Board diversity and quality of CSR

disclosure: evidence from Pakistan

Imran Khan, Ismail Khan and Ismail Senturk

Abstract Imran Khan is based at the

Purpose – This study aims to examine the relationship between board diversity and quality of corporate Department of
social responsibility (QCSR) disclosure. Management Sciences,
Design/methodology/approach – The study estimates seven dimensions of board diversity including Institute of Information
age, gender, nation, ethnicity, educational level, educational background and tenure by applying Blau’s Technology, Commission
index. The relationship between board diversity and QCSR disclosure from the perspective of the on Science and Technology
resource-based view theory is estimated by using panel random effects regression across 57 firms for Sustainable
producing exclusive sustainability reports listed in the Pakistan Stock Exchange from 2010 to 2017. The Development in the South,
robustness of the results has also been checked through alternative measurements of the variables
Islamabad, Pakistan.
under study.
Ismail Khan is based at the
Findings – The regression results reveal that gender and national diversities are the firms’ valuable Commission on Science
resources, having the potential to promote QCSR disclosure. However, age diversity was found to be
and Technology for
negatively associated to QCSR disclosure. Furthermore, educational level, educational background,
Sustainable Development
ethnicity and tenure were insignificant on QCSR disclosure. The sensitivity analysis supports the findings
of the baseline model. in the South, Islamabad,
Pakistan.
Research limitations/implications – Pakistani firms need to improve the level of board diversity
Ismail Senturk is based at
through encouragement of the inclusion of diverse forces of gender and nationality to enhance disclosure
on CSR practices. the Department of
Originality/value – This is the first study on board diversity and QCSR in the case of Pakistan. Economics,
Gaziosmanpas a University,
Keywords Pakistan, Board diversity, QCSR disclosure, RBV theory
Tokat, Turkey.
Paper type Research paper

Introduction
Growing national and global concern on the role of businesses in society attracted a
considerable attention of regulators, boards and media. Corporate social responsibility
(CSR) disclosure has become an important issue among firms and is used as a marketing
tool to increase awareness (McWilliams and Siegel, 2001) so as to fulfill the increasing
demand of various groups of stakeholders, particularly investors (Saleh et al., 2011),
because of its attractive consequences reflected in corporate performance (Qiu et al.,
2016), trust and reputation (El Ghoul et al., 2011), strong stakeholders relationship (Garcia-
Sanchez et al., 2014), transparency and accountability (Boulouta, 2013), corporate
legitimacy (Beddewela and Fairbrass, 2016) and lower cost of capital through better cash
flow management (Jizi, 2017).
The extent of literature reveals a strong relationship between good corporate governance
(CG) and firms’ market evaluation (Ahmed Sheikh and Wang, 2012; Mishra and Kapil, 2017)
and that the board of directors is considered the cornerstone of governance frameworks
(Rathnayaka Mudiyanselageb, 2018; Assenga et al., 2018; Murphy and McIntyre, 2007).
Received 4 December 2018
The board of directors is arguably obligated to set CSR agendas, devote firm resources Revised 16 May 2019
and develop strategies for sustainable corporate operations (Jizi, 2017). Therefore, board Accepted 17 May 2019

DOI 10.1108/CG-12-2018-0371 VOL. 19 NO. 6 2019, pp. 1187-1203, © Emerald Publishing Limited, ISSN 1472-0701 j CORPORATE GOVERNANCE j PAGE 1187
 composition plays a major role in determining socially, ethically and environmentally
responsible behaviors and corporate strategic decision-making (Cucari et al., 2018;
Michelon and Parbonetti, 2012). Among various aspects of board composition, board
diversity is considered more relevant for quality disclosure (Katmon et al., 2017; Amran
et al., 2014). Although, most of the empirical studies both in developed and developing
nations demonstrate that the aspects of board composition ensure that firms meet CSR
objectives (Rao and Tilt, 2016a; Chang et al., 2017). However, studies on board diversity
have largely concentrated on its impact on firm performance (Carter et al., 2010), CSR and
social performance (Kyaw et al., 2017; Alazzani et al., 2017), and a very few studies have
examined the relationship between board characteristics and CSR disclosure quality
(Ahmed Haji, 2013; Katmon et al., 2017).
Despite the growing literature in Pakistan on the strong empirical link between CG and CSR
practices (Javaid Lone et al., 2016; Rafique et al., 2017; Majeed et al., 2015; Sharif and
Rashid, 2014; Javaid Lone et al., 2016), the board characteristics are linked to either firm
performance or financial reporting (Rashid and Islam, 2013; Bhat et al., 2018; Ahmed
Sheikh and Wang, 2012; Sohail et al., 2017). There is a lack of studies conducted in
Pakistan that comprehensively measure the impact of board diversity on CSR disclosure.
According to Murphy and McIntyre (2007), the context is the central question. The quality of
CSR disclosure in developing economies is not implicitly identical and could differ within
different regions. This study is, therefore, conducted to address the research gap and
provide preliminary examination into the impact of board diversity on quality of CSR
disclosure in the context of Pakistan. This study has combined quantitative disclosure and
qualitative disclosure of 57 firms listed in the Pakistan Stock Exchange (PSX) that produced
sustainability reports over the period of eight years from 2010 to 2017 (inclusive).
This paper offers many contributions. First, to the best of our knowledge and a thorough
review of existing literature, the present study is the first that presents preliminary
examination into the impact of board diversity on CSR disclosure quality in the case of
Pakistan. Second, the study focuses on all listed firms (financial and non-financial) in the
PSX that have published exclusive sustainability reports consecutively for at least three
years. Third, the present study improves our knowledge about the potential value and
growing literature on board diversity and CSR disclosure in the case of Pakistan. Fourth, this
study is expected to fill the gap by contributing to the existing literature on CSR disclosure
quality assessment, which is a relatively unexplored research area.

