Three Essays on Corporate Social Responsibility (CSR) of

Entrepreneurial Firms

by

Yefeng Wang

A Thesis submitted to the Faculty of Graduate Studies of

The University of Manitoba

in partial fulfillment of the requirements of the degree of

DOCTOR OF PHILOSOPHY

Department of Business Administration

I.H. Asper School of Business

University of Manitoba

Winnipeg

Canada, R3T 5V4

Copyright © 2019 by Yefeng Wang

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ABSTRACT

Corporate Social Responsibility (CSR) is a broad management concern, it is not only critical to

every aspect of modern business practice, but is also deeply incorporated into a company’s daily

operations via its values, norms, and decision-making process, etc. While there is an ever-

increasing number of studies on CSR, many researchers have treated CSR as one single broad

construct, its individual dimensions have been largely neglected. This dissertation takes the

opportunity to address CSR by focusing on two dimensions: diversity and governance of three

different entrepreneurial entities including clean-technology ventures, family firms in the United

States and companies operate in emerging markets.

In the first essay, I explore the impact of board diversity, female director representation, to be

specific, on venture performance in the context of the clean-tech industry. I posit that appointing

female board of directors can help clean-tech ventures overcome legitimacy constraints. I also

examine the moderating effect of venture size and environmental ideology, such that this impact

is stronger for small firms, and it is stronger for clean-tech ventures operating in a high level of

environmental ideology state. In the second essay, I investigate how family involvement influences

corporate diversity and how does corporate governance mechanism moderate such effect. The

results suggest that family involvement decreases the overall corporate diversity, but family firms

present more diversity-related concerns than non-family firms. Meanwhile, I suggest that the

adoption of dual-class share decreases family firms’ overall diversity. My third essay addresses

the question of how corporate governance affect environmental information transparency directly

and indirectly through seeking external verification, as well as how the legal and business

environment moderates these relationships. I find that companies with strong corporate

governance mechanisms are more likely to pursue external verification to alleviate traditional

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agency conflicts in the emerging markets. In addition, strong internal corporate governance leads

to high environmental transparency directly and indirectly via seeking external verification. The

legal and business environments moderate these relationships. Overall, these three essays in hopes

of filling the gaps in the literature and advance the research in the areas of CSR, corporate

governance, and entrepreneurship studies.

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ACKNOWLEDGEMENT

First of all, I would like to thank my advisor, Dr. Zhenyu Wu. Ever since my first day in the Ph.D.

program, Dr. Wu offered me incredibly valuable mentoring support and gave me endless help.

You are always an inspiration to me, your advice on both research and life are priceless to me, and

your passion about research and hardworking motived me to learn and to grow as a researcher.

I want to thank Dr. Jijun Gao, Dr. Depeng Jiang, and Dr. Lorne N. Switzer for serving as my

committee members. I want to thank you for your insightful questions and comments to help me

improve my dissertation. I would also like to thank all the faculty members, staffs, and all of my

friends at Asper School of Business for the amazing support you have given me through my Ph.D.

program. I couldn't have come this far without your support.

A special thanks to my parents, who were always my support. In the end, I would like to express

my gratitude to my beloved wife Yuan. I am grateful to you for all of the support and sacrifices

that you have made. Your love and support for me were what sustained me thus far.

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 Table of Contents

ABSTRACT .................................................................................................................................... i
ACKNOWLEDGEMENT ........................................................................................................... iii
CHAPTER 1 GENERAL INTRODUCTION ............................................................................ 1
CHAPTER 2: ESSAY 1 ................................................................................................................ 6
2.1 INTRODUCTION .............................................................................................................................. 7
2.2 THEORY AND HYPOTHESES ...................................................................................................... 11
2.2.1 Clean-Tech Ventures at a Crossroads ........................................................................................ 11
2.2.2 Mixed findings of Female Board Representation and Venture Performance ............................ 12
2.2.3 Female Board Representation and Clean-Tech Venture Performance....................................... 14
2.2.3 The Moderation of Firm Size ..................................................................................................... 16
2.2.4 The Moderation of Public Environmental Ideology .................................................................. 17
2.3 METHODS ....................................................................................................................................... 19
2.3.1 Sample and Data ........................................................................................................................ 19
2.3.2 Variable Measures...................................................................................................................... 20
2.4 EMPIRICAL RESULTS ................................................................................................................... 24
2.5 DISCUSSION ................................................................................................................................... 30
2.5.1 Theoretical Contributions .......................................................................................................... 30
2.5.2 Managerial Implications ............................................................................................................ 32
2.5.3 Limitations and Future Research ............................................................................................... 33
2.5.4 Concluding Remarks .................................................................................................................. 34
CHAPTER 3: ESSAY 2 .............................................................................................................. 36
3.1 INTRODUCTION ............................................................................................................................ 37
3.2 THEORY AND HYPOTHESES ....................................................................................................... 39
3.2.1 Family Involvement and Diversity ............................................................................................ 39
3.2.2 The Moderating Effect of Dual-Class Share Governance .......................................................... 41
3.3 METHODOLOGY ........................................................................................................................... 43
3.3.1 Sample........................................................................................................................................ 43
3.3.2 Variables ..................................................................................................................................... 44
3.3.3 Method ....................................................................................................................................... 45
3.4 EMPIRICAL FINDINGS.................................................................................................................. 46
3.4.1 Descriptive Statistics .................................................................................................................. 46

