------------------------------
4.2. Univariate Analysis Table 3 presents the results of the mean difference tests between panels with and without female directors for the entire sample. No significant difference is observed regarding Tobin’s q (TQ) between firm-years with and without female directors. This result is consistent with Srinidhi et al. (2011). We also observe that firm-years with gender-diverse boards display a 11
Among our sampled firms, only four firms engaged a non-accounting assurance provider for their CSR reporting, three through Vigeo and one through Bureau Veritas.
25
ACCEPTED MANUSCRIPT slightly but significantly lower ROA than firm-years without female directors. No significant difference is observed for ROE between the two sub-samples. Firm-years with at least one woman on their board of directors publish more CSR information than firm-years without a woman on the board. This result is confirmed by Ben-Amar et al. (2015) in the Canadian context, for one aspect of CSR activities, namely that of environmental reporting.
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Consistently, we find that firm-years with at least one woman on the board are more likely to
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implement a CSR committee (CSR_COM) than firm-years without women on the board.
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They are also more prone to engage an external assurance provider for their CSR reporting (CSR_ASS). This result is not consistent with the finding of Liao et al. (2016) in the Chinese
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context. The authors investigate the critical mass theory of female directors and find that the presence of one or two women on the board has no significant influence on the propensity to
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provide CSR assurance by external third parties. Liao et al conclude that the presence of three or more female directors is required to influence the decision of voluntary CSR assurance.
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Table 3 indicates that boards with at least one woman director are larger. This result is
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consistent with most previous studies (e.g. Adams & Ferreira, 2009). We also find that less independent boards are more likely to have female directors, which implies that female
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directorship may act as a substitute for a less effective board. Their presence enhances the board decision-making process in that they exhibit a different perspective and demand
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different information than men do (Srinidhi et al., 2011). Table 3 also indicates that boards with at least one female director hold more frequent meetings (BOARD_MEET) and are more prone to allow the CEO to serve as board chairperson (DUAL). This result is consistent with Adams and Ferreira (2009). Moreover, in line with Srinidhi et al. (2011), CEO power, as measured by CEO duality and CEO tenure, is higher in firm-years with women directors. Regarding ownership structure, firm-years with at least one woman director have more institutional investors that hold capital. Surprisingly, family shareholders are less prevalent in 26
ACCEPTED MANUSCRIPT firm-years with at least one female director than in firm-years without female directors. This result suggests that the most recent appointments in French companies are more independent, reducing the relative weight of family connections. This phenomenon is also observed by Bianco, Ciavarella, and Signoretti (2015) in the Italian context. We finally find that employee ownership is slightly more important in firms without female directors. However, it is worth
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noting that the proportion of employee ownership is very small in the two panels.
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With respect to other control variables, we find that firm-years with female directors tend
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to be less internationalized, as measured by the ratio of foreign assets to total assets, and are less R&D intensive than firms without female directors. The result observed for market risk
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(RISK) implies that operating in riskier environments gives firms more incentive to appoint
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women to their board. Finally, we find that firm-years with at least one female director have greater total assets.
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--------------------------------------------Please insert Table 3 here ---------------------------------------------
4.3. Multivariate Analysis
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4.3.1. Propensity Score Matching
Disproportional samples and notably substantial differences between firm-years with
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women directors and without women directors (Table 3) justify the use of the propensity score matching approach. A direct comparison of the performance between firms with women directors and firms without women directors is less informative because performance might be explained by dissimilarities in characteristics between the two groups. In an attempt to control for differences in firm characteristics between firms with and without women board members, we use the propensity score matching of Rosenbaum and Rubin (1983). This methodology provides a widely used framework to capture the effects of female directorship and firm 27
ACCEPTED MANUSCRIPT characteristics (governance, ownership and other control variables as defined in Table 1) on the relationship between CSR reporting and firm performance, and involves two stages. To obtain a matched sample, we first estimate a logit model that predicts whether the company appoints at least one female director. The propensity score is the probability of appointing a female director given a vector of firm characteristics. Each firm with no women on the board
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is then matched to a firm with at least one female director that has the closest propensity score.
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The matching allows us to construct two groups of firms that are similar in observable
SC
characteristics but that show differences in board gender diversity. Different matching criteria were used to prevent undesirable matches. Using a caliper distance of 3%, we matched
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74.07% of firms without female directors (260 comparison cases) that are statistically indistinguishable along a number of dimensions from firms with at least one female director
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(260 treatment cases).
Table 4 shows that the post-match pairwise differences of the exogenous and control
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variables decrease in magnitude with respect to the pre-match case and become statistically
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non-significant. We also find no significant difference for the endogenous variable, CSR reporting, nor for each of its components between treatment and control groups. So,
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differences in CSR reporting and each of its components observed for the entire sample in Table 3 between the two categories of firms may not be inherently due to the presence of
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women on the board but probably due to the overlaps between the appointment of women on boards and the others firms’ characteristics. --------------------------------------------Please insert Table 4 here --------------------------------------------Results of Table 5 for the matched sample suggest that no correlation exceeds the value of 0.5. The Variance Inflation Factors (VIFs) do not exceed the thorough limit of 3. Hence, there are no strong multicollinearity problems that could influence the estimation results. 28
ACCEPTED MANUSCRIPT Being non-correlated with the dependent variable is a necessary condition for the validity of the instrument. The correlation between CSR reporting (CSR_REP) and its one-year lagged value (Lag CSR_REP) is equal to 0.934 (Table 5). CSR reporting is related primarily to past social responsibility activities (Roberts, 1992). The correlation between Lag CSR_REP and the performance variable (Tobin’s q) is equal to –0.094.12 Therefore, we chose to use the two-
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step General Methods of Moments (GMM) estimation approach following Blundell and Bond
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(1998). This method is also referred to as “system GMM”.
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--------------------------------------------Please insert Table 5 here ---------------------------------------------
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4.3.2. Preliminary Results on the relation between female directorship and Tobin’s q Table 6 provides the results of the system GMM regression of the effect of CSR reporting
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(CSR_REP) on market-based performance (TQ) by considering three different measures of board gender diversity. Model 1 considers the percentage of female directors (FEM_DIRP),
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while Model 2 considers the number of female directors (FEM_DIRN) and Model 3 the
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presence (or lack thereof) of at least one female director (FEM_DIRB1). In Model 1, we also follow Nguyen et al. (2016) to check empirically for possible non-linearity and, similar to
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their results, we find no significance for the quadratic (squared) term of female directorship (FEM_DIRP_SQUARED). Nevertheless, a negative and significant relationship is found
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between each measure considered for gender diversity and Tobin’s q. These results are in line with several previous studies (e.g., Adams & Ferreira, 2010; Haslam, Ryan, Kulich, Trojanowski, & Atkins, 2010; Ahern & Dittmar, 2012),13 suggesting that the interest in having women on the board is not related to how market participants evaluate their
12
This result is also valid when we consider accounting-based measures of performance. For the female directorship as endogenous variable, we also find a high correlation with its lagged value (0.843) and low significance with each measure of the dependent variable. 13 As highlighted by Nguyen et al. (2015), mixed results are undeniably due to differences in research contexts and econometric techniques used.
29
ACCEPTED MANUSCRIPT appointment on the board but is merely related to the extent to which they may affect the corporate strategy, including CSR involvement, and how much they may influence the social and societal achievement of the organization (Bear et al., 2010; Post et al., 2011; Liao et al., 2016). The results for the impact of CSR reporting on performance do not vary depending on
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the measure used for board gender diversity.
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-------------------------------------------------Please insert Table 6 --------------------------------------------------
related to Tobin’s q.
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For the three models, the level of CSR reporting is stable and negatively and significantly For further investigation, we run our models by considering each
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component of CSR reporting in accordance with the Grenelle 2 Act (see Appendix A), such as
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social (SOC_REP), environmental (ENV_REP) and sustainability reporting (SUS_REP). Our findings for the matched sample are mixed, relating fundamentally to the type of CSR reporting used. Results of Table 7 show a positive relationship between the levels of social and
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environmental reporting and market-based performance (Tobin’s q).14 This result is consistent with the finding of Cahan et al. (2016). Reporting less information on social and environmental issues may result from poor social and environmental performance, which
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lowers the value of intangible assets, as captured by Tobin’s q (Konar & Cohen, 2001).
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However, when dealing with sustainability reporting (SUS_REP), we find a negative and significant relationship with Tobin’s q. One explanation is that sustainability issues as defined by the Grenelle II Act may be subject to more ambiguous terms than social or environmental issues, leading to misinterpretation by shareholders. Some ethical items of sustainability reporting like “Honesty in practices” and “Measures in favour of human rights” (Appendix A) may be considered as less related to the CSR demands of primary stakeholders and are 14
In Table 7, we consider only female directorship as a binary variable. In an untabulated analysis, we also consider the two other measures of female directorship used in Table 6. Results are unchanged.
