Does a board characteristic moderate the relationship between CSR practices and financial performance? Evidence from European ESG firms

Rossi, Matteo; Chouaibi, Jamel; Chouaibi, Salim; Jilani, Wafa; Chouaibi, Yamina Article Does a board characteristic moderate the relationship between CSR practices and financial performance? Evidence from European ESG firms Journal of Risk and Financial Management Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Rossi, Matteo; Chouaibi, Jamel; Chouaibi, Salim; Jilani, Wafa; Chouaibi, Yamina (2021) : Does a board characteristic moderate the relationship between CSR practices and financial performance? Evidence from European ESG firms, Journal of Risk and Financial Management, ISSN 1911-8074, MDPI, Basel, Vol. 14, Iss. 8, pp. 1-15, https://doi.org/10.3390/jrfm14080354 This Version is available at: https://hdl.handle.net/10419/258458 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Journal of Risk and Financial Management Article Does a Board Characteristic Moderate the Relationship between CSR Practices and Financial Performance? Evidence from European ESG Firms Matteo Rossi *, Jamel Chouaibi, Salim Chouaibi, Wafa Jilani and Yamina Chouaibi   Citation: Rossi, Matteo, Jamel Chouaibi, Salim Chouaibi, Wafa Jilani, and Yamina Chouaibi. 2021. Does a Board Characteristic Moderate the Relationship between CSR Practices and Financial Performance? Evidence from European ESG Firms. Journal of Risk and Financial Management 14: 354. https://doi.org/10.3390/ jrfm14080354 Academic Editor: ¸Stefan Cristian Gherghina Received: 20 June 2021 Accepted: 22 July 2021 Published: 4 August 2021 Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. Copyright: © 2021 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). Department of Accounting, Faculty of Economics and Management of Sfax, University of Sfax, Sfax 3018, Tunisia; [email protected] (J.C.); [email protected] (S.C.); [email protected] (W.J.); [email protected] (Y.C.) *Correspondence: mr[email protected] Abstract: This study aims to examine the potential effect that corporate social responsibility practices (CSR) have on financial performance in ESG firms, using the moderating role of board characteristics. To test the moderating effect of the board characteristics in the relationship between CSR practices and financial performance, we applied linear regressions with panel data using the Thomson Reuters ASSET4 database from European countries in analyzing data of 225 listed companies between 2015 and 2019. The results show that board characteristics partially moderate the relationship between CSR practices and financial performance in European ESG firms. In addition, this study indicates that CSR practices affect the firm’s financial performance positively. The study findings appended a new dimension to governance research that could provide policymakers and regulators with a valuable source of information to strengthen governance mechanisms for better financial performance. Previous studies mostly investigate the direct effect of corporate governance on financial performance. A few studies examine the moderating effect of CSR practice. This paper contributes by investigating the moderating effect of governance mechanisms in the ESG context. Keywords: CSR practice; financial performance; corporate governance; environmental social and governance (ESG) 1. Introduction Corporate social responsibility is an important topic in the fields of management, finance, and public relations, and it is essential to increase the trust of stakeholders in the company (Plumlee et al. 2015;Tomo and Landi 2017;Liu and Lee 2019;Ongsakul et al. 2020;Chouaibi and Chouaibi 2021;Rossi et al. 2021). The recent growth in CSR has had a significant effect on the role of the company and has contributed to a shift in accounting standards (Aribi and Gao 2010;Plumlee et al. 2015;Liu and Lee 2019). On the other hand, corporate governance plays an important role, including improving corporate accountability, building a corporate reputation, and providing valuable investment decision-making information (Gray et al. 1996;Friedman and Miles 2001;Liu and Lee 2019;Ongsakul et al. 2020). In academic research, firms are now seen as entities that function within society and are responsible for ensuring social and economic fairness while expanding the interests of stakeholders (including shareholders), in line with stakeholder theory (Al-Alawi et al. 2007; Chouaibi and Chouaibi 2021). The role of CSR as a means of discharging transparency has become more important (Lee et al. 2014). Furthermore, CSR initiatives are frequently integrated from the core business of a company, which is likely to increase their contribution to short and long-term success. Isaksson and Woodside (2016) affirmed that when evaluating CSR and the financial performance of a business, scholars should combine internal and external influences. Although corporate governance focuses on resolving the issue of the agency’s alignment between the interests of management and shareholders, J. Risk Financial Manag. 