The relationship between CSR and firm risk: do board diversity and CSR committee matter?

Purpose This paper aims to explore the moderating effect of Board Diversity (BD) and Corporate Social Responsibility Committee (CSRCOM) on the nexus between CSR and firm risk. Furthermore, these relationships are studied across weak and strong governance countries. Design/methodology/approach Using panel data methods, the authors use Ordinary Least Squares regression with time and industry-fixed effects using a sample of 4,405 nonfinancial companies from 39 countries during the period 2002–2020. To account for endogeneity concerns, the authors use Two-Stage Least Squares regression and Propensity Score Matching analysis. Moreover, several robustness tests are performed to verify the model and measurement consistency. Findings Firms that actively engage in CSR tend to experience low firm risk (systematic and total risk). In addition, BD negatively moderates the CSR–risk relationship. However, the findings do not suggest that CSRCOM moderates the CSR–risk nexus. This study recommends that ensuring a balance in gender representation could prove advantageous in capitalizing on the benefits of socially responsible investments. Further analysis shows that the effect of BD on CSR–risk relationship is greater in countries with strong governance. Practical implications The insights taken from this study are important for stakeholders to grasp the importance of a diverse board in terms of enhancing the risk management function of CSR. Specifically, the findings may be helpful for potential investors to account for the benefits of board diversity when making investment decisions, as firms with diverse boards may demonstrate better systematic and price risk management through CSR engagement. Moreover, the company’s management should focus on enhancing the risk management role of CSRCOM rather than maintaining it as a symbolic body. Originality/value This study offers novel findings on the role of BD and CSRCOM as moderating channels in driving the CSR–risk relationship in international settings. Moreover, this study pointed out that country-specific institutional factors drive the positive role of BD in the CSR–risk relationship.