Gender diversity: the corporate social responsibility and financial performance nexus

The authors investigate the role of gender in the way firms evaluate and resolve the ethical dilemma founded on the corporate social responsibility–corporate financial performance (CSR–CFP) nexus. This study is premised on Gilligan's “two voices” theory and the social role theory that there is a gender-based difference in moral thinking.

The authors adopt the two-stage least squares (2SLS) and generalized method of moments (GMM) approach to control for simultaneity between female representation on boards, CSR and financial performance. The sample consists of 9,569 firm-year observations from 1,527 US firms for the period 1996–2014.

The authors find that CSR initiatives and activities undertaken by US firms are profit maximizing. However, the return on investment in CSR decreases with the proportion of female directors on the board. This study underscores the importance of considering gender in furthering the understanding of how firms address the CSR–CFP nexus.

This research is not without limitations, which includes the way the authors operationalize CSR. The CSR scores from the MSCI ESG database have been criticized for being relatively weak predictors of actual CSR outcomes. Since the CSR–CFP nexus is likely to be far more complex than that portrayed by the KLD scores, the authors encourage future research to explore metrics of other social rating agencies which perhaps better capture the quality of a firm's CSR.

In the face of the long and unresolved debate on the effect of gender diversity on the board's monitoring efficacy and decision- making process (Adams and Ferrera, 2009), the authors’ finding that female directors' moral orientation and investment in CSR affect firms' bottom-line figures has important implications for shareholders and regulators, helping them to see how gender may play an important role in addressing this relationship.

Although prior studies provide useful insights into the nexus between CSR and CFP, little is known whether gender affects this relation. This research provides empirical support for Gilligan's “two voices” theory that there is a gender-based difference in moral thinking.