30
ACCEPTED MANUSCRIPT performed by managers largely to improve their image as being good global citizens (Adams, 2002). This result raises the question of managerial motivations and supports the conjecture of stakeholder scepticism about this type of information. Consequently, if sustainability issues are considered as less related to primary stakeholders, raising corporate funds for these issues may not create value for shareholders (Hillman & Keim, 2001).
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-------------------------------------------------Please insert Table 7 --------------------------------------------------
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4.3.3. Test of hypothesis H1
Here, we test the extent to which a higher level of CSR reporting is more relevant for firms
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with gender-diverse boards than for firms with completely male boards. To do this, we derive
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a dummy variable to represent a high CSR reporting level: firms with a level of CSR reporting greater than the median (47.62% in Table 2) are coded 1, and 0 otherwise.
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To determine how a high level of CSR reporting (HCSR_REP) and female directorship
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(FEM_DIRB1) conjunctively affect the market value, we perform a joint test technique to estimate the following model (Model 2):
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Tobin’s q = f {HCSR_REP, FEM_DIRB1, FEM_DIRB1* HCSR_REP, control variables}
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The results of Model 2 in Table 8 point out that the impact of the interaction term (FEM_DIRB1*HCSR_REP) on Tobin’s q is positive (β = 0.968) and significant at the 0.01 level (t = 15.32). Given that we aim to measure the marginal effect of female directorship on the value relevance of high CSR reporting, the prominent test is the joint test of the sum of the coefficients (HCSR_REP + (FEM_DIRB1*HCSR_REP)) on Tobin’s q. The results of Model 2 show that the joint coefficients are positive (0.447) and significant (t = 7.64) on Tobin’s q, suggesting that a higher level of CSR reporting, when provided by firms with gender-diverse boards, is rewarded by a higher valuation in the financial markets. In an untabulated analysis, 31
ACCEPTED MANUSCRIPT we find that the result obtained for the higher level of aggregate CSR reporting (HCSR_REP) also holds for the social, environmental and sustainability reporting as described in Appendix A. These results support our hypothesis H1.
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-------------------------------------------------Please insert Table 8 -------------------------------------------------To shed more light on this result, we divide the sample into two subsamples depending on
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whether there is at least one woman on the board. Results of Table 9 highlight a positive (β =
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0.478) and significant (t = 4.51) relationship between market-based performance as measured by Tobin’s q and a high level of CSR reporting (HCSR_REP) for firm-years with at least one
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woman on the board and a negative (β = –0.368) and significant (t = –6.82) relationship for
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firm-years with only male directors. The relevance of a high level of CSR reporting for investors thus depends meaningfully on the presence of women on the board. Indeed, women
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directors limit CSR malpractices (Boulouta, 2013), and their presence should therefore
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enhance the economic benefits of CSR duties and the relevance of CSR information. In accordance with our hypothesis H1, women directors are willing to produce more reliable CSR-related information. Conversely, CSR information disclosed by firms without women
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board members is considered less reliable by the market. Our result is consistent with the
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presumption that a gender diverse board can better convince shareholders of the consistency of the firm’s CSR policy (Hafsi & Turgut, 2013). Our result is also in line with the finding of Isidro and Sobral (2015) that the indirect effect of female board representation on firm performance partly comes from stronger compliance with ethical principles. The presence of women directors plays an important role not only in increasing the extent of CSR reporting (e.g. Post et al., 2011; Liao et al., 2015; Ben-Amar et al., 2015) but also in moderating the relation between the level of CSR reporting and firm performance.
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ACCEPTED MANUSCRIPT -------------------------------------------------Please insert Table 9 -------------------------------------------------With respect to control variables, Table 9 indicates that the CSR committee (CSR_COM), which supposedly guides the CSR policy, is negatively associated with Tobin’s q for firms with at least one woman on the board (Model 1) and negatively related to firm performance
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for the control group (Model 2). The same result is also found for CSR assurance. CSR
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committees and CSR assurance are thus viewed as useless by market participants in firms
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with a gender-diverse board.15 Our results also indicate that board independence is negatively related to market-based performance as measured by Tobin’s q for firm-years with at least
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one woman on the board and positively related to Tobin’s q for firms without women on the board. This finding is consistent with that of Terjesen et al. (2016), suggesting that female
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directorship, by providing additional monitoring (Adams & Ferreira, 2009; Gul et al., 2011), acts as a substitute governance mechanism to board independence. Nonetheless, our results
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show a negative association between board meetings (BOARD_MEET) and longer-tenured-
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CEOs (TENURE) and Tobin’s q in firms with gender-diverse boards. No significant impact is found for CEO duality (DUAL). These results contrast with Terjesen et al.’s (2016) finding
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that the presence of women on the board positively moderates the association of board
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meetings and CEO power to firm performance. Regarding ownership patterns, results in Table 9 also show that family ownership (FAM_OWN) is positively associated with market performance as measured by Tobin’s q for the control group (Model 2). For the treatment group (Model 1), the impact of family ownership is not significant. No significant impact is found for institutional ownership
15
Cho et al. (2014) investigate the impact of CSR assurance on market value and find a negative but insignificant relationship. They also point out that none of the previous studies related to CSR assurance investigate the impact of assurance with regard to market valuation effects.
33
ACCEPTED MANUSCRIPT (INST_OWN) for the two panels, and employee ownership is strongly and negatively related to Tobin’s q for both treatment and control groups. For the rest of the control variables, we find that debt level (LEV) is negatively related to Tobin’s q for firms with female directorship (Model 1). In contrast to the treatment group, firms without gender-diverse boards exhibit a positive and significant relationship between
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R&D intensity and Tobin’s q (Model 2). Market risk (RISK) as measured by beta is positively
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associated with Tobin’s q for the control group (Model 2). Taken together, these findings are
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in line with the widely accepted idea that women are more risk averse than men (Arun et al., 2015), leading riskier choices and situations to be economically less viable in terms of market
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value for firms with women on the board. Results for foreign assets (FOR_ASS) are mixed
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and no meaningful conclusions can be drawn when we compare the treatment group to the control group. Regarding firm size (SIZE), we find a negative relationship with financial performance as measured by Tobin’s q, albeit not significant for the treatment group. Finally,
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Table 9 shows a positive impact of Grenelle I (GRE1) on Tobin’s q for the control groups (Model 2). No significant impact is observed for the treatment group (Model 1). This may be due to the fact that market participants perceive firms with gender-diverse boards as well
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governed and deeply involved in the CSR steps, so the Grenelle 1 Act does not produce
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significant change.
4.3.4. Test of hypothesis H2 Our hypothesis H2 states that providing CSR assurance (CSR_ASS) is more valuable for firms without women directors than for firms with women directors. The results of Model 1 in Table 10 show that the coefficients for the main effect of female directorship (FEM_DIRB1) and CSR assurance (CSR_ASS) on Tobin’s q (TQ) are significantly negative and positive, respectively. To determine how female directorship (FEM_DIRB1) and CSR assurance
34
ACCEPTED MANUSCRIPT (CSR_ASS) conjunctively affect the market value, we perform a joint test technique to estimate the following model (Model 1): Tobin’s q = f {FEM_DIRB1, CSR_ASS, FEM_DIRB1*CSR_ASS, control variables} The results of Model 1 (Table 10) point out that the impact of the interaction term
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(FEM_DIRB1*CSR_ASS) on Tobin’s q is negative (β = –0.510) and significant at the 1% level (t = –5.56). Given that we aim to measure the marginal effect of the demand of CSR
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assurance on market-based performance for firms with at least one woman on the board, the
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prominent test is the joint test of the sum of the coefficients (CSR_ASS + (FEM_DIRB1*CSR_ASS)) on Tobin’s q. The results of Model 1 show that the joint
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coefficients are highly negative (β = –0.142) and significant at the 1% level (t = –2.93) on
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Tobin’s q, suggesting that providing CSR assurance is considered by shareholders to be economically valuable in terms of market value for firms without a gender-diverse board and
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not valuable for firms with a gender-diverse board. These results support our hypothesis H2.
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-------------------------------------------------Please insert Table 10 --------------------------------------------------
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For further investigation, and to compare the marginal effect of gender-diverse boards (i.e. result of Table 8) with the marginal effect of CSR assurance on the value relevance of high
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CSR reporting, we perform the following model (Model 2): Tobin’s q = f {HCSR_REP, CSR_ASS, CSR_ASS*HCSR_REP, control variables} The results of Model 2 in Table 10 show that the impact of the interaction term (CSR_ASS*HCSR_REP) on Tobin’s q is strongly negative (β = –2.409) and highly significant at the 0.01 level (t = –10.52). The marginal effect of CSR assurance on the value relevance of a higher level of CSR reporting is assessed by the joint test of the sum of the coefficients (CSR_ASS + (CSR_ASS*HCSR_REP)) on Tobin’s q. The results of Model 2 35
ACCEPTED MANUSCRIPT show that the joint coefficients are strongly negative (β = –2.269) and highly significant (t = – 10.12) on Tobin’s q, suggesting that market participants penalize a higher level of CSR reporting provided by firms with CSR assurance. This result is the opposite of that observed for female directorship (Model 2, Table 8), giving more evidence of the presence of a
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substitutability relationship between female directorship and CSR assurance.