2021,14, 354. https://doi.org/10.3390/jrfm14080354 https://www.mdpi.com/journal/jrfm J. Risk Financial Manag. 2021,14, 354 2 of 15 corporate social responsibility focuses on stakeholders other than shareholders (Nawaiseh 2015). Sacconi (2011) stated that social responsibility is the principle of corporate governance and its goals as the result of its strategic management. Thus, the option of the best corporate governance system may be considered the most acceptable solution for the ‘social contract’. In addition, some researchers conclude that corporate governance has a major effect on the dimensions of CSR (Jones et al. 2009;Chouaibi et al. 2021a). As a consequence, the integration between corporate governance and CSR strategies is a new empirical research strand that tries to connect the strategies of firm CSR to financial results (Ntim and Soobaroyen 2013;Peng and Yang 2014;Chouaibi et al. 2021b). Governance practices empirical research has concentrated mainly on its effect on the financial results of a firm (Kumar and Zattoni 2015;Pucheta-Martínez and Gallego-Álvarez 2019). The board of directors of the firm is responsible for developing effective structures for monitoring and managing the operations of the firms. The board is also responsible for the accountability and transparency of an organization by data disclosure. For a large variety of stakeholders, boards have mutual responsibilities. Consequently, in this article, we, first, attempt to identify the circumstances in which societal practices create competitive advantages for the ESG company and thus generate high financial performance. Second, this article aims to investigate how board characteristics reinforce the relationship between CSR practices and financial performance. This paper contributes to the existing literature in several ways. First of all, the main motivation of this article is the shortage of research papers in the context of the relationship between board characteristics, corporate social responsibility, and financial performance. Theoretically, the possible contribution of this research aims to highlight the crucial importance of the financial performance concept, along with the notion of corporate social responsibility and its relationship with board characteristics and to outline the most important significance of adopting the ESG approach. The results show that corporate social responsibility practices have a positive impact on financial performance. The reached empirical results prove to indicate that both the board size and independence have strengthened the impact of corporate social responsibility on financial performance. Also noteworthy, is the fact that the appointment of an independent non-executive chairman weakens the relationship between CSR practices and financial performance and holds for firms with no independent chairman. The results of this study add to the literature in many ways. First, its findings provide additional useful insights into the existence and role of firms’ governance mechanisms. Second, the findings of this study are also expected to provide input for users of financial statements, sustainability reports, and corporate managers, as it helps in understanding the relationship between corporate governance and CSR, which would improve corporate financial performance. Third, this research explores the moderating role of corporate governance between CSR practices and financial performance. Findings from this paper provide implications for global regulators and policymakers. Our research offers the information user a vision to better assess the financial performance of the company and its future growth opportunities in a context where corporate social responsibility and corporate governance occupy a central position in business valuation. The index of ESG firms (environmental, social, and governance) is objectively and consistently defined in measures permitting like-for-like measurement of firm-specific CSR practices. This index is captured in this paper as an index used as a proxy of firms’ engagement on CSR, which is provided by the ASSET4®database of Data-Stream, by Thomson Reuters. The rest of the paper is structured as follows: In Section 2, the literature is discussed based on the hypotheses constructed. Section 3outlines the method of data collection and variable measurement. As for the empirical results, the discussions of our findings and their implications are presented in Sections 4and 5. Finally, Section 6concludes the paper, presents the limitations and provides suggestions for future research. J. Risk Financial Manag. 