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 3.4.2 Multivariate Test Results............................................................................................................ 52
3.5 DISCUSSION ................................................................................................................................... 53
3.5. CONCLUSIONS AND FUTURE RESEARCH DIRECTIONS ..................................................... 55
CHAPTER 4: ESSAY 3 .............................................................................................................. 58
4.1 INTRODUCTION ............................................................................................................................ 59
4.2 INSTITUTIONAL BACKGROUND ............................................................................................... 62
4.3 HYPOTHESES DEVELOPMENT................................................................................................... 65
4.4 METHODOLOGY ........................................................................................................................... 73
4.4.1 Sample........................................................................................................................................ 73
4.4.2 Variables .................................................................................................................................... 75
4.4.3 Empirical Models ....................................................................................................................... 77
4.5 EMPIRICAL RESULTS AND DISCUSSION ................................................................................. 78
4.5.1 Descriptive Statistics .................................................................................................................. 78
4.5.2 Main Results and Discussion ..................................................................................................... 83
4.6 CONCLUSIONS AND FUTURE RESEARCH DIRECTIONS ...................................................... 91
CHAPTER 5 GENERAL CONCLUSION ............................................................................... 93
BIBLIOGRAPHY ....................................................................................................................... 97

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 List of Tables

Table 2.1 Descriptive Statistics and Bivariate Correlations …………………….……………….26

Table 2.2 Regressions on Tobin’s Q …………………………………………………………….27

Table 3.1 Variable Definitions ……………………………………………………………….….47

Table 3.2 Descriptive and Correlation ……………………………………………………….….49

Table 3.3 Correlation ……………………………………………………………………………50

Table 3.4 Main Results ………………………………………………………………………….51

Table 4.1 Number of Observations in Each Country in the Sample ……………………….……74

Table 4.2 Variable Definition and Sources ……………………………………………………...76

Table 4.3 Descriptive Statistics ………………………………………………………………….81

Table 4.4 Correlation Table ………………………………………………………………….….82

Table 4.5 Main Results ………………………………………………………………………….84

Table 4.6 Results from Robustness Tests (Roger’s) …………………………………………….88

Table 4.7 Robustness Test (Process Model) …………………………………………………….90

List of Figures

Figure 2.1 Theoretical Framework …………………………………………………………….19

Figure 2.2 Moderation of Firm Size …………………………………………………………….28

Figure 2.3 Moderation of Public Environmental Ideology ……………………………………...29

Figure 3.1 Theoretical Framework …………………………………………………………….43

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Figure 3.2 Interaction ……………………………………………………………………………53

Figure 4.1 Theoretical Framework ……………………………………………………………...65

Figure 4.2 Interactions in Equation (1)…………………………………………………………. 86

Figure 4.3 Interactions in Equation (2) ………………………………………………………….87

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 CHAPTER 1 GENERAL INTRODUCTION

Given the increasing importance of corporate social responsibility (CSR) and corporate

governance attached to entrepreneurship studies, there is a large body of literature on these topics.

Whereas, this dissertation chooses to go deeper than simply investigates the CSR and corporate

governance in the entrepreneurship context, it focuses on more specific and more important

entrepreneurial entities including an emerging industry (clean-technology), family business, and

companies operate in emerging markets, in hope of providing more nuanced understandings about

CSR from the perspectives of both entrepreneurs and practitioners. This dissertation with a special

emphasis on two streams. The first stream examines entrepreneurship as a means for increasing

both economic wealth and social welfare through the study of emerging industries (e.g., clean

technology industry) and family firms. In the extant literature, researchers have been adopted a

wide variety of perspectives to view CSR. In my dissertation, I focus on one of the most important

dimensions of CSR: diversity (gender diversity and corporate diversity). The reason is that, despite

the fact that more and more countries and regions have enacted, or are considering making laws

and regulations to increase the diversity in the companies, the female and minority representation

is still far from the desired levels. In addition, diversity is always intertwined with corporate

governance, which is often misunderstood (e.g. many entrepreneurs believe only multinational or

public firms need corporate governance), yet critical important for entrepreneurship since it helps

entrepreneurs to identify the jobs, organizational structures, and decision-making processes among

entrepreneurs, shareholders, and many other stakeholders. My analyses are reflected in Chapter 2

and Chapter 3.

In Chapter 2, I try to disentangle the association between female representation in the boardroom

and venture performance by investigating the clean-tech industry in the US. Recent evidence has

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shown that Carbon Dioxide (CO2) has increased dramatically since the Industrial Revolution. The

level of CO2 reached the highest point in the human history in 2017 and it’s still rising (NASA,

2017). As a matter of fact, the last time the CO2 amounts were this high was more than three million

years ago. Carbon dioxide concentrations are rising mostly because we are using fossil fuels or

conventional energy. Therefore, there is huge demand for renewable energy, and this demand has

grown tremendously in recent years. Hundreds and thousands of entrepreneurs are committed to