4.4. Robustness Checks
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4.4.1. The Impact of CSR Reporting on Accounting-based Performance
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Jo and Harjoto (2012) note that the impact of CSR activities on firm performance is a
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long-standing but still unanswered question. To contribute to a better understanding of the relationship between CSR reporting and firm performance, we also use return on assets
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(ROA) and return on equity (ROE) as measures of operating and financial performance, respectively. Accounting performance measures are not switchable with market-based
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performance (Jo & Harjoto, 2012). ROA is a standard accounting measure of operating
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performance calculated by the ratio of operating income to total assets. ROE is more commonly used as a proxy for financial performance related to equity holders’ accounting
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performance and measured by the ratio of net income to stockholders’ equity (Boulouta, 2013). Although both ROE and ROA incorporate firms’ levels of profitability and represent
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measures of relative efficiency, ROE is extensively used in the CSR performance literature but not widely used in the non-financial disclosure literature (Qiu et al., 2016). According to Van der Laan, Van Ees and Van Witteloostuijn (2008), accounting-based performance measures reflect the CSR valuation by primary stakeholders such as consumers, employees and investors. Meaningfully, disregarding the wishes of primary stakeholders with regard to CSR duties contributes negatively to accounting performance measures.
36
ACCEPTED MANUSCRIPT The results of Model 2 in Table 11 highlight a negative and significant relationship between accounting-based performance, as measured by ROA and ROE, and a high level of voluntary CSR reporting. Our result is in line with De Villiers and Van Staden’s (2011) finding of a negative association between environmental disclosures in the annual report and ROA, and inconsistent with Qiu et al. (2016), who report no significant relationship between
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environmental and social disclosure and both ROA and ROE. This result may be due to the
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fact that CSR reporting policy paid insufficient heed to the wishes of primary stakeholders (Van der Laan et al., 2008) and in this case the costs to disclose CSR information may
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outweigh the benefits. As for Tobin’s q, the impact of the presence of at least one female
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director (FEM_DIRB1) is also negative and significant on ROA and ROE, respectively. This result is quite similar to that found by several previous studies considering different gender
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diversity and performance measures (e.g., Shrader, Blackburn, & Iles, 1997; Adams & Ferreira, 2009; Böhren & Ström, 2010; He & Huang, 2011). However, the results of Model 2
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point out that the impacts of the interaction term (FEM_DIRB1*HCSR_REP) on ROA and
Importantly,
the
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ROE are positive (0.033 and 0.268, respectively) and both significant at the 0.01 level. joint
tests
of
the
sum
of
the
coefficients
(HCSR_REP
+
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FEM_DIRB1*HCSR_REP) on ROA and ROE are positive (0.023 and 0.088, respectively) and both significant at the 1% level. These results provide more evidence that there is a
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positive marginal effect of the appointment of women on boards on the relationship between CSR reporting and accounting performance. It is, however, noteworthy that the sums of the coefficients observed for ROA and ROE are less than those obtained for Tobin’s q (0.447 in Table 7). Our finding highlights that increasing the level of CSR reporting is more likely to boost financial market performance than to improve accounting performance, which suggests that maximizing market value is the prevailing objective of the CSR reporting policy. -------------------------------------------------Please insert Table 11 37
ACCEPTED MANUSCRIPT -------------------------------------------------4.4.2. Does the Number of Female Directors Matter? For sensitivity tests, we investigate the critical mass theory of female directors and we test whether the number of female directors matters in moderating the relationship between the level of CSR reporting and market-based performance. To do this, we follow Liu et al. (2014)
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and Nguyen et al. (2015) and we limit our sample to firms with at least two and three female
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directors. Of most interest is the marginal effect of the presence of at least two female
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directors on the value relevance of a high level of CSR reporting (HCSR_REP + (FEM_DIRB2*HCSR_REP)) and the marginal effect of at least three female directors
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(HCSR_REP + (FEM_DIRB3*HCSR_REP)). As reported in Model 2 of Tables 12 and 13, we find a positive joint coefficient (0.477 and 0.465, respectively) statistically significant at
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the 1% level. In support of our hypothesis H1, these coefficients are quite similar to that
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Model 2 of Table 8 (𝛽 = 0.447).
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found for the marginal effect of the presence of at least one female director, as reported in
Results of Model 3 give more evidence to support our hypothesis H2. Indeed, the marginal effect of the demand of CSR assurance on market-based performance for firms with at least
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two female directors (CSR_ASS + (FEM_DIRB2*CSR_ASS)) and for firms with at least
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three female directors (CSR_ASS + (FEM_DIRB3*CSR_ASS)) on Tobin’s q are strongly negative (–1.044 and –0.652, respectively) and both are significant at the 1% level. These joint coefficients are more important than those observed in Model 1 of Table 10 for firms with at least one woman on the board (β = –0.142; t = –2.93). -------------------------------------------------Please insert Tables 12 & 13 --------------------------------------------------
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ACCEPTED MANUSCRIPT 5. Conclusion This paper examines the relationship between CSR reporting and the financial performance of companies with and without female board members. Gray (2006) argues that a better level of CSR disclosure is not usually indicative of a better-managed organization and that some managers might make superficial and cosmetic adjustments in order to enhance the reporting
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quality. Disclosures may thus be a simple response to the information needs of shareholders
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and need not actually reflect CSR performance (Adams, 2002, 2004; Gray et al., 2001).
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Moreover, the voluntary nature of CSR reports has led to several irregularities in reporting formats, treatment, and inclusion of diverse contextual elements. The voluntary approach has
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also led to difficulties implementing robust measures for assessing the quality and accuracy of the reports’ content (Sethi et al., 2015). In this conjecture, stakeholders need to apply filters to
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assess the credibility of voluntary CSR information (Cho et al., 2012). Rigorous governance structures are crucial to confirm that the stakeholder dialogue process is robust, and to limit
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the reporting-performance portrayal gap (Adams, 2004). Accordingly, Jo and Harjoto (2012)
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assert that the prospect that CSR engagements positively impact firm performance depends on the use of effective governance mechanisms. Meanwhile, having a more diverse board signals
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the firm’s commitment to social laws and values and its ability to comply with stakeholders’ needs (Huse et al., 2009; Miller & Triana, 2009; Bear et al., 2010; Hafsi & Turgut, 2013;
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Handajani et al., 2014; Isidro & Sobral, 2015; Liao et al., 2016). Our paper complements previous studies by examining the moderating role of women directors in the relationship between CSR reporting and firm performance. Using a sample of 91 French firms from 2001 to 2011, we perform propensity score matching technique in order to control for differences between firms with and without at least one woman director. Our results show that female directorship enhances the credibility of the information disclosed, leading CSR reporting to be more economically viable in terms of 39
ACCEPTED MANUSCRIPT higher firm value. Consistent with the idea that women directors intrinsically enhance the board's ability to effectively address CSR activities (Huse et al., 2009; Miller & Triana, 2009; Bear et al., 2010; Hafsi & Turgut, 2013; Handajani et al., 2014; Isidro & Sobral, 2015; Liao et al., 2016), we find that the marginal effect of female directorship on the value relevance of a high level of CSR reporting (using joint test procedure) is positive and significant. This
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finding holds when we use accounting-based measures of performance: specifically, return on
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assets (ROA) and return on equity (ROE). However, the coefficients obtained for ROA and
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ROE are less important than those observed for Tobin’s q, suggesting that increasing the level of CSR reporting is more likely to boost financial market performance than to improve
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accounting performance. We also find that the demand for CSR assurance through independent third parties is considered by shareholders to be economically valuable for firms
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without women directors and invaluable for firms with gender-diverse boards. This result suggests that hiring women directors acts as a substitute for CSR assurance to assess the
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two and three female directors.