2021,14, 354 3 of 15 2. Prior Literature and Hypotheses Development 2.1. Effects of CSR Practices on Financial Performance The question of how corporate social responsibility practices affect a firm’s financial performance has been the subject of contentious debate. Much research about CSR practices has been conducted (Ahan et al. 2015;El Ghoul et al. 2016). However, there are still theoretical and empirical challenges that need to be answered to the effect of corporate social responsibility on financial performance. According to the theory of the stakeholder, through its impact on revenue and costs, companies may derive various benefits from performing CSR activities (Tomo and Landi 2017;Ongsakul et al. 2020;Chouaibi and Chouaibi 2021). CSR may produce additional income directly or indirectly. Empirical research on the effect of CSR activities on company results indicates unclear outcomes. Thus, Russo and Fouts (1997) and Chouaibi et al. (2021a) found positive effects of CSR on financial performance. Consequently, corporate social responsibility (CSR) can be perceived as an excellent tool for enhancing the legitimacy of the company. Aguinis and Glavas (2012) find that CSR has a marginally positive effect on company results. In fact, El El Ghoul et al. (2016) also discovered that in nations with poorer market institutions, CSR is more strongly linked to firm value. Financial performance demands social and environmental issues and also to take some constructive steps while showing tolerance for negative company data (Servaes and Tamayo 2013). On the other hand, the consumer-oriented CSR practices, intangible attributes, such as reliability for consistency, and reliability can be used, which can eventually establish product differentiations and generate more revenues (Lev et al. 2010). Thus, CSR practices help to minimize costs and increase the financial performance (El Ghoul et al. 2011;Baalouch et al. 2019;Wong et al. 2020;Murashima 2020). Thus, the theoretical basis of these practices is represented by legitimacy theory. Hence, we propose our first hypothesis as follows: Hypothesis 1 (H1). There is a positive association between CSR practices and financial performance. 2.2. CSR Practices and Financial Performance: The Moderating Effect of Board Characteristics The board of directors is often considered one of the essential components of the corporate governance system. The finance literature defines corporate governance as “the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment” (Murtaza et al. 2014;Kiran et al. 2015;Jie and Hasan 2016). The board of directors is central to the commercial governance system (Uwuigbe 2011;Cormier et al. 2017). An important factor perceived to affect the board’s effectiveness is the size (Belkhir 2009;Achdi and Ameur 2011). The moderating effect of Board size. Larger board decisions can reflect the compromise of stakeholders’ competing demands. Therefore, decisions by larger boards can address stakeholders’ concerns better than those of smaller boards. Agency problems become more severe with a larger board, so it becomes easier for the CEO to manipulate and monitor the board (Achdi and Ameur 2011;Jilani and Chouaibi 2021). Nonetheless, larger boards can be more efficient, as a larger number of people can be separated into the workload of monitoring managers. Larger boards are more likely to reinforce the influence of CSR on financial results with better addressed CSR and more tools provided for consulting and tracking roles. Previous research recognizes that large boards have a greater diversity of expertise and experience, which in turn has a positive influence on the reputation of companies and their image (Ntim and Soobaroyen 2013;Jizi et al. 2014). Therefore, a literature review offers a number of empirical findings that maintain the positive relationship between the board size and the CSR. Ntim and Soobaroyen (2013) use of a sample of listed companies between 2002 and 2009 supports that larger boards lead to greater investments in CSR operations. Jo and Harjoto (2011) give proof that firms with larger boards are taking the CSR pledge. That is to say, broader boards ensure that corporate laws and guidelines, such as CSR, are complied with (Ntim and Soobaroyen 2013). Given that the previous debate presents reasons that endorse positive board-size moderating positions, we suggest the following hypothesis: J. Risk Financial Manag. 2021,14, 354 4 of 15 Hypothesis 2. There is a positive relationship between board size and financial performance. Hypothesis 2a. The link between CSR practices and financial performance will be positively moderated by board size. The moderating effect of board independence. Independent directors have distinct spurs, values, and time skies relative to internal directors, who normally pay attention to lucrative short-term targets (Post et al. 2011). Boards of directors are referred to as the entity that substantially upholds the interest of all concerned stakeholders. Thus, to gain and further substantiate the involvement of stakeholders, it is important to have both managers and non-executive members on the board (De Andres and Vallelado 2008;Fuzi et al. 2016). The extensive literature on corporate governance demonstrates that the independence of the board has a positive impact on the social responsibilities of the firm. For example, Jizi et al. (2014) found