Literature review and hypotheses development

CG is focused on the principles of transparency, accountability, fairness and firm’s
management responsibilities (Ehikioya, 2009), which depend on the board of directors
(Jamali et al., 2007), which is considered the foundation of the CG framework (Darko
et al., 2016; Bueno et al., 2018). Among various factors that indicate different dimensions
of the corporate board, board diversity is emerging as the most significant issue in the
field of CG (Rhode and Packel, 2014; Ibrahim and Hanefah, 2016; McIntyre et al., 2007).
Board diversity is the heterogeneity among board members (Ayuso and Argandona,
2009). It involves various categories such as diversity in age, gender, ethnicity,
nationality, education, task, skill, expertise, experience, preferences (political and sexual
preference) and religion (Van Knippenberg et al., 2004). Based on the resource-based
view (RBV) theory, Kyaw et al. (2017) demonstrated that a more diverse board is capable
of attracting more resources. Diverse boards improve the firm’s strategic decision quality
(Rathnayaka Mudiyanselageb, 2018; Michelon and Parbonetti, 2012), identify and fulfill
stakeholder’s requirements (de Jong and van der Meer, 2017) and improve the firm’s
reputation and performance (Makkonen et al., 2018; Arora and Sharma, 2016) and global
existence (Butler, 2012). Diversity in board composition ensures that novel ideas are
brought forward by the board and that a variety of values and behaviors are represented

PAGE 1188 j CORPORATE GOVERNANCE j VOL. 19 NO. 6 2019

(Murphy and McIntyre, 2007). Homogeneous boards, on the other hand, with more
similar perspectives, opinion and collectivism tend to increase conformity in a group
dynamic (Jizi, 2017) that leads to a lower quality of board discussion, failure and
weakened governance in general (Handajani et al., 2014).
CSR as a corporate issue emerged in the early 1960s across a range of disciplines,
received considerable attention (Pintao et al., 2018) and now comprises an aggregation of
different approaches, theories, terminologies and concepts (Dupire and M’Zali, 2018).
Among these, CSR disclosure is the concept that has recently become important both at
the national and the global level (Raymond Lawrence et al., 2013). CSR disclosure is the
information reported in annual or sustainability reports demonstrating the influence of firms’
activities on society, environment and uses of natural resources (Garcia-Sanchez et al.,
2014). However, previous studies denominate CSR disclosure differently but basically refer
to the same domain. Katmon et al. (2017) argued that board diversity improves the quality
of CSR disclosure, given that it is an outcome of the judgment, discretion and decision-
making process that is mainly derived from their personal (i.e. age, gender, ethnical,
national) and professional (i.e. educational level, educational background, tenure) contexts.
Furthermore, Rao and Tilt (2016a) argued that there are far fewer studies on the relationship
between board diversity and CSR reporting, CSR performance and quality of CSR
disclosure but what results exist confirm a significant relationship.
Unlike financial disclosure, there is no mandatory standard for CSR (Deegan et al., 2006),
and hence, there is a high possibility that individuals’ values, beliefs and customs are likely
to influence board discussion related to CSR (Hemingway and Maclagan, 2004). Alternative
perspectives and critical debates facilitated by diversity are more important when it comes
to uncertain and complex decisions, such as those related to CSR disclosure (Wiersema
and Bantel, 1992). After a detailed review of literature on board characteristics and CSR
disclosure, Rao and Tilt (2016a) documented some major gaps in the existing literature on
board diversity and CSR performance, CSR decision and, most notably, CSR disclosure.
The current study extends the existing literature by examining the relationship between
board diversity and quality of CSR disclosure in developing nations generally and in
Pakistan specifically.

Corporate board age diversity

According to Darmadi (2011), board age diversity creates values and diverse views in the
sense that each decade is unique, is special and has experienced different social,
economic and political environments, which consequently increases board effectiveness.
Demonstrating the basic concept of the RBV theory, Li et al. (2011) asserted that age
diversity stimulates proficiency and innovation, which improve firms’ competitive advantage.
Existing literature reveals mixed results, such as a negative association between the age of
board members and CSR performance was reported by Hafsi and Turgut (2013). Post et al.
(2011) also reported a negative link between board age diversity and CSR reporting.
McIntyre et al. (2007) found that a moderate level of age diversity improves firm
performance. Katmon et al. (2017) demonstrated an insignificant relationship between age
diversity and quality of CSR disclosure. However, Goergen et al. (2015) argued that a high
level of age diversity on the board improves board effectiveness and firm’s performance.
Hence, it has been hypothesized that:
H1. Ceteris paribus, diversity of age on the board is positively related to firms’ QCSR
disclosure.

Corporate board gender diversity

In recent years, gender is the most common diversity measure that has become the
axis area of many research studies in the developed and developing markets

VOL. 19 NO. 6 2019 j CORPORATE GOVERNANCE j PAGE 1189

 (Hoang et al., 2018; Assenga et al., 2018; Garanina and Kaikova, 2016) and is equally
essential in other fields such as politics, society and government (Barroso et al., 2011).
In line with the RBV theory, Katmon et al. (2017) argued that sustainable competitive
advantages and CSR initiatives could be improved by female membership in a board.
Post et al. (2011) demonstrated that female representation on the board is closely
connected with a higher level of CSR disclosure. Prior literature reveals mixed results;
for example, Muttakin et al. (2015) and Shamil et al. (2014) found a negative link
between board gender diversity and CSR disclosure. Whereas, Amran et al. (2014)
found no relationship between gender diversity and CSR practices. However, most
studies document a positive relationship between gender diversity and CSR reporting
(Javaid Lone et al., 2016; Gul et al., 2017; Majeed et al., 2015; Ibrahim and Hanefah,
2016). Hence, it has been hypothesized that:
H2. Ceteris paribus, diversity of gender on the board is positively related to firms’ QCSR
disclosure.