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credibility of CSR reporting. Our results are stable when we consider the presence of at least
As discussed in Bouten et al. (2012), different measurement approaches of voluntary
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disclosure may lead to different empirical results. Disclosure index based on breadth and/or depth can be criticized because a company that uses few words to cover a specific item of
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information is treated in a similar manner to a company that uses many more words (or pages) to report on the same item. As an extension of our study, we think it would be worthwhile to consider the extent of reporting (number of words dedicated to a specific item) in addition to a disclosure index. Another research avenue is to investigate the value relevance of CSR performance ratings according to whether firms have a gender-diverse board or not, and to show if the marginal effect of the presence of female directors varies from the voluntary period (before the application of the Grenelle II Act in 2012) to the mandatory period. 40
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ACCEPTED MANUSCRIPT Appendix A. Items of the Grenelle II Act
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Components Description 1 Social Reporting (19 items) 1.1 Employment 1.1.1 Number of employees and how they are split up according to age, gender and geographic distribution (based on numbered data and diagram) 1.1.2 Hiring and firing 1.1.3 Remuneration and their evolution 1.2 Organization of work 1.2.1 Organization of working time (flexibility of working hours, weekly working hours...) 1.2.2 Absenteeism 1.3 Labour relations 1.3.1 Social dialogue (information procedures, consultation of the staff and negotiating with employers) 1.3.2 Outcome of the collective agreements 1.4 Occupational Health and 1.4.1 Health and safety conditions at work safety 1.4.2 Outcome of the collective agreements signed with trade unions and the representatives of the staff regarding occupational health and safety 1.4.3 Frequency and seriousness of accidents 1.5 Training 1.5.1 Policies implemented regarding training 1.5.2 Total number of training hours 1.6 Equal treatment 1.6.1 Measures promoting equality between women and men 1.6.2 Measures promoting the employment and the integration of people with 1.6.3 Policy against discrimination disabilities 1.7 Respect of the clauses of 1.7.1 Respect for the right to organize and collective bargaining fundamental conventions of 1.7.2 Abolition of discrimination in employment and occupation 1.7.3 Abolition of forced or compulsory labour the International Labour 1.7.4 Abolition of child labour Organization (ILO) 2 Environmental Reporting (14 items) 2.1 Environment policy 2.1.1 Organization of the company to take into account environmental concerns, and, if applicable, environmental evaluation and verification approaches 2.1.2 Training and information towards employees on environmental protection 2.1.3 Budget devoted to environmental protection and environmental risk 2.1.4 Financial provisions for environmental risks mitigation 2.2 Pollution and 2.2.1 Prevention, reduction and fixing of air/water/soil emissions 2.2.2 Prevention, recycling and cutting waste Waste Management 2.2.3 Noise pollution and other type of pollution 2.3 Sustainable 2.3.1 Water consumption and supply considering local resources 2.3.2 Consumption of raw materials and measures taken to improve the use of resources efficiency of raw materials use 2.3.3 Energy consumption and measures to improve energy efficiency and the use of renewable energy 2.3.4 Land use 2.4 Climate change 2.4.1 Greenhouse gases emissions 2.4.2 Measures to adapt to climate change 2.5 Protection of 2.5.1 Measures taken to save and develop biodiversity biodiversity 3 Sustainability reporting (9 items) 3.1 Territorial, economic 3.1.1 Measures in favour of environment, employment and regional development 3.1.2 Measures taken towards population living in the area around the business and social impact of the 3.2 Relationships with 3.2.1 Conditions for dialogue with stakeholders activity 3.2.2 Measures promoting partnership or sponsorship stakeholders 3.3 Subcontracting 3.3.1 Importance of subcontracting 3.3.2 Taking into account social and environmental responsibility with suppliers and suppliers and subcontractors 3.4 Honesty in practices 3.4.1 Measures to prevent corruption 3.4.2 Measures in favour of health consumers’ security 3.5 Measures in favour of 3.5.1 Measures preventing all forms of discrimination and promoting equal human rights treatment
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ACCEPTED MANUSCRIPT Table 1. Variables used in the model and their measurement Measure16
Definition
Dependent variables: TQ Tobin’s q ROA ROE
Stock market capitalization plus book value of liabilities as a ratio of total assets Ratio of operating income to total assets Ratio of net income to stockholders’ equity
Return on assets Return on equity
Endogenous variables: CSR_REP CSR reporting
FEM_DIRB2
Female directorship
Governance variables CSR_COM CSR committee CSR assurance
BOARD_SIZE BOARD_IND BOARD_MEET DUAL
Board size Board independence Board meeting CEO duality
TENURE
CEO tenure
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Ownership variables FAM_OWN Family ownership INST_OWN Institutional ownership EMPL_OWN Employee ownership Others control variables LEV Leverage FOR_ASS Foreign assets RISK Market risk R&D R&D intensity SIZE Firm size GRE1 Grenelle I Industry
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Binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise Binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise Natural logarithm of the number of directors on the board Ratio of number of non-executive independent directors to total number of board directors Natural logarithm of the number of annual board meetings Dummy variable coded 1 if the CEO serves as board chair and 0 otherwise. Number of years at the company before appointed to a CEO position
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CSR_ASS
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Female directorship
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Binary variable coded 1 if the company has at least one female director and 0 otherwise Binary variable coded 1 if the company has at least two female directors and 0 otherwise Binary variable coded 1 if the company has at least three female directors and 0 otherwise
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Moderating variables FEM_DIRB1 Female directorship
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High CSR reporting level
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Aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A) Binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise
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Variable
Industry
Percentage of capital held by family Percentage of capital held by institutional investors Percentage of capital held by employees
Ratio of total financial debt to total assets Ratio of foreign assets to total assets Equity beta Ratio of research and development to total sales Natural logarithm of the total assets Binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Binary variable that takes the value 1 if the company belongs to the sector in question and 0 otherwise.
Variables from ThomsonOne are winsorized at the 1% and 99% levels.
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ACCEPTED MANUSCRIPT Table 2. Descriptive statistics
0.887 4.10% 11.41% 47.62% 52.63% 35.71% 50% 7.14% 1 1 0 0 0 0 12 42.86% 7 1 7.14 22.91% 5% 0.99% 25.28% 37.99% 0.899 0 5.185
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1.135 4.74% 11.41% 44.27% 45.31% 39.71% 52.62% 8.85% 0.960 62.26% 26.27% 12.88% 18.76% 27.84% 11.613 42.74% 7.219 54.10% 9.089 26.64% 15.45% 2.49% 26.27% 38.81% 0.885 1.98% 16.717
Standard Deviation 0.827 3.69% 15.79% 25.10% 29.05% 27.88% 31.29% 9.30% 1.020 48.50% 44.03% 33.52% 38.28% 44.84% 3.961 23.46% 3.547 49.86% 6.988 26.20% 22.65% 4.73% 13.84% 29.21% 0.278 4.84% 29.784
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Median
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TQ ROA ROE CSR_REP SOC_REP ENV_REP SUS_REP FEM_DIRP FEM_DIRN FEM_DIRB1 FEM_DIRB2 FEM_DIRB3 CSR_ASS CSR_COM BOARD_SIZE (number of directors) BOARD_IND BOARD_MEET (number of meetings) DUAL TENURE (number of years) FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE (in billions of euros)
Mean
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Variables
Minimum
Maximum
0.255 –4.46% –44% 0 0 0 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0.063 0 4
4.556 15.71% 72.70% 90.48% 100% 92.86% 100% 43.75% 7 1 1 1 1 1 26 94.12% 30 1 43 99.37% 90.08% 32.75% 73.88% 99.68% 1.815 42.11% 240.559
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Note: Table 2 presents descriptive statistics and analysis of the dependent, endogenous, and control variables for the entire sample. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. ROA is the ratio of operating income to total assets. ROE is the ratio of net income to stockholders’ equity. CSR_REP is the aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). SOC_REP is the social reporting index as the ratio of the assigned total score to the maximum social score (19 items, see Appendix A). ENV_REP is the environmental reporting index as the ratio of the assigned total score to the maximum environmental score (14 items, see Appendix A). SUS_REP is the sustainability reporting index as the ratio of the assigned total score to the maximum sustainability score (9 items, see Appendix A). FEM_DIRP is the percentage of female on the board. FEM_DIRN is the number of female directors. FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director and 0 otherwise. FEM_DIRB2 is a binary variable coded 1 if the company has at least two female directors and 0 otherwise. FEM_DIRB3 is a binary variable coded 1 if the company has at least three female directors and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of nonexecutive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets.
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ACCEPTED MANUSCRIPT Table 3. Mean difference test
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TQ ROA ROE CSR_REP SOC_REP ENV_REP SUS_REP CSR_ASS CSR_COM BOARD_SIZE (number of directors) BOARD_IND BOARD_MEET (number of meetings) DUAL TENURE (number of years) FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D intensity SIZE (in billions of euros)
Firm-years without female directors (N = 351)
t-test
1.198 5.11% 12.01% 38.56% 39.39% 35.31% 45.24% 14.57% 19.05% 10.928 45.75% 6.688 47.43% 7.243 30.10% 13.04% 1.79% 25.18% 44.44% 0.856 2.76% 11.619
1.938* 2.559** 0.786 5.607*** 4.884*** 3.749*** 6.383*** 3.626*** 5.149*** 2.701*** a 2.879*** 4.134*** a 3.153*** 6.362*** a 3.212*** 2.532** 3.610*** 1.630 4.492*** 3.021*** 3.989*** 2.544** a
PT
Firm-years with at least one female director (N = 589) 1.088 4.47% 11.14% 47.96% 48.87% 42.36% 58.32% 24.36% 34.46% 12.049 41.23% 7.541 57.99% 10.208 24.47% 16.88% 2.93% 26.67% 35.68% 0.912 1.47% 20.235
RI
Variables
AC
CE
PT E
D
Note: Table 3 presents the results of the mean difference tests between panels with and without women directors for the entire sample. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. ROA is the ratio of operating income to total assets. ROE is the ratio of net income to stockholders’ equity. CSR_REP is the CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). SOC_REP is the social reporting index as the ratio of the assigned total score to the maximum social score (19 items, see Appendix A). ENV_REP is the environmental reporting index as the ratio of the assigned total score to the maximum environmental score (14 items, see Appendix A). SUS_REP is the sustainability reporting index as the ratio of the assigned total score to the maximum sustainability score (9 items, see Appendix A). CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively. a t-tests are based on natural logarithm transformed values.