a positive and substantive relationship between board independence and CSR practices. More specifically, they argue that independent external directors on the board would ameliorate the oversight and control business of the board to assure that shareholders’ social interests are bulwarked. They also indicate that independent directors are less likely to concentrate on short-term targets than on long-term targets that could be generated by investment in CSR. Ntim and Soobaroyen (2013) suggest that independent board members strengthen management oversight, allowing executives to participate in sustainable CSR activities with potentially beneficial consequences for the financial performance of their firms. They are better at engaging multiple stakeholders and have more sensitive strategies, juggling short-term and long-term priorities, leading to a positive moderating impact in the relationship between CSR and financial performance (Liao et al. 2019). Board independence is supposed to play a moderating role in this relationship. Thus, we assume that: Hypothesis 3. There is a positive relationship between the board’s independence and financial performance. Hypothesis 3a. The link between CSR practices and financial performance will be positively moderated by board independence. The moderating effect of CEO duality. Duality occurs when the same person holds both positions in a company at the same time (Naushad and Malik 2015). An individual who holds these roles has remarkable power to govern the board and the management. If the CEO is also the chairman, the efficiency of the board of directors in conducting the role of governance can be undermined by the concentration of decision-making and control powers in the hands of the same person (Haniffa and Cooke 2002). In the other hand, the theory of the agency predicts that role duality generates individual power for the CEO that would inhibit the board’s effective control (Donker et al. 2008). Tuggle et al. (2010) proposed that, largely for independence purposes, these two positions should be separated. Although the division of roles is recommended, certain organizations are not prepared to separate the roles completely categorically (Bukair and Rahman 2015). Multiple CEO positions lead to problems in carrying out their respective duties, leading to confusion and mismanagement (Vo and Nguyen 2014). However, Hajes and Anis (2018) reported a positive relationship between CEO duality and a firm’s financial performance. Moreover, as aforementioned, Bukair and Rahman (2015) find a mixed outcome between CEO duality and a firm’s financial performance. Thus, such duality creates a greater power in decision-making that allows CEOs to make decisions that do not take into account the greater interests of a wider variety of stakeholders. As a result, the duality could affect the governance position of the board over sustainable practices, including CSR practices (Lattemann et al. 2009). A negative association between the duality of CEO and chairman positions and the level of CSR practices has been documented in several empirical studies (Muttakin et al. 2015;Sundarasen et al. 2016). In this regard, empirical J. Risk Financial Manag. 2021,14, 354 5 of 15 evidence about the relationship and the interaction between CEO duality and corporate social responsibility is mixed and inconclusive. Based on what has been advanced, we can say that the CEO duality moderates the relationship between CSR practices and financial performance and, therefore, the assumption will be formulated as follows: Hypothesis 4. There is a significant relationship between CEO duality and financial performance. Hypothesis 4a. The link between CSR practices and financial performance will be moderated by CEO duality. 3. Research Design 3.1. Sample Selection and Data Collection This study focuses on examining the associations between CSR practices and the firm’s performance with the moderating effect of corporate governance mechanisms. The population of this study consists of firms belonging in European countries during the period 2015–2019. The data were collected from different sources. First, the primary data source is ASSET4 from Thomson Reuters Data Stream. Thomson Reuters ASSET4 is a leading source of objective ESG information worldwide. Second, data related to the corporate governance mechanisms were manually extracted from each firm’s annual reports for the years concerned. The sample selection is summarized in Table 1; Panel A describes the sample selection; Panel B provides the distributional properties of the full sample by country. Table 1. Sample selection. Panel A: Sample selection Selection procedure Firms Observations Initial sample 295 1475 Firms with missing data (47) (235) Banks and Financial institutions (23) (115) Final sample 225 1125 Panel B: Sample distribution by country Country Firms Observations % France 79 395 35.12 Spain 41 205 18.23 Germany 73 365 32.44 Italie 32 160 14.21 Total 225 1125 100 Notes: Panel A describes the sample selection, and Panel B provides the distributional properties of the full sample by country. Observations are the total of the firm-years observations by industry. 