Corporate board national diversity

Prior literature supports the positive aspects of national diversity in a boardroom (Makkonen
et al., 2018; Ameer et al., 2010). Based on the ideas of the RBV theory, Hsu et al. (2013)
argued that appointment of multinational directors on the board is one of the most valuable
resources of any firm’s improved CSR reporting. Appointments of directors on the board
from different nations serve as the firm’s valuable resource to improve board members’
performance (Estelyi and Nisar, 2016). Therefore, their prior knowledge and experience on
CSR issues in the international market are useful determinants to improve the CSR quality.
Given that, multinational directors’ representation on the board promotes CSR reporting on
account of their international exposure, knowledge, skill and experience. Existing literature
reveals mixed results; for example, Katmon et al. (2017) found a negative relationship
between national diversity and CSR disclosure. Barako and Brown (2008) found an
insignificant link between a nationally diverse board and CSR disclosure. Other studies
such as those by Ibrahim and Hanefah (2016) and Muttakin et al. (2015) found a positive
association between nationally diverse boards and social reporting. Thus, the following
hypothesis has been designed:
H3. Ceteris paribus, diversity of nationality on the board is positively related to firms’
QCSR disclosure.

Corporate board ethnic diversity

In line with the RBV theory, racial or ‘‘race ethnicity’’ diversity in the board can be classified
as one of the firm’s valuable resources that have the potential to achieve a competitive edge
(Fitzsimmons, 2013). Each culture is diverse with respect to norms, values, beliefs,
behaviors and ethical rules that affect firms’ strategic decisions (Zhang, 2012). Ethnically
diverse boards might be able to understand different groups of stakeholders’ needs from a
CSR perspective (Miller and del Carmen Triana, 2009) and report more quality information
on financial and non-financial aspects of the business than boards having members from
the same racial groups (Butler, 2012; Carter et al., 2010). Prior literature documented mixed
results; for example, Upadhyay and Zeng (2014) asserted a negative impact of racial
diversity on firms’ environmental disclosure. However, Shamil et al. (2014) reported an
insignificant relationship between ethnic diversity and CSR disclosure. Zhang (2012) and
Hafsi and Turgut (2013) documented a positive relationship between ethnicity and
sustainability disclosure. Based on mixed results in the existing literature, the following
hypothesis has been outlined:
H4. Ceteris paribus, diversity of ethnicity on the board is positively related to firms’ QCSR
disclosure.

PAGE 1190 j CORPORATE GOVERNANCE j VOL. 19 NO. 6 2019

Corporate board educational level diversity
Alternative ideas have been generated on strategic issues like CSR disclosure when there
is educational level diversity in a board (Katmon et al., 2017). Based on the RBV theory,
educational level diversity is one of the major resources contributing to a firm’s strategic
performance (Barney, 1991). Board of directors with high-level and low-level education is a
valuable resource for firm’s performance, as it comprises board members with conscious
mental ability, capability to process information and improved competence to realize new
insights and abstractions (Hsu et al., 2013). Existing literature presents mixed results.
Subramanian et al. (2016) contend that there is a negative association between educational
level and innovation performance. However, Harjoto et al. (2015) documented a positive
association between educational diversity and CSR performance. Katmon et al. (2017) also
reported a positive relationship between educational level diversity and CSR disclosure.
Looking into the mixed results in this area, we hypothesize that:
H5. Ceteris paribus, diversity of educational level on the board is positively related to
firms’ QCSR disclosure.

Corporate board educational background diversity

In line with the RBV theory, Barroso-Castro et al. (2017) documented that diversity of
educational background on the board is a valuable resource for strategic decision-making
such as decision on CSR disclosure. Heterogeneous educational background indicates
diverseness in individual mentality, intellect, cognitive ability and attitude, which results in
an improvement in quality of CSR disclosure. Educational background diversity derives
knowledge and improves board members’ ability to generate and share new insights
(Barroso-Castro et al., 2017) and enhances the strategic decision-making process (Clark
and Maggitti, 2012). Vo and Phan (2013) argued that board effectiveness increases with
board representatives from divergent disciplines. Therefore, to improve CSR disclosure,
difference in educational background of board members is important to debate on financial,
social, ethical, moral, environmental, legal and public welfare context before making
strategic policies. Hence, based on the RBV theory, the following hypothesis has been
developed:
H6. Ceteris paribus, diversity of educational background on the board is positively
related to firms’ QCSR disclosure.

Corporate board tenure diversity

According to Shiah-Hou and Cheng (2012), tenure is the length of time for which a director
holds the office of a director in an organization. Following the RBV theory, Barroso et al.
(2011) contend that tenure heterogeneity improves firms’ competitive advantage. Huang
and Hilary (2018) stated that tenure heterogeneity in a firm’s board is more important and
results in better performance than boards with a homogeneous tenure. Boards with diverse-
tenure directors better comprehend firm’s operations (Harjoto et al., 2015), are more familiar
about firm’s regulation (Liu and Sun, 2010) and disclose symmetric information (Donoher
et al., 2007). Existing literature reveals mixed results on tenure diversity; for example,
Handajani et al. (2014) contend that longer service of board members lowers the CSR
activities. Harjoto et al. (2015) found an insignificant influence of tenure diversity on CSR
strength. Hafsi and Turgut (2013) also presented an insignificant relationship between
tenure diversity and CSR performance. In contrast, McIntyre et al. (2007) found that a
moderate level of tenure diversity improves firm’s performance. Katmon et al. (2017) found
a positive significant relationship between tenure diversity and quality of CSR disclosure.
Based on mixed results, it is expected that:

VOL. 19 NO. 6 2019 j CORPORATE GOVERNANCE j PAGE 1191

 H7. Ceteris paribus, diversity of tenure on the board is positively significant to firms’
QCSR disclosure.