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ACCEPTED MANUSCRIPT Table 4. Mean difference test between treatment and control groups
MA
NU
SC
TQ ROA ROE CSR_REP SOC_REP ENV_REP SUS_REP CSR_ASS CSR_COM BOARD_SIZE (number of directors) BOARD_IND BOARD_MEET (number of meetings) DUAL TENURE (number of years) FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE (in billions of euros)
Control (N = 260) 1.148 4.90% 10.53% 40.50% 41.26% 36.09% 49.24% 17.18% 24.81% 11.148 45.37% 7.007 54.58% 7.826 26.42% 14.36% 2.11% 25.65% 43.65% 0.901 1.93% 13.107
PT
Treatment (N = 260) 1.132 4.79% 10.58% 41.23% 42.51% 33.86% 52.91% 12.98% 20.61% 11.030 45.70% 6.901 52.40% 8.164 28.02% 13.38% 2.23% 25.26% 44.84% 0.879 2.31% 14.264
RI
Variables
t-test 0.229 0.337 0.033 0.347 0.495 0.979 1.380 1.134 1.146 0.751 a 0.173 0.063 a 0.468 0.363 a 0.685 0.543 0.320 0.333 0.473 0.343 0.872 1.441 a
AC
CE
PT E
D
Note: Table 4 presents the results of the mean difference tests between panels with and without women directors for the matched sample. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. ROA is the ratio of operating income to total assets. ROE is the ratio of net income to stockholders’ equity. CSR_REP is the aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). SOC_REP is the social reporting index as the ratio of the assigned total score to the maximum social score (19 items, see Appendix A). ENV_REP is the environmental reporting index as the ratio of the assigned total score to the maximum environmental score (14 items, see Appendix A). SUS_REP is the sustainability reporting index as the ratio of the assigned total score to the maximum sustainability score (9 items, see Appendix A). CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. a t-tests are based on natural logarithm transformed values.
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ACCEPTED MANUSCRIPT Table 5. Pairwise Correlation Matrix 1. TQ 2. Lag TQ 3. ROA 4. Lag ROA 5. ROE 6. Lag ROE 7. CSR_REP 8. Lag CSR_REP 9. FEM_DIRB1 10. Lag FEM_DIRB1 11. CSR_ASS 12. CSR_COM 13. BOARD_SIZE 14. BOARD_IND 15. BOARD_MEET 16. DUAL 17. TENURE 18. FAM_OWN 19. INST_OWN 20. EMPL_OWN 21. LEV 22. FOR_ASS 23. RISK 24. R&D 25. SIZE
1 1.000 0.774* 0.627* 0.533* 0.401* 0.328* –0.157* –0.162* –0.065 –0.055 –0.079 –0.067 –0.253* –0.179* –0.059 –0.085 0.083 0.282* –0.192* –0.236* –0.206* –0.062 0.019 0.226* –0.281*
2
3
4
1.000 0.549* 0.625* 0.342* 0.400* –0.150* –0.144* –0.055 0.047 –0.055 –0.047 –0.248* –0.184* –0.046 –0.087 0.099* 0.278* –0.197* –0.233* –0.209* –0.045 0.005 0.251* –0.258*
1.000 0.775* 0.702* 0.529* –0.049 –0.052 –0.084 –0.077 –0.029 0.014 –0.115* 0.027 –0.057 –0.110* 0.158* 0.284* –0.122* –0.136* –0.211* 0.036 –0.089* 0.091* –0.155*
1.000 0.525* 0.702* –0.032 –0.031 –0.062 –0.091* –0.004 0.030 –0.098* 0.022 –0.037 –0.106* 0.159* 0.284* –0.105* –0.127* –0.191* 0.038 –0.100* 0.091* –0.135*
1.000 0.644* –0.010 –0.014 –0.027 –0.023 –0.016 –0.000 –0.009 0.019 0.032 –0.122* 0.064 0.208* –0.078 0.010 –0.037 –0.030 –0.128* –0.062 –0.073
6
7
1.000 –0.018 –0.010 –0.015 –0.024 –0.004 –0.004 –0.004 0.008 0.042 –0.123* 0.068 0.207* –0.078 0.021 –0.008 –0.027 –0.138* –0.070 –0.041
D E
T P E
C C
A
5
9
10
11
12
13
1.000 0.141* 0.248* 0.280* 0.130* –0.044 0.223* –0.193* 0.183* 0.021 0.014 0.018 0.172* 0.118* 0.421*
1.000 0.238* 0.086* 0.157* –0.094* 0.136* –0.069 0.049 0.031 –0.051 –0.022 0.040 0.003 0.273*
1.000 0.096* 0.045 0.038 0.163* –0.148* 0.060 0.179* 0.023 0.059 0.002 –0.044 0.659*
T P
1.000 0.946* 0.179* 0.139* 0.442* 0.389* 0.376* 0.215* 0.157* 0.071 0.265* –0.083 0.178* 0.127* 0.007 0.007 0.073 0.097* 0.465*
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N A
M
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8
1.000 0.178* 0.152* 0.434* 0.385* 0.381* 0.183* 0.136* 0.065 0.236* –0.065 0.175* 0.118* 0.014 0.004 0.086 0.094* 0.467*
1.000 0.843* 0.117* 0.165* 0.087* –0.093* 0.133* 0.102* 0.203* –0.104* 0.082 0.116* 0.053 –0.144* 0.098* –0.129* 0.082
1.000 0.090* 0.134* 0.066 –0.156* 0.125* 0.100* 0.186* –0.100* 0.081 0.123* 0.056 –0.156* 0.101* –0.109* 0.068
VIF ---1.30 ---1.27 ---1.19 1.69 1.65 1.02 1.20 1.36 1.38 1.93 1.42 1.21 1.16 1.32 1.56 1.34 1.20 1.22 1.25 1.40 1.26 2.77
ACCEPTED MANUSCRIPT Table 5. Continued 14. BOARD_IND 15. BOARD_MEET 16. DUAL 17. TENURE 18. FAM_OWN 19. INST_OWN 20. EMPL_OWN 21. LEV 22. FOR_ASS 23. RISK 24. R&D 25. SIZE
13 1.000 –0.011 –0.175* 0.028 –0.278* 0.301* –0.017 –0.005 0.247* 0.104* 0.070 0.308*
14
15
16
17
18
19
1.000 –0.025 –0.074 –0.093* –0.055 0.034 0.045 0.078 0.254* 0.016 0.140*
1.000 0.172* –0.020 0.046 0.188* 0.043 –0.117* –0.033 –0.058 –0.079
1.000 0.017 –0.061 0.110* –0.084* 0.107* 0.042 0.169* 0.146*
1.000 –0.426* –0.173* –0.047 –0.106* –0.224* 0.034 –0.265*
1.000 0.083 0.050 0.063 –0.017 –0.070 0.091*
1.000 –0.094* –0.168* –0.071 –0.098* 0.100*
20
1.000 –0.055 –0.034 –0.190* 0.105*
21
22
23
T P
U N
SC
I R
1.000 0.093* 0.016 0.127*
1.000 0.084* 0.200*
1.000 –0.021
Note: Table 5 provides the Pearson correlation analysis and variance inflation factors for all variables considered in our study. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. ROA is the ratio of operating income to total assets. Lag ROA is the one-year lagged value of ROA. ROE is the ratio of net income to stockholders’ equity. Lag ROE is the one-year lagged value of ROE. CSR_REP is the aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). Lag CSR_REP is the one-year lagged value of the aggregate CSR reporting index. FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director and 0 otherwise. Lag FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director in the past year and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. * represent significance at the 0.01 level.