3.2. Variables To analyze the impact of the moderating effect of different aspects of corporate governance on the relationship between CSR and financial performance, the measures of variables are defined below. 3.2.1. Dependent Variable: Financial Performance The dependent variable used in this study is the financial performance of firms. Many accounting and financial ratios: Tobin’s q (TOBINQ), return on assets (ROA), return on equity (ROE), and market-to-book value (MTBV), were used as the indicators of business performance (Barnett and Salomon 2012;Delmas et al. 2015). In this study, in order to measure firm performance, we use return on assets (ROA). J. Risk Financial Manag. 2021,14, 354 6 of 15 3.2.2. Independent Variables As discussed in the literature review, most studies break down CSR practices into social and environmental performance scores. Similarly, as in the work of Ioannou and Serafeim (2012) and Huang et al. (2014), we will adopt a measure developed by ASSET4 to measure the CSR practices, CSR practices measure a company’s capacity to generate trust and loyalty (Ioannou and Serafeim 2012;Huang et al. 2014). It also measures a firm’s ability to reduce environmental risk and generate environmental opportunities in order to minimize the environmental impact on living and non-living natural systems, including the air, land, and water, as well as complete ecosystems. 3.2.3. Moderating Variables Board size (BOA_SIZE): As part of our study, we are interested in the role of the board as a mechanism of corporate governance, as well as the size, which is measured by the total number of directors. This measure has been employed by several authors, Cornett et al. (2008), Ravina and Sapienza (2009), Leng and Ding (2011), Sun et al. (2012), Hunziker (2013), Al-Janadi et al. (2013), Akbas et al. (2016). Board Independence (BOA_IND): This variable is determined by the proportion of independent administrators compared to the total number of administrators. This measure has been used in many studies, including Aboody and Lev (2000), Van den Van den Berghe and Baelden (2005), Striukova et al. (2008), and Baharudin and Marimuthu (2019). CEO duality (DUAL): The duality of functions is a binary variable equal to 1 if the two functions of the chief executive officer and the chairman of the board of directors are combined and 0 if not. This measure has been used in several studies, such as those by Datta et al. (1991), Jensen and Zajac (2004), Chau and Gray (2010), and Ammari et al. (2014). 3.2.4. Control Variables In terms of control variables, our analysis used two variables that are related to the firm’s characteristics and that affect the endogenous variable, i.e., financial performance. The two control variables are firm size and leverage. In addition, Table 2includes all variables and their measurements. Table 2. Description of variables. Variables Coding Measurement Source Dependent variable Financial performance FIR_PER Financial performance is determined by ROA (the average return on assets). Thomson Reuters ASSET4 (Datastream) Independent variable Corporate social responsibility practices CSR_INDEX It is a score developed by ASSET4 that consists of a series of items that represent the CSR practices of companies. Thomson Reuters ASSET4 (Datastream) Moderating variables Board size BOA_SIZE Number of directors on the board. Annual report Board Independence BOA_IND Proportion of independent non-executive directors to total number of directors. Annual report CEO duality DUAL Dummy variable with the value of 1 if the CEO is also the chair, and 0 otherwise. Annual report Control variables Firm size FIR_SIZE The natural logarithm of total assets. Thomson Reuters ASSET4 (Datastream) Leverage LEV The total debt divided by total assets. Thomson Reuters ASSET4 (Datastream) Notes: This table reports the definitions of the variables used in our study. J. Risk Financial Manag. 2021,14, 354 7 of 15 3.3. Regression Model To analyze whether corporate governance moderates the relationship between CSR practice and firms’ financial performances, we have applied a regression analysis model as a statistical technique to estimate the proposed models. The following regression models in equations are posited. The variables used in the estimation models are defined in Table 2. FIR_PERi,t=β0+β1CSR_INDEXi,t+β2FIR_SIZEi,t+β3LEVi,t+ β4year f ixed e f f ecti,t+β5f irm f ixed e f f ecti,t+εi,t (Model 1) FIR_PERi,t=β0+β1CSR_INDEXi,t+β2BOA_SIZEi,t+ β3CSR_INDEX ∗BOA_SIZEi,t+β4LEVi,t+β5FIR_SIZEi,t+ β6year f ixed e f f ecti,t+β7f irm f ixed e f f ecti,t+εi,t (Model 2) FIR_PERi,t=β0+β1CSR_INDEXi,t+β2BOA_INDi,t+ β3CSR_INDEX ∗BOA_INDi,t+β4FIR_SIZEi,t+β5LEVi,t+ β6year f ixed e f f ecti,t+β7f irm f ixed e f f ecti,t+εi,t (Model 3) FIR_PERi,t=β0+β1CSR_INDEXi,t+β2DUALi,t+ β3CSR_INDEX ∗DUALi,t+β4FIR_SIZEi,t+β5LEVi,t+ β6year f ixed e f