Data and methodology

Data
The population of the study is all listed firms in the PSX. The reason for the inclusion of all
listed firms would allow the empirical study to cover a broad range of economic practices
and provide a comprehensive analysis of CSR disclosure practices in Pakistan. This is
based on the view that regulations related to CG and CSR in the PSX are for all listed firms
regardless of the industry. Owing to a small number of firms in certain industries, following
Darus et al. (2014), we combine some industries that hold similar types of businesses (i.e.
textile weaving, textile composite and textile spinning are represented under the heading
“textile”). Thus, the resultant sample includes 15 sectors, involving 57 sustainability
reporting firms with a total of 466 firms-year observations, as presented in Table I.
The study has used multiple sources of secondary data. The data collection has been
based on four conditions. First, those firms were considered that produced sustainability
reports upon CSR consecutively for at least three years. Second, the firm must be
registered with the PSX at least since 2010. Third, only those firms have been considered
that have at least Rs 500m total market capitalization. Fourth, an examination of CSR
disclosure practices of all listed firms in the PSX reveals that the phenomenon of
sustainability reporting started in 2010 for the first time in Pakistan. Therefore, looking into
the facts, the span of the present study is set at eight years from 2010 to 2017.

Dependent variable
QCSR disclosure is the dependent variable of the study covering quantitative, qualitative
and narrative information rather than just quantitative information. Following Saleh et al.
(2011), the final checklist consists of 20 items of QCSR disclosure, modified by including
the items relevant to Pakistani firms. Sixty is the maximum score that a firm can achieve.
QCSR disclosure index is calculated as a firm’s total obtained score divided by total
maximum possible score, which is 60. The scoring process has been classified into the
following four categories:

Table I Sample distribution by sector

Serial no. Sectors of PXS No. of firm-produced sustainability reports

1 Automobile 7
2 Cement 5
3 Chemical 5
4 Commercial banks 7
5 Engineering 4
6 Fertilizer 5
7 Food 4
8 Glasses and ceramics 1
9 Insurance 2
10 Oil and gas 4
11 Pharmaceutical 3
12 Power generation and distribution 3
13 Refinery 3
14 Technology and communication 2
15 Textile 2
Total 57

PAGE 1192 j CORPORATE GOVERNANCE j VOL. 19 NO. 6 2019

1. Quantitative disclosure that contains quantitative CSR-related information has been
assigned the greatest value of “3”.

2. Qualitative specific disclosure that contains specific CSR-related information has been
assigned the value of “2”.

3. Qualitative disclosure has been assigned the weight of 1 that contains CSR-related
generic information.

4. Companies that failed to disclose any kind of CSR information for the respective items
in the disclosure index have been given a score of ‘‘0’’.

Independent variables
Seven board diversity dimensions, i.e. age, gender, nationality, ethnicity, educational level,
educational background and tenure service, are considered as independent variables of
the study. Following Rao and Tilt (2016b), Bravo (2018) and Alazzani et al. (2017), Blau’s
index of heterogeneity is used to measure different dimensions of board diversity. Blau’s
index (Blau, 1977) takes on a value between 0 and 1.

X
n
BI ¼ 1  Pi2
i¼1

where BI represents Blau’s index, “P” is the proportion of board members in each category,
“i” represents category and “n” is the total number of board members in each category.
AGE is the diversity index for age with two categories: less than 50 years old and more than
50 years old. GENDER is the diversity index for gender with two categories: male and
female. NATIONAL is based on two categories: Pakistani nationality and foreign nationality.
ETHNIC is Blau’s index for ethnicity with five ethnic categories: Punjabi, Sindhi, Balochi,
Pashtun and others. EDULEVEL is the heterogeneity index for educational level with five
categories: PhD, MS/MPhil, master’s degree holder, diploma and others. EDUBGROUND is
the heterogeneity index for educational background with six categories: HR and
accountancy, banking and finance, economics, engineering, law and others. TENURE is
based on five categories: less than three years, six, nine, 12 and 15 years or more (i.e. 1, 2,
3, 4 and 5 or more).

Control variables
Control variables are board characteristics (i.e. board size, board meetings and board
independence), audit committee characteristics (i.e. audit committee size, audit committee
meetings and audit committee independence) and firm’s specific characteristics (i.e.
company size, leverage and company loss). We also control for year dummy and industry
dummy.
BODSIZE is the number of directors in a board. BODMEEET is the number of board
meetings held in a year. BODIND is the board independence, calculated as the proportion
of independent directors to total board members. ACSIZE is the number of audit committee
members. ACMEET is the frequency of audit committee meetings. ACIND is the audit
committee independence, proportional to total audit committee members. SIZE is the
natural log of market capitalization of a firm. LEV is the leverage, calculated as debt to
equity ratio. LOSSCO is the company loss, measured using dummy “1” if a company has
negative earning in a particular year, and “0” otherwise. YEAR DUMMY and INDUSTY
DUMMY are used to measure specific year and industry effect, respectively.