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ACCEPTED MANUSCRIPT Table 6. System GMM regression of Tobin’s q on CSR reporting and female directorship Model 2 Coef. t-test 0.649*** 73.30 –0.264*** –3.48 –0.094***
Model 3 Coef. t-test 0.648*** 74.77 –0.362*** –5.97
–15.19 –0.188*** –14.83 0.250*** 6.53 –0.013 –0.57 0.029 1.17 0.010 0.31 –0.069*** –3.55 –0.060*** –3.91 0.048*** 3.49 0.261*** 5.87 0.113*** 3.35 –0.715*** –2.85 –0.311*** –5.12 0.052** 2.24 –0.049* –1.68 –0.008 –0.03 –0.041*** –4.22 0.054*** 4.32 1.230*** 11.78 Yes 462 14138.87 (p = 0.000) –1.96 (p = 0.005)
1.38 (p = 0.169)
1.35 (p = 0.178)
1.34 (p = 0.179)
369.59 (p = 0.000) 72.85 (p = 0.444)
370.32 (p = 0.000) 69.57 (p = 0.441)
369.96 (p = 0.000) 72.16 (p = 0.465)
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0.265*** 6.72 0.014 0.46 0.058* 1.90 –0.012 –0.42 –0.067*** –3.73 –0.067*** –4.12 0.046*** 4.43 0.287*** 5.66 0.139*** 3.29 –0.582*** –2.85 –0.243*** –5.27 0.036 1.18 –0.012 –0.53 –0.163* –1.66 –0.050*** –5.27 0.055*** 4.97 1.176*** 12.16 Yes 462 7676.38 (p = 0.000) –1.97 (p = 0.004)
0.162*** 6.00 –0.036 –1.01 –0.008 –0.29 –0.019 –0.39 –0.058*** –3.83 –0.076*** –5.82 0.058*** 4.20 0.229*** 4.59 0.123*** 3.71 –0.779*** –4.82 –0.298*** –6.30 0.014 0.56 –0.056** –2.16 –0.202* –1.91 –0.046*** –4.87 0.049*** 5.71 1.350*** 15.45 Yes 462 7416.32 (p = 0.000) –1.98 (p = 0.004)
PT E
Lag TQ CSR_REP FEM_DIRP FEM_DIRP_SQUARED FEM_DIRN FEM_DIRB1 CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p– value): Arellano–Bond test AR(2) (z, p– value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value):
Model 1 Coef. t-test 0.653*** 68.30 –0.210*** –4.24 –1.068** –2.02 –0.276 –0.12
D
Variables
AC
CE
Note: Table 6 provides the results of the system GMM regression of the effect of aggregate CSR reporting (CSR_REP) on market value (TQ). Models 1, 2 & 3 report results relating to the effect of CSR reporting (CSR_REP) on market value (TQ) while considering the percentage of female directorship (FEM_DIRP), the number of female directors, and the presence or not of at least one female director (FEM_DIRB1), respectively. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. CSR_REP is the aggregate CSR reporting index as the ratio of the assigned total score to the maximum score (42 items, see Appendix A). FEM_DIRP is the percentage of females on the board. FEM_DIRN is the number of female directors. FEM_DIRP_SQUARED is the quadratic term of the percentage of females on the board. FEM_DIRN is the number of female directors. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise.
57
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*, **, *** represent significance at 0.05, 0.01 and 0.001 levels, respectively.
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ACCEPTED MANUSCRIPT Table 7. System GMM regression of Tobin’s q on each component of CSR reporting Model 2 Environmental Reporting Coef. t-test 0.632*** 80.77 0.952***
Model 3 Sustainability Reporting Coef. t-test 0.581*** 43.68
15.88 –1.318*** –17.30 –0.256*** –14.87 0.102*** 2.74 0.055 1.41 –0.085** –2.23 0.037 0.73 –0.033 –1.06 –0.064*** –3.13 0.105*** 5.41 0.417*** 9.77 0.285*** 4.59 0.637** 2.00 –0.448*** –5.45 0.234*** 5.96 0.042 1.23 1.335*** 9.24 0.038*** 3.10 0.119*** 13.02 0.494*** 3.43 Yes 462 32710.07 (p = 0.000) –1.93 (p = 0.054)
1.31 (p = 0.189)
1.42 (p = 0.156)
1.43 (p = 0.154)
371.87 (p = 0.000) 68.91 (p = 0.379)
374.49 (p = 0.000) 70.13 (p = 0.341)
364.10 (p = 0.000) 71.85 (p = 0.290)
MA
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PT
–0.233*** –10.47 –0.018 –0.43 –0.079* –1.78 0.127*** 4.38 –0.148*** –2.63 –0.102*** –3.32 –0.148*** –6.49 –0.003 –0.23 0.090* 1.74 0.015 0.34 –0.583** –2.71 –0.150** –2.50 –0.009 –0.24 0.120*** 2.57 –0.351*** –2.89 –0.108*** –11.64 0.031*** 2.62 1.830*** 16.92 Yes 462 29574.71 (p = 0.000) –2.03 (p = 0.042)
–0.307*** –20.88 0.396*** 8.16 0.078*** 2.94 0.057 1.52 0.083* 1.95 –0.068*** –3.33 –0.054*** –3.88 0.020* 1.74 0.340*** 8.85 0.176*** 3.66 –0.358 –1.47 –0.256*** –5.13 0.051 1.73 0.046 1.22 0.041 0.30 –0.058*** –4.79 0.044*** 3.94 1.444*** 12.80 Yes 462 70904.76 (p = 0.000) –1.94 (p = 0.052)
PT E
Lag TQ SOC_REP ENV_REP SUS_REP FEM_DIRP CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p– value): Arellano–Bond test AR(2) (z, p– value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value):
Model 1 Social Reporting Coef. t-test 0.627*** 80.62 0.542*** 10.64
D
Variables
CE
Note: Table 7 provides the results of the system GMM regression of Tobin’s q on each component of CSR reporting. Models 1, 2 & 3 reports results relating to the effect of social reporting (SOC_REP), environmental reporting (ENV_REP) and sustainability reporting (SUS_REP) on Tobin’s q, respectively.
AC
Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. SOC_REP is the social reporting index as the ratio of the assigned total score to the maximum score (19 items, see Appendix A). FEM_DIRP is the percentage of females on the board. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary
59
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variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
60
ACCEPTED MANUSCRIPT Table 8. System GMM regression results for the interaction between high level of CSR reporting and female directorship (at least one woman on the board) Variables
Model 2 Coef. t-test 0.647*** 72.46 –0.521*** –10.62 –0.718*** –21.39 0.968*** 15.32 0.164*** 3.62 0.248*** 6.48 0.086*** 2.70 –0.032 –0.74 –0.162*** –6.97 –0.008 –0.44 –0.001 –0.07 0.122** 2.37 –0.129** –2.39 –0.564* –1.75 –0.203*** –3.14 –0.119*** –3.15 0.055 1.11 –0.621*** –5.72 –0.072*** –5.92 –0.024* –1.66 2.011*** 15.02 Yes 462 35457.25 (p = 0.000) –1.95 (p = 0.005) 1.25 (p = 0.213) 352.03 (p = 0.000) 70.19 (p = 0.496) 0.447*** 7.64
NU
SC
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PT
0.087** 2.23 –0.108*** –4.29 0.057*** 3.03 0.001 0.01 –0.064*** –4.33 –0.095*** –5.94 0.044*** 2.85 0.176*** 3.51 0.094*** 4.07 –0.759*** –3.40 –0.236*** –3.03 0.055* 1.91 –0.098** –2.39 0.414 1.00 –0.054*** –9.11 0.038*** 4.74 1.315*** 14.06 Yes 462 33355.41 (p = 0.000) –2.00 (p = 0.004) 1.39 (p = 0.165) 366.78 (p = 0.000) 69.74 (p = 0.436)
PT E
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MA
Lag TQ HCSR_REP FEM_DIRB1 FEM_DIRB1*HCSR_REP CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p–value): Arellano–Bond test AR(2) (z, p–value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value): Joint test: HCSR_REP + (FEM_DIRB1* HCSR_REP)
Model 1 Coef. t-test 0.644*** 54.00 0.027 0.72 –0.191*** –11.84
AC
CE
Note: Table 8 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on market-based performance (Tobin’s q). Model 1 reports results relating to the effect of high CSR reporting (HCSR_REP) on Tobin’s q. Model 2 includes the interaction between female directorship as measured by the presence of at least one female director (FEM_DIRB1) and high CSR reporting (HCSR_REP) necessary to perform the joint test of the sum of the coefficients (HCSR_REP + FEM_DIRB1*HCSR_REP) on Tobin’s q. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise. FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meeting. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
61
ACCEPTED MANUSCRIPT Table 9. System GMM regression results for firms with and without at least one female director Model 2 Control group (Firms without female directors) Coef. t-test 0.455*** 21.33 –0.368*** –6.82 0.532*** 4.33 0.556*** 6.42 0.124 1.49 0.275** 2.00 –0.076 –1.17 0.013 0.19 0.008 0.18 0.460*** 4.37 0.060 0.46 –1.125* –1.69 0.088 0.41 –0.160 –1.42 0.185** 2.42 2.492*** 6.10 –0.146*** –4.62 0.090*** 4.29 2.192*** 5.77 Yes 231 1199.40 (p = 0.000) –2.63 (p = 0.003) 1.22 (p = 0.224) 174.94 (p = 0.000) 37.63 (p = 0.192)
RI
SC
NU
MA D
PT E
Lag TQ HCSR_REP CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p–value): Arellano–Bond test AR(2) (z, p–value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value):
Model 1 Treatment group (Firms with at least one female director) Coef. t-test 0.789*** 27.97 0.478*** 4.51 –0.373*** –4.88 –0.716*** –5.87 –0.019 –0.24 –0.323*** –2.57 –0.077* –1.74 –0.074 –1.40 –0.093*** –2.74 0.122 1.00 0.090 0.67 –1.841*** –5.34 –0.749*** –4.60 0.046 0.40 –0.101 –0.90 –0.550 –1.12 0.022 1.05 –0.102 –1.58 0.369 1.56 Yes 231 632.59 (p = 0.000) –3.05 (p = 0.002) 0.65 (p = 0.517) 171.75 (p = 0.000) 37.88 (p = 0.219)
PT
Variables
CE
Note: Table 9 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on market-based performance (TQ) for the treatment group (Model 1) and control group (Model 2). Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second–order autocorrelation test for the error term, which checks the null hypothesis of absence of second–order autocorrelation. The second is the Sargan/Hansen test of over–identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid.
