Uncovering the role of foreign ownership in the relationship between board nationality diversity and ESG

Abstract

This study investigates the relationship between board nationality diversity (BND) and environmental, social, and governance (ESG) in developing countries. It also highlights the role of legitimacy concerns in investigating how foreign ownership moderates the connection between BND and ESG due to the increased liability of foreignness. Using a sample of listed firms in Johannesburg stock exchange (JSE) in South Africa over 2015–2020, our two-step system GMM findings show that board nationality diversity positively affects ESG. Moreover, our study found that foreign ownership strengthens the positive connection between BND and ESG. Our study contributes to the literature by highlighting the importance of legitimacy theory in the dynamic nexus between BND and ESG. The findings of this study have substantial implications for firms, investors, and stakeholders.