f ecti,t+β7f irm f ixed e f f ecti,t+εi,t (Model 4) 4. Results and Discussion 4.1. Descriptive Statistics The descriptive statistics of variables are presented in Table 3. Indeed, the statistical tests show that the companies, the objects of our samples, have a high level of financial performance; “ROA” mean value is (0.17). This variable displays a standard deviation that is very small compared to the average (0.186), which shows that there is no difference in the financial performance of the companies in our sample. This implies that the financial performance of the firms is strong. The results are consistent with those of Hassan and Bashir (2003), Rosly and Bakar (2003) and Olson and Zoubi (2017). Table 3. Descriptive statistics. Variables Obs. Mean SD Min Max Panel A: Descriptive statistics for metric variables FIR_PER 1125 0.170 0.186 -0.181 0.712 CSR_INDEX 1125 0.689 0.211 0.194 0.928 BOA_SIZE 1125 8.849 2.754 3 19 BOA_IND 1125 52.864 23.100 0 1 FIR_SIZE 1125 21.855 3.599 2.397 28.305 LEV 1125 0.426 0.315 0.002 0.945 Panel B: Frequencies (%) for binary variable Variables Modality % DUAL 0 4.5 1 94.5 Note: This table reports descriptive statistics. Variable definitions are provided in Table 2. Table 3reports that the average CSR practice is 0.689. The minimum and maximum values of the CSR practices are, respectively, equal to “0.194” and “0.928”. This practice is smaller than in developed countries, such as Germany, which has complete CSR practice (Gamerschlag et al. 2011). As can be seen from Table 3, the statistics reveal that the mean value of board size is 8 with a standard deviation of 2.754. This variable varies between 3 and 19 members. We also note that the average proportion of independent directors is 52.864%. J. Risk Financial Manag. 2021,14, 354 8 of 15 Another result to highlight in Table 3is that the mean percentage of CEO duality is 94.5%, which means that 94.5 percent of firms combine the position of the chairman of the board of directors and the CEO. Further, the mean value of firm size is 21.855. Its minimum and maximum values are equal to 2.397 and 28.305, respectively. On the other hand, it is also important to mention that firm leverage is about 42.6% on average. 4.2. Correlation Matrix and VIF Values Table 4presents the correlation matrix. The Pearson coefficients were computed to examine the associations between the independent variables. The matrix of Pearson correlation fails to detect a correlation value equal to or greater than 0.8 (Damodar and Porter 2004). The tabulated results of the Pearson correlation matrix suggest that in this analysis, there is no multicollinearity problem as the interaction between the variables is below 0.80. All board characteristics’ variables are significantly positively correlated. Table 4. Correlation matrix and VIF values. Variables 1 2 3 4 8 9 (1) CSR_INDEX 1.000 (2) BOA_SIZE 0.135 *** 1.000 (3) BOA_IND 0.285 0.140 *** 1.000 *** (4) DUAL 0.271 *** 0.313 ** 0.216 ** 1.000 (5) LEV 0.130 ** 0.255 * 0.043 ** 0.044 ** 1.000 (6) FIR-SIZE 0.082 0.255 0.077 * 0.181 * −0.102 1.000 VIF 3.64 7.19 3.47 6.19 1.24 1.23 Notes: Variable definitions are provided in Table 2. The asterisks ***; **; * indicate significance at the 1%; 5%; and 10 % levels, respectively. As can be seen in Table 4, the intercorrelations for all the explanatory variables have been examined by applying the variance inflation factors (VIF) analysis, which revealed no sign of multicollinearity. The highest reported VIF value is 7.19 for the BOA_SIZE variable, and the lowest is 0.38 for firm size. When a VIF value exceeds 10, it indicates a potential multicollinearity problem. These findings are deemed statistically appropriate, demonstrating that there is no multicollinearity. 4.3. Regression-Analyses The regression of financial performance as a dependent variable is depicted in Table 5 . This table summarizes the results of the estimating model (1) to test our H1. As can be seen in the table, the decision to adopt a CS practice leads to a high level of financial performance. The first model also indicates that CSR practices lead to higher financial performance. As per Fisher’s (F) statistics, equal to 5.41, this model is significant at a threshold lower than 1%. The p-value of the t-statistic of each coefficient is shown in italics. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% level, respectively. The empirical results prove to reveal that 38.9% of the variation in the financial performance can be explained by the CSR practices. Table 5presents the results of estimating Model 2, 3, and 4 to test our; Hypothesis 2, Hypothesis 2a, Hypothesis 3, Hypothesis 3a and Hypothesis 4a. To define the role of “board characteristic”, the regression of financial performance “FIR_PER” as a dependent variable is depicted in Table 5. Our findings highlight a positive and significant relationship between a board characteristic and its financial performance, confirming the research hypothesis. 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