AC
TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one–year lagged value of Tobin’s q. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non–executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
62
ACCEPTED MANUSCRIPT Table 10. System GMM regression results of the interaction between female directorship and CSR assurance t–test 43.85 –0.34 –5.46 5.05 –5.56
–0.184*** –4.63 0.034 0.92 –0.023 –0.32 –0.065** –2.21 –0.088*** –3.44 0.043*** 2.55 0.303*** 5.06 0.131** 2.40 –0.922*** –3.13 –0.391*** –4.29 0.035 0.73 –0.045 –1.19 0.261** 2.04 –0.038*** –3.45 0.072*** 3.56 1.095*** 7.53 Yes 462 2835.91 (p = 0.000) –2.02 (p = 0.004) 1.44 (p = 0.150) 358.44 (p = 0.000) 61.68 (p = 0.124) –0.142*** –2.93
RI
SC
NU
PT E
D
MA
Lag TQ HCSR_REP FEM_DIRB1 CSR_ASS FEM_DIRB1*CSR_ASS CSR_ASS*HCSR_REP CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p–value): Arellano–Bond test AR(2) (z, p–value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value): Joint test: CSR_ASS + (FEM_DIRB1*CSR_ASS) Joint test: HCSR_REP + (CSR_ASS*HCSR_REP)
Model 1 Coef. 0.655*** –0.009 –0.171*** 0.367*** –0.510***
Model 2 Coef. t–test 0.713*** 34.83 0.139*** 4.35 –0.236*** –7.96 2.190*** 10.86 –2.409*** –10.52 0.024 0.73 0.118*** 2.48 –0.091 –1.23 –0.132*** –3.83 –0.080*** –2.93 0.029 1.46 0.052 0.77 0.060 1.19 –0.566 –1.59 –0.131 –1.31 –0.092 –1.65 –0.054 –1.24 –0.192 –1.52 –0.042*** –3.41 0.114*** 5.22 1.086*** 6.14 Yes 462 1491.28 (p = 0.000) –2.07 (p = 0.003) 1.17 (p = 0.242) 323.91 (p = 0.000) 57.50 (p = 0.217)
PT
Variables
–2.269***
–10.12
AC
CE
Note: Table 10 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on market-based performance (Tobin’s q). Model 1 includes the interaction between female directorship as measured by the presence of at least one female director (FEM_DIRB1) and CSR assurance (CSR_ASS) necessary to perform the joint test of the sum of the coefficients (CSR_ASS + FEM_DIRB1*CSR_ASS) on Tobin’s q. Model 2 includes the interaction between high CSR reporting (HCSR_REP) and CSR assurance (CSR_ASS) necessary to perform the joint test of the sum of the coefficients (HCSR_REP + CSR_ASS*HCSR_REP) on Tobin’s q. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second–order autocorrelation test for the error term, which checks the null hypothesis of absence of second–order autocorrelation. The second is the Sargan/Hansen test of over–identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one–year lagged value of Tobin’s q. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise. FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non–executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0
63
ACCEPTED MANUSCRIPT
AC
CE
PT E
D
MA
NU
SC
RI
PT
otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
64
ACCEPTED MANUSCRIPT Table 11. System GMM regression results using ROA and ROE as measures of firm performance ROA Variables Lag ROA Lag ROE HCSR_REP FEM_DIRB1 HCSR_REP* FEM_DIRB1 CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE GRE1 Intercept Industry N Fisher (Prob > F) Arellano–Bond test AR(1) (z, p–value): Arellano–Bond test AR(2) (z, p–value): Sargan test (Chi–square, p–value): Hansen test (Chi–square, p–value): Joint test: HCSR_REP + (FEM_DIRB1* HCSR_REP)
0.004 –0.011***
Model 2 Coef. 0.705***
–0.010*** –3.34 0.007*** 3.26 0.002 0.93 0.011*** 3.80 –0.003** –2.28 –0.002* –1.92 0.005*** 6.38 0.004 1.34 0.005 1.44 –0.015 –1.33 –0.011** –2.05 0.002 1.14 –0.003 –1.19 –0.021* –1.80 –0.002*** –3.11 –0.008*** –7.82 0.037*** 5.88 Yes 462 386.01 (p = 0.000) –2.94 (p = 0.003) 0.89 (p = 0.355) 368.45 (p = 0.000) 62.69 (p = 0.121)
D E
A
Model 1 t-test 38.79
–0.010*** –3.02 –0.031*** –9.42 0.033*** 7.74 –0.006 –1.12 0.014*** 3.09 0.003 1.10 0.009*** 2.74 –0.007*** –4.04 –0.001 –0.10 0.004*** 3.15 0.005 1.39 –0.002 –0.42 –0.007 –0.45 –0.008 –1.33 –0.001 –0.46 0.002 0.50 –0.041*** –3.00 –0.003*** –3.02 –0.010*** –9.41 0.063*** 5.23 Yes 462 559.39 (p = 0.000) –2.94 (p = 0.003) 0.92 (p = 0.254) 357.06 (p = 0.000) 63.10 (p = 0.101) 0.023*** 6.44
1.46 –8.73
Coef.
N A
M
Model 2 t-test
T P
0.596*** –0.092*** –0.017
I R
C S U
T P E
C C
ROE
Model 1 Coef. t-test 0.698*** 51.49
27.83 –5.13 –1.54
–0.061** –2.44 0.071*** 3.36 0.013 0.99 0.084*** 4.09 0.018** 1.99 –0.005 –0.76 0.019*** 4.54 0.061*** 3.74 0.076*** 3.23 0.003 0.05 0.056* 1.70 –0.015 –1.14 –0.015 –1.10 –0.013 –0.21 0.003 0.87 –0.024*** –4.21 –0.115** –2.47 Yes 462 565.25 (p = 0.000) –2.91 (p = 0.004) 0.87 (p = 0.383) 359.15 (p = 0.000) 58.48 (p = 0.102)
Coef.
t-test
0.599*** 25.06 –0.180*** –5.27 –0.179*** –8.53 0.268*** 6.20 –0.070** –2.19 0.117*** 4.67 0.025 1.38 0.063** 2.32 –0.001 –0.05 0.001 0.01 0.017** 2.48 0.054* 1.92 0.026 0.78 –0.035 –0.32 0.023 0.47 –0.057** –2.40 0.028 1.43 –0.300*** –2.96 –0.001 –0.22 –0.029*** –4.77 0.040 0.47 Yes 462 231.46 (p = 0.000) –2.97 (p = 0.003) 0.85 (p = 0.396) 333.51 (p = 0.000) 56.70 (p = 0.113) 0.088*** 3.09
Note: Table 11 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on accounting-based performance (ROA and ROE). Model 1 reports results relating to the effect of high CSR reporting (HCSR_REP) on ROA and ROE, respectively. Model 2 includes the interaction between female directorship as measured by the presence of at least one female director (FEM_DIRB1) and high CSR reporting (HCSR_REP) necessary to perform the joint test of the sum of the coefficients (HCSR_REP + FEM_DIRB1*HCSR_REP) on ROA
65
ACCEPTED MANUSCRIPT and ROE, respectively. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. ROA is the ratio of operating income to total assets. Lag ROA is the one-year lagged value of ROA. ROE is the ratio of net income to stockholders’ equity. Lag ROE is the one-year lagged value of ROE. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise. FEM_DIRB1 is a binary variable coded 1 if the company has at least one female director and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
T P
I R
C S U
N A
D E
M
T P E
C C
A
66
ACCEPTED MANUSCRIPT Table 12. System GMM regression results using firms with at least two female directors Model 1 Coef. 0.674*** 0.065** –0.108***
1.27
–0.253*** –3.64 0.089** 2.43 –0.124 –1.44 –0.047 –1.60 –0.098*** –3.90 0.033 1.38 0.187*** 2.97 0.092 1.43 –1.097*** –3.50 –0.279*** –3.65 –0.038 –0.74 –0.137*** –2.55 –0.152 –1.18 –0.026* –1.75 0.074*** 3.13 0.883*** 5.08 Yes 462 9653.46 (p = 0.000) –2.01 (p = 0.005)
CE
PT E
D
MA
NU
CSR_COM –0.217*** –4.10 BOARD_SIZE 0.052* 1.91 BOARD_IND –0.045 –0.61 BOARD_MEET –0.057** –2.36 DUAL –0.091*** –4.34 TENURE 0.034* 1.65 FAM_OWN 0.220*** 4.36 INST_OWN 0.165*** 2.58 EMPL_OWN –0.995*** –4.22 LEV –0.416*** –6.50 FOR_ASS 0.010 0.22 RISK –0.116*** –2.68 R&D –0.067 –0.60 SIZE –0.034*** –2.59 GRE1 0.062*** 2.77 Intercept 0.998*** 6.36 Industry Yes N 462 Fisher (Prob > F) 6315.81 (p = 0.000) Arellano–Bond test AR(1) (z, p– –2.02 (p = 0.004) value): Arellano–Bond test AR(2) (z, p– 1.41 (p = 0.165) value): Sargan test (Chi–square, p–value): 357.61 (p = 0.000) Hansen test (Chi–square, p–value): 57.16 (p = 0.171) Joint test: HCSR_REP + (FEM_DIRB2* HCSR_REP) Joint test: CSR_ASS + (FEM_DIRB2*CSR_ASS)
PT
0.061
RI
Lag TQ HCSR_REP FEM_DIRB2 FEM_DIRB2*HCSR_REP CSR_ASS FEM_DIRB2* CSR_ASS
Model 2 Coef. t-test 0.674*** 45.25 0.033 1.03 –0.433*** –5.70 0.444*** 4.95 0.056 1.06
