Mind the gap: independent directors and corporate social responsibility in China

Abstract

PurposeThis study aims to examine the effect of independent directors on the corporate social responsibility (CSR) gap – a misalignment between internal and external CSR. More specifically, the authors investigate how two types of independent directors (i.e. politically connected and foreign) affect a firm’s CSR gap in China.Design/methodology/approachThe authors use the fixed-effects regression model to analyze the panel dataset, which is conducted by a sample of Chinese publicly listed firms from 2008 to 2015.FindingsThe findings indicate that, on average, firms undertake more external than internal CSR actions. Importantly, the authors find that firms having politically connected independent directors on boards have a wider gap between their internal and external CSR. In contrast, firms having foreign independent directors on boards have a narrower gap between their internal and external CSR.Practical implicationsThis study provides insights into the role of independent directors in increasing or decreasing the gap between a firm’s internal and external CSR actions, which offers important implications for policymakers and investors.Originality/valueThis study extends the literature on the causes of the CSR gap and deepens the theoretical understanding of the governance role of independent directors in China.