The Moderating Role of Board Monitoring Power in the Relationship between Environmental Conditions and Corporate Social Responsibility

Abstract

Is the relationship between environmental munificence, dynamism, and corporate social responsibility contingent on board monitoring power? This is the research question examined in this study of an international sample of 956 listed firms from 2006 to 2014. After applying several regression models for panel data based on Tobit and generalized method of moments' (GMM) estimation, this paper supports the assertion that in munificent and dynamic environments, managers show a lower commitment to social and environmental issues. Proactive promotion of social and environmental concerns only occurs in firms with efficient internal corporate governance mechanisms, resulting in a moderating effect of board monitoring power—board independence and non‐duality of CEO—on the association between environmental conditions and corporate social responsibility. Theoretically, this moderating effect triggers managers to increase their socially responsible performance in munificent and dynamic environments because: (a) these boards reinforce the orientation of a firm towards the meeting of stakeholders' expectations; and (b) managers aim to protect themselves from the greater supervision and control exerted by the board in order to maintain their decision‐making freedom in environments of superior growth, resources, market uncertainty, and instability.