How International Director on the Board Affects the Firm Performance and CSR in Pakistan? The Mediating Role of Risk

Abstract

The main aim of the study is to examine the influence of international directors on a firm’s performance and CSR of Pakistani listed firms and explore the mediating impact of risk between international directors and firm performance. This study sample consists of 140 non-financial firms listed on Pakistan Stock Exchange (PSX) from 2012 to 2020. International directors, financial performance, and CSR data are collected manually from the organization’s annual reports. An internationally experienced director is used as a proxy to measure international directors on the board. Binary logistics regression analysis is used to check the impact of International directors on CSR. Hayes Mediation Analysis – 4 is used to measure the mediating impact of risk between international directors and firm performance. The finding of this study provides evidence that the presence of international directors on the board positively and significantly enhances the firm performance and CSR activities of Pakistani firms. Similarly, the results also demonstrate that risk mediates the relationship between international directors and firm performance. The practical implications of international directors on firm performance and CSR have implications for regulatory bodies and policymakers. Authorities may consider creating an enabling environment that encourages the appointment of international directors on the boards of Pakistani firms. They can facilitate knowledge-sharing platforms, promote cultural diversity, and provide guidance on incorporating global standards into local governance frameworks. Moreover, policymakers can focus on promoting CSR practices by offering incentives, implementing reporting requirements, and creating supportive legal frameworks. This is the first study in Pakistan to show the effect of international directors’ present on the board on firm performance and CSR. Also, this study aims to assess the impact of international directors on firm performance while taking into account the mediating role of risk in this relationship. This study contributes to the prior literature on corporate governance, risk, CSR and firm performance. The main limitations of the study are that only non-financial corporations were included in this study, opening new research x opportunities to compare and contrast these results with the financial sectors which may alter the results. Future research could include an in-depth analysis covering all listed companies in Pakistan to establish the relationships described in the study and increase the generalizability of the results.