Board reforms around the world: The effect on corporate social responsibility

Research Question/Issue: This study examines the effects of major board reforms on firms' corporate social responsibility (CSR) performance in countries around the world. Research Findings/Insights: Using a difference-in-differences design, we find robust evidence that worldwide board reforms can have significant effects on various stakeholders, resulting in increased firm CSR performance in both the environmental and social dimensions. Relative to countries that have implemented comply-or-explain reforms, countries with rule-based reforms tend to drive the increase in CSR performance post-reform. Our results hold for both first board reforms and major reforms, across different types of reforms, and across various dimensions of CSR performance. In addition, the effect of reforms on CSR performance is more pronounced for firms with higher levels of institutional ownership or lower levels of insider ownership and in countries with weaker CSR awareness and more stringent legal and regulatory environments. Further analyses show that reforms strengthen the relationship between CSR performance and future financial performance. Finally, we explore the possible mechanism through which board reforms could have a significant effect on firms' CSR performance. We find that board reforms increase a firm's likelihood of integrating CSR criteria in executive compensation. Theoretical/Academic Implications: The findings of this study suggest that worldwide board reforms that aim to increase shareholders' value can also have significant effects on various stakeholders, resulting in increased firm CSR performance in both the environmental and social dimensions, a non-financial dimension of firm performance. Practitioner/Policy Implications: Our evidence suggests that increases in CSR performance are an important channel through which board reforms can increase shareholder value. In addition, our findings suggest that the effectiveness of reforms on CSR varies with both firm- and country-level characteristics related to the relative influence of external shareholders. Thus, this study offers insights to policy makers interested in enhancing CSR performance in their country. ? 2021 John Wiley & Sons Ltd.