t-test 50.75 2.15 –3.97
SC
Variables
1.38 (p = 0.167) 355.46 (p = 0.000) 59.51 (p = 0.104) 0.477*** 4.99
Model 3 Coef. t-test 0.644*** 39.75 0.105*** 2.71 0.305*** 5.57 0.405***
4.41 – 13.86 –6.55 –0.63 –0.15 –2.88 –3.87 2.28 5.75 2.44 –4.82 –7.48 2.49 –1.18 2.77 –2.67 2.19 5.47
–1.449*** –0.435*** –0.018 –0.011 –0.086*** –0.110*** 0.058** 0.312*** 0.162** –1.479*** –0.717*** 0.136** –0.068 0.465*** –0.036*** 0.060** 1.140*** Yes 462 2849.14 (p = 0.000) –2.05 (p = 0.004)
1.40 (p = 0.163) 348.30 (p = 0.000) 54.68 (p = 0.206) –1.044***
–9.88
AC
Note: Table 12 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on market-based performance (Tobin’s q). Model 1 reports results relating to the effect of high CSR reporting (HCSR_REP) on Tobin’s q. Model 2 includes the interaction between female directorship as measured by the presence of at least two female directors (FEM_DIRB2) and high CSR reporting (HCSR_REP) necessary to perform the joint test of the sum of the coefficients (HCSR_REP + FEM_DIRB2*HCSR_REP) on Tobin’s q. Model 3 includes the interaction between female directorship as measured by the presence of at least two female directors and CSR assurance (FEM_DIRB2*CSR_ASS), necessary to perform the joint test of the sum of the coefficients (CSR_ASS + FEM_DIRB2*CSR_ASS) on Tobin’s q. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0 otherwise. FEM_DIRB2 is a binary variable coded 1 if the company has at least two female directors and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital
67
ACCEPTED MANUSCRIPT held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
Table 13. System GMM regression results using firms with at least three female directors
1.83
–0.235** 0.041 –0.058 –0.055* –0.095*** 0.037* 0.227*** 0.171** –1.013*** –0.455*** 0.048 –0.087 –0.066
–2.45 1.15 –0.73 –1.96 –3.61 1.76 3.65 2.15 –3.41 –4.79 0.83 –1.42 –0.48
PT
–0.068** 0.079*** –0.008 –0.044*** –0.090*** 0.060*** 0.241*** 0.053 –0.972*** –0.262*** –0.019 –0.029 –0.279***
SC
0.141*
D
MA
Lag TQ HCSR_REP FEM_DIRB3 FEM_DIRB3*HCSR_REP CSR_ASS FEM_DIRB3* CSR_ASS CSR_COM BOARD_SIZE BOARD_IND BOARD_MEET DUAL TENURE FAM_OWN INST_OWN EMPL_OWN LEV FOR_ASS RISK R&D SIZE
Model 2 Coef. t-test 0.648*** 53.69 0.018 0.68 –0.465*** –4.45 0.447*** 3.98 0.051* 1.67
RI
Model 1 Coef. t-test 0.659*** 44.26 0.109** 2.44 –0.052 –0.72
NU
Variables
AC
CE
PT E
–0.047*** –2.79 GRE1 0.024 0.92 Intercept 1.168*** 6.21 Industry Yes N 462 Fisher (Prob > F) 1979.49 (p = 0.000) Arellano–Bond test AR(1) (z, p– –2.04 (p = 0.004) value): Arellano–Bond test AR(2) (z, p– 1.38 (p = 0.168) value): Sargan test (Chi–square, p–value): 357.81 (p = 0.000) Hansen test (Chi–square, p–value): 54.23 (p = 0.117) Joint test: HCSR_REP + (FEM_DIRB3* HCSR_REP) Joint test: CSR_ASS + (FEM_DIRB3*CSR_ASS)
–2.45 3.37 –0.20 –2.70 –4.28 4.31 4.46 1.45 –5.28 –4.46 –0.57 –1.04 –2.80 – 10.03 –0.76 9.91
Model 3 Coef. t-test 0.661*** 45.47 –0.191*** –7.23 0.109** 2.00 0.265*** –0.917*** 0.212*** 0.008 0.066 –0.086*** –0.007 0.037 0.263*** 0.145*** –0.808*** –0.184*** –0.005 0.038 –0.344***
4.38 –4.87 5.22 0.23 1.68 –3.48 –0.42 2.42 4.13 2.66 –3.38 –3.44 –0.14 1.20 –3.24
–0.050*** –0.009 1.037*** Yes 462 4386.81 (p = 0.000) –2.01 (p = 0.004)
–0.050*** –4.48 0.043** 2.13 1.123*** 8.34 Yes 462 4577.91 (p = 0.000) –1.97 (p = 0.005)
1.34 (p = 0.179)
1.34 (p = 0.179)
367.26 (p = 0.000) 67.05 (p = 0.340) 0.465*** 3.93
168.04 (p = 0.000) 65.97 (p = 0.409) –0.652***
–3.17
Note: Table 13 provides the results of the system GMM regression of the effect of high CSR reporting (HCSR_REP) on market-based performance (Tobin’s q). Model 1 reports results relating to the effect of high CSR reporting (HCSR_REP) on Tobin’s q. Model 2 includes the interaction between female directorship as measured by the presence of at least three female directors (FEM_DIRB3) and high CSR reporting (HCSR_REP) necessary to perform the joint test of the sum of the coefficients (HCSR_REP + FEM_DIRB3*HCSR_REP) on Tobin’s q. Model 3 includes the interaction between female directorship as measured by the presence of at least three female directors and CSR assurance (FEM_DIRB3*CSR_ASS), necessary to perform the joint test of the sum of the coefficients (CSR_ASS + FEM_DIRB3*CSR_ASS) on Tobin’s q. Consistency of the GMM estimator depends on the validity of instruments. To address this issue, we consider two specification tests. The first is the second-order autocorrelation test for the error term, which checks the null hypothesis of absence of second-order autocorrelation. The second is the Sargan/Hansen test of over-identifying restrictions which tests the overall validity of instruments. Both specification tests indicate that the instruments used are valid. TQ is the stock market capitalization plus book value of liabilities as a ratio of total assets. Lag TQ is the one-year lagged value of Tobin’s q. HCSR_REP is a binary variable coded 1 if the level of CSR reporting is greater than the median and 0
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otherwise. FEM_DIRB3 is a binary variable coded 1 if the company has at least three female directors and 0 otherwise. CSR_ASS is a binary variable that takes the value 1 if the firm provides assurance of their CSR reports through independent third parties and 0 otherwise. CSR_COM is a binary variable that takes the value 1 if the company has a CSR committee and 0 otherwise. BOARD_SIZE is the natural logarithm of the number of directors on the board. BOARD_IND is the ratio of number of non-executive independent directors to total number of board directors. BOARD_MEET is the natural logarithm of the number of annual board meetings. DUAL is a dummy coded 1 if the CEO serves as board chair and 0 otherwise. TENURE is the number of years at the company before appointed to a CEO position. FAM_OWN is the percentage of capital held by family. INST_OWN is the percentage of capital held by institutional investors. EMPL_OWN is the percentage of capital held by employees. LEV is the ratio of total financial debt to total assets. FOR_ASS is the ratio of foreign assets to total assets. RISK represents the beta. R&D is the ratio of research and development to total sales. SIZE is the natural logarithm of the total assets. GRE1 is a binary variable equal to 1 after the adoption of the Grenelle I Act in 2009 and 0 otherwise. Industry is a dummy that equals 1 if the company belongs to the sector in question and 0 otherwise. *, **, *** represent significance at 0.10, 0.05 and 0.01 levels, respectively.
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Research Highlights We provide valuable insights into how female directorship is of major importance for the relevance of voluntary CSR reporting.
Both CSR reporting and female directorship are endogenously determined.
We control for differences in firm characteristics between firms with and without female board membership by using propensity score matching
Our finding holds when we use the accounting-based performance measures, namely, return on assets and return on equity.
Results provide a substitute relationship between gender-diverse boards and CSR assurance through independent third parties.
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