VOL. 19 NO. 6 2019 j CORPORATE GOVERNANCE j PAGE 1193

 Model
An econometric model has been developed to apply on the data set under study to
examine the relationship between board diversity and QCSR disclosure. Panel fixed effects
or panel random effects (PRE) is the modeling technique that could be applied to analyze
the longitudinal data. PRE is selected after applying the Hausman test:

QCSRit ¼ a þ b 1 AGEit þ b 2 GENDERit þ b 3 NATIONit þ b 4 ETHNICit þ b 5 EDULEVELit

þ b 6 EDUBGROUNDit þ b 7 TENUREit þ b 8 BODSIZEit þ b 9 BODMEETit
þ b 10 BODINDit þ b 11 ACSIZEit þ b 12 ACMEETit þ b 13 ACINDit
þ b 14 SIZEit þ b 15 LEVit þ b 16 LOSSCOit þ b 17 BIG4it
þ b 18 YEARDUMMYit þ b 19 INDUSTRYDUMMYit þ « it

where QCSR disclosure is the dependent variable of the study covering quantitative,
qualitative and narrative information. Following Saleh et al. (2011), QCSR disclosure index
contains 20 items with a maximum score of 60 that a firm could achieve and calculated as
the firm’s obtained score for a year divided by QCSR index score, which is 60.

Results and discussion

Descriptive statistics
Table II presents descriptive statistics and paired samples t-test of the variables. The
average level of QCSR disclosure is 0.491 with a minimum value of 0.183 and a maximum
value of 0.733.This is higher than 0.219 reported by Katmon et al. (2017) for Malaysia, 0.300
reported by Ibrahim and Hanefah (2016) for Jordan, 0.150 reported by Barako and Brown
(2008) for Kenya and 0.223 reported by Muttakin et al. (2015) for Bangladesh. The result is
consistent with other studies in the developing countries, which indicates that CSR
disclosure is low when compared with developed countries (Muttakin et al., 2015, for
Bangladesh; Majeed et al., 2015, for Pakistan; Barako and Brown, 2008, for Kenya; Ahmed
Haji, 2013, for Malaysia).

Table II Descriptive statistics

Paired sample t-test
Non-financial Financial Mean
Variables Obs. Mean SD Minimum Maximum firms’ mean firms’ mean difference t-statistics

QCSR 466 0.4906 0.1070 0.1833 0.7333 0.4911 0.4886 0.0025 0.1871
AGE 466 0.4197 0.0916 0.0000 0.6000 0.4191 0.4221 0.0029 0.2543
GENDER 466 0.0783 0.1385 0.0000 0.5000 0.0918 0.0285 0.0633 3.61
NATION 466 0.1997 0.2148 0.0000 0.6000 0.2137 0.1481 0.0657 2.39
ETHICS 466 0.6861 0.0894 0.4000 0.8000 0.6749 0.7272 0.0523 -4.69
EDULEVEL 466 0.4967 0.1250 0.2000 0.7000 0.4964 0.4974 0.0009 0.0582
EDUBGOUND 466 0.7136 0.0685 0.4000 0.8000 0.7148 0.7090 0.0057 0.6528
TENURE 466 0.6133 0.1182 0.2000 0.8200 0.5985 0.6675 0.0689 -4.66
BODSIZE 466 8.9461 1.7230 7.0000 16.000 8.7773 9.5455 0.7606 -3.52
BODMEET 466 6.0638 2.3623 4.0000 16.000 6.1590 5.7142 0.4447 1.4670
BODIND 466 0.2006 0.1506 0.0000 0.7500 0.1812 0.2719 0.0907 -4.82
ACSIZE 466 4.0222 1.0658 3.000 9.0000 3.9894 4.1428 0.1534 -1.1206
ACMEET 466 4.5305 0.8635 4.0000 11.000 4.5441 4.4805 0.0636 0.5730
ACIND 466 0.3069 0.2027 0.0000 0.8000 0.2989 0.3663 0.0374 -1.4384
SIZE (million $) 466 799.6135 1431.7 4.790 10920.6 862.875 568.570 294.30 1.715
LEV 466 0.5355 0.6643 0.0000 4.7000 0.5198 0.5935 0.0731 0.8630
LOSSOCO 466 0.1611 0.3681 0.0000 1.0000 0.1519 0.1948 0.0428 0.9056

PAGE 1194 j CORPORATE GOVERNANCE j VOL. 19 NO. 6 2019

The average value of age diversity was found to be 0.419, which is higher than the findings
of other studies in developing nations; for example, Bravo (2018) reported a value of 0.110,
Ibrahim and Hanefah (2016) reported 0.137 and Katmon et al. (2017) reported 0.1589. This
is lower than that reported for the firms in developed nations; for example, Harjoto et al.
(2015) reported a value of 0.781 for large US firms. The average for gender diversity is
0.080 and ranges from 0.000 to 0.506 for the years 2010 to 2017. This is quite similar to the
findings of 0.081 by Rathnayaka Mudiyanselageb (2018) for Sri Lanka and slightly higher
than previous research findings in Pakistan such as 0.051 by Majeed et al. (2015) and 0.040
by Javaid Lone et al. (2016). This shows a very slow upward trend of gender diversity in
listed firms of the PSX in the recent years to fulfill the requirement of at least one female
director in the board by the end of 2017, as decreed mandatory by the new CG code of
2017. The mean value of national diversity is 0.199, ranging from 0.000 to 0.600, which is
higher compared with that reported in existing studies by Muttakin et al. (2015), Ibrahim and
Hanefah (2016) and Katmon et al. (2017) that found the mean value for national diversity to
be 0.059 in Bangladesh, 0.110 in Jordan and 0.070 in Malaysia, respectively. The mean
value for ethnic diversity is 0.5861, which is higher than findings of 0.547 and 0.160 by
Harjoto et al. (2015) and Bravo (2018), respectively. The range for educational level is 0.200
to 0.710, with a mean value of 0.497. The average value of educational background is
0.714, which is consistent with the previous study findings of 0.721 by Katmon et al. (2017).
With respect to tenure, the mean value for tenure diversity is 0.613, which is somewhat
lower as compared with findings by Harjoto et al. (2015) and Hafsi and Turgut (2013), who
found it to be 0.831 and 0.741, respectively.
As shown in Table II, the mean value of board size is 8.946, with a range 7.000 to 16.000,
which is similar to the finding of 8.135 by Rathnayaka Mudiyanselageb (2018) and slightly
larger than the finding of 7.710 by Alazzani et al. (2017). With regard to board meetings, the
average of board meetings is 6.064. This is similar to the finding of 6.750 by Bhat et al.
(2018) for Pakistan. The mean value for board independence is 0.180, which is slightly
higher than the average value of 0.075 found by Barako and Brown (2008) and lower than
the findings of 0.530 and 0.826 by Cucari et al. (2018) and Bravo (2018), respectively. The
mean audit committee size is 4.022, which is larger than 3.91 found by Darko et al. (2016).
With regard to audit committee meetings, the average value is 4.531. The mean of audit
committee independence is 0.307, which is lower than the finding of 0.887 by Katmon et al
(2017). The mean value of firm size is $799.614m. The mean leverage ratio is 0.536, which
is higher than 0.201 and 0.295 found by Harjoto et al. (2015) and Ehikioya (2009),
respectively. However, this is slightly lower than the mean value of 0.60 found by Javaid
Lone et al. (2016). In terms of loss, the firms’ mean loss is 0.1611, which indicates that 16.11
per cent of the total firms in the PSX have negative earnings.
The last column of Table II reports sample t-statistics to examine any difference between
financial and non-financial firms. The results present that almost all the variables show
insignificant differences. However, with respect to gender, nation and firm size, non-
financial firms are more diverse than financial firms. And financial firms are more diverse
with respect to ethnic and tenure diversity, with larger board size and board independence
compared with non-financial firms.

Regression results
To test the hypotheses, we have applied PRE regression. Model 1 in Table III reports the
results of the baseline model in which QCSR disclosure was regressed on board diversity
variables along with control variables. The coefficient and standard error of AGE ( b =
0.137; SE = 0.072) at p < 0.04 are negatively and significantly related to QCSR
disclosure, which indicates that higher age diversity in the board in Pakistan may reduce
quality of CSR disclosure. This may be the result of poor management intervention, weak
governance in institutions, family-owned businesses, favoritism and nepotism. Furthermore,

VOL. 19 NO. 6 2019 j CORPORATE GOVERNANCE j PAGE 1195

 Table III Panel random effects regression
Model 1 Model 2 Model 3
Baseline model Financial firms Non-financial firms
Variables Expt. sign Coefficient (SE) Coefficient (SE) Coefficient (SE)

AGE þ 0.137 (0.072) 0.385 (0.141) 0.071 (0.075)

GENDER þ 0.099 (0.048) 0.209 (0.167) 0.148 (0.051)
NATION þ 0.061 (0.037) 0.096 (0.089) 0.054 (0.033)
ETHNIC þ 0.006 (0.073) 0.026 (0.244) 0.027 (0.074)
EDULEVEL þ 0.069 (0.058) 0.093 (0.161) 0.013 (0.067)
EDUBGROUND þ 0.035 (0.094) 0.338 (0.185) 0.133 (0.107)
TENURE þ 0.010 (0.041) 0.241 (0.161) 0.012 (0.041)
BODSIZE þ 0.006 (0.005) 0.014 (0.008) 0.010 (0.006)
BODMEET þ 0.001 (0.002) 0.009 (0.008) 0.001 (0.002)
BODIND þ 0.021 (0.055) 0.046 (0.125) 0.146 (0.061)
ACSIZE þ 0.020 (0.005) 0.016 (0.009) 0.014 (0.014)
ACMEET þ 0.001 (0.005) 0.048 (0.018) 0.009 (0.005)
ACIND þ 0.055 (0.031) 0.029 (0.096) 0.016 (0.047)
SIZE þ 0.025 (0.005) 0.005 (0.015) 0.031 (0.005)
LEV þ 0.025 (0.009) 0.043 (0.026) 0.022 (0.011)
LOSSCO 6 0.029 (0.017) 0.036 (0.039) 0.019 (0.018)
Constant 0.317 (0.104) 0.698 (0.285) 0.272 (0.116)
Year dummy Yes Yes Yes
Industry dummy Yes Yes Yes
Observation 466 80 386
Wald chi2 113.58 39.390 127.54
Prob. > F 0.000 0.001 0.000
R2 0.153 0.431 0.174
Notes: Standard errors in parentheses;  p < 0.01,  p < 0.05,  p < 0.1. QCSR disclosure has been
used as the dependent variable

differences in age variable may bring complexity in providing information to the

stakeholders, and elders might not welcome the opinion from the new generation, which
creates barriers for a strategic decision-making process on the board. Our result is
consistent with other studies such as those by Hafsi and Turgut (2013), Post et al. (2011)
and Katmon et al. (2017) and hence rejects H1.
About gender diversity, GENDER (b = 0.099; SE = 0.048) at p < 0.03 was found to be
significantly associated with QCSR disclosure, which supports H2 of the study with the RBV
theory expectations. The result indicates that women are moving quickly and assuredly toward
sustainability in the sense of governance, economy, society and environment. This finding also
suggests that men and women differ with respect to values when it comes to social
responsibility. Our results provide supporting arguments on the improvement of proportional
female directorship in the firms’ board of directors in Pakistan. This is owing to the new CG
code of 2017 provided by the Government of Pakistan, in which it is mandatory to include at
least one female director in the firms’ board of directors. This finding is in line with that reported
by Hafsi and Turgut (2013), Barako and Brown (2008) and Post et al. (2011).
NATION has also been found to be significantly associated with QCSR disclosure ( b =
0.061; SE = 0.037) at p < 0.06 and supports H3. This result may imply that a nationally
diverse board promotes QCSR disclosure, as it brings diverse perspectives, international
exposure, wide strategic view and diverse knowledge. Furthermore, firms with more
national diversity tend to disclose more quality CSR information. The finding is in line with
that reported by Che Ahmad and Osazuwa (2015). Further, the remaining diversity
variables were found to be insignificant, such as ethnicity, educational level, educational
background and tenure. We argue that certain diversity dimensions (such as ethnic,
educational level, educational background and tenure) that are significant in the developed
setting may not be compatible with the distinct jurisdictions such as Pakistan.

PAGE 1196 j CORPORATE GOVERNANCE j VOL. 19 NO. 6 2019

As for the results for control variables in Model 1 in Table III with regard to board
characteristics (i.e. board size, board meetings and board independence), an insignificant
relationship with QCSR disclosure was found. With regard to audit committee
characteristics, ACSIZE ( b = 0.020; SE = 0.005) at p < 0.001 and ACIND ( b = 0.005; SE =
0.031) at p < 0.021 are positively and significantly associated with QCSR disclosure. This
indicates that independent audit committees may improve the quality of CSR disclosure, as
they are able to support and assist the firm’s management in providing more quality
information. With respect to firm-specific characteristics, SIZE ( b = 0.025; SE = 0.005) at
p < 0.001 is significantly associated with QCSR disclosure. The results indicate that firms
with more market capitalization disclose qualitative CSR information, which means that
large-sized firms have sufficient resources to invest on CSR practices. Other firm
characteristics such as LEV ( b = 0.025; SE = 0.005) at p < 0.001 and LOSSCO ( b = 0.025;
SE = 0.005) at p < 0.001 are significantly but negatively related to QCSR disclosure,
indicating that firms with a higher debt burden and negative earning may reduce firms’
investment on CSR disclosure.

Financial versus non-financial firms

Because financial sectors have been operated under a strict regulatory environment, and
keeping in view their complexity of business and contribution to economy, we have further
sub-sampled the data set into financial and non-financial firms, so as to have an in-depth
examination of the relationship between board diversity and QCSR disclosure for financial
and non-financial sectors of the PSX.
Models 2 and 3 in Table III demonstrate the results of financial and non-financial firms,
respectively. Almost both the models document similar and consistent results to the
baseline Model 1. Unlike Model 1, some contradictory results have been noticed in Model 2
in relation to the baseline model. In Model 2, EDUBGROUND, BODSIZE and ACMEET were
significant, whereas results of Model 3 present BODSIZE, BODMEET and ACMEET as
significantly related to CSR disclosure.

Sensitivity analysis
To check the robustness of the main regression results, we have used alternative
measurements for the variables of interest[1]. In Model 1 in Table IV, we have used the
CSRD index instead of the QCSR disclosure index as the dependent variable and then run
PRE regression. The results reveal that GENDER ( b = 0.188 std. error = 0.059) at p < 0.08
and NATION ( b = 0.093 std. error = 0.046) at p < 0.021 were the significant determinants
of CSR disclosure. Overall results of Model 1 in Table IV are almost consistent with the
baseline model, which shows the consistency and robustness of the main findings across
alternative measurements.
Models 2, 3 and 4 in Table IV report the findings of alternative measurements of board
diversity, board characteristics and audit committee characteristics on QCSR disclosure,
respectively. All the alternative measurements of Models 2, 3 and 4 have produced almost
consistent results with the baseline regression Model 1 in Table III. We conclude that
alternative proxies for QCSR disclosure, board diversity, board characteristics and audit
committee characteristics do not affect the main findings. Thus, our results are robust
across implications of alternative measurements.

Conclusion and policy recommendations

A firm’s poor governance structure may impose a negative impact on the social
environment and group of stakeholders. This prepared us to investigate whether board
composition contributes toward firms’ social improvement. This study has examined the

VOL. 19 NO. 6 2019 j CORPORATE GOVERNANCE j PAGE 1197

 Table IV Panel random effects regression (alternative measurements)
Model 1 Model 2 Model 3 Model 4
QCSR alternative Diversity alternative BOD Ch. alternative AC Ch. alternative
Variables Expt. sign Coefficient (SE) Coefficient (SE) Coefficient (SE) Coefficient (SE)

AGE þ 0.121 (0.089) 0.115 (0.068) 0.135 (0.073) 0.110 (0.066)

GENDER þ 0.118 (0.059) 0.027 (0.021) 0.099 (0.048) 0.099 (0.049)
NATION þ 0.093 (0.046) 0.023 (0.212) 0.065 (0.038) 0.051 (0.029)
ETHNIC þ 0.023 (0.089) 0.041 (0.045) 0.024 (0.073) 0.017 (0.074)
EDULEVEL þ 0.041 (0.071) 0.042 (0.067) 0.073 (0.059) 0.061 (0.059)
EDUBGROUND þ 0.052 (0.115) 0.082 (0.112) 0.054 (0.095) 0.029 (0.095)
TENURE þ 0.008 (0.050) 0.109 (0.032) 0.011 (0.040) 0.003 (0.042)
BODSIZE þ 0.001 (0.006) 0.007 (0.005) 0.020 (0.013) 0.004 (0.0050
BODMEET þ 0.001 (0.003) 0.001 (0.002) 0.008 (0.010) 0.000 (0.002)
BODIND þ 0.007 (0.068) 0.006 (0.060) 0.007 (0.026) 0.099 (0.046)
ACSIZE þ 0.018 (0.006) 0.019 (0.007) 0.019 (0.005) 0.036 (0.013)
ACMEET þ 0.004 (0.006) 0.002 (0.005) 0.001 (0.005) 0.012 (0.01)
ACIND þ 0.091 (0.043) 0.059 (0.362) 0.059 (0.027) 0.013 (0.006)
SIZE þ 0.026 (0.006) 0.022 (0.006) 0.024 (0.005) 0.027 (0.005)
LEV þ 0.024 (0.012) 0.024 (0.014) 0.023 (0.009) 0.025 (0.009)
LOSSCO 6 0.035 (0.020) 0.021 (0.016) 0.029 (0.017) 0.031 (0.016)
Constant 0.617 (0.127) 0.253 (0.098) 0.269 (0.103) 0.354 (0.101)
Year dummy Yes Yes Yes Yes
Industry dummy Yes Yes Yes Yes
Observation 466 466 466 466
Wald chi2 94.50 108.57 113.98 107.02
Prob. > F 0.000 0.000 0.000 0.000
R2 0.113 0.1798 0.1518 0.1501
Notes: Standard errors in parentheses;  p < 0.01,  p < 0.05,  p < 0.1. CSRD has been used as the dependent variable in Model 1 and
QCSR disclosure has been used as the dependent variable in the remaining models of Table IV

influence of board diversity on QCSR disclosure reported by Pakistani firms in their

sustainability reports for the time span of 2010 to 2017 by applying the PRE model. The
results support H2 and H3 of the study indicating that gender and national diversities have
contributed to the improvement of QCSR disclosure in Pakistani firms. However, H1
(age diversity) was found to be negatively and significantly associated to QCSR disclosure.
Additionally, ethnic, educational level, educational background and tenure diversities were
found to be insignificant.
Preliminary findings from the baseline model highlighted that the importance of gender and
national diversities is relative to firms’ QCSR disclosure. Therefore, looking into the facts, we
conclude that board structure may be the combination of members with diversified gender
and nationality to improve strategic decisions like CSR disclosure. The results support the
basic concepts of the RBV theory, in line with our expectations, which recognize that boards
with diversified resources are more likely to have quality disclosure on the issue of CSR
practices. Board age diversity has been found to be negatively and significantly associated
with QCSR disclosure, which contrary to H1 of the study suggests that board members with
diversified age might reduce QCSR disclosure of the firm. An alternative measurement of
the variables under study was also exercised to check the robustness of the results, and it
has been found that the results of the alternative measurements have remained almost
consistent with the baseline model of the study.
The findings of the present study are useful for regulators, governance institutions and
policymakers in Pakistan, in restructuring the board mechanisms that suit best with the
context of Pakistan. Therefore, with regard to incorporating the board diversity framework,
the regulatory institutions and policymakers may encourage the inclusion of a diverse force
of gender and nationality to improve the quality of CSR disclosure practices. They may
encourage a higher percentage of female directors, as is mandatory worldwide, for

PAGE 1198 j CORPORATE GOVERNANCE j VOL. 19 NO. 6 2019

example in Norway, Spain and France, female directors’ percentage is 40 per cent; in
Australia, Japan and Malaysia, it is 30 per cent; and in Italy, it is one third.
We assert that the results of the present study should be drawn and discussed with more
care in the light of several limitations. First, our selected sample of 57 corporations
producing 466 firms-year observations may be considered as small. Second, other diversity
variables such as experience, directorship quality, culture, religion and expertise, have
been identified as important but are more difficult to measure and obtain, and hence, this is
an unavoidable limitation of the study.
Future study could examine the impact of board diversity on QCSR disclosure in industrial
markets and consumer product markets. We further contend that the impact of board
diversity on CSR disclosure might differ in the emerging markets in other countries.
Therefore, research studies in a similar context may offer different results in different
emerging economies compared with the results offered by the current study.

Note
1. CSR disclosure is measured using dummy for firms that disclose the given items with a value of 1,
otherwise 0. AGE is the standard deviation of directors’ age (Katmon et al., 2017). GENDER and
NATION are measured using dummies. For gender diversity, the firm has been given a value of 1 if it
has at least 1 female director, otherwise 0. For national diversity, the firms have been given a value of 1
if they have at least one foreign director, otherwise 0. ETHNIC is the proportion of directors’ ethnicity
(excluding any one group having majority of board members) to the total members in a board.
EDULEVEL is the proportion of directors having other educational qualification. EDUBGROUND has
been measured using the proportion of board members having more than one educational
background to the total members in a board. TENURE is measured using the proportion of at the most
three years to the total members in a board of directors (Harjoto et al., 2015). Alternative measurements
for board characteristics and audit committee characteristics are based on median values using
dummies, such as BODSIZE is measured using a value of 1 for firms with a larger board size, and 0 for
firms with a small board size. BODMEET is measured using a value of 1 for high frequency and 0 for
low frequency of board meetings. BODIND is measured using 1 for high proportional independent
directors and 0 for low proportional directors in the board for a specific year. The same measurement
procedure has been adopted for audit committee size, audit committee meetings and audit committee
independence.

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Corresponding author
Imran Khan can be contacted at: imrankjadoon@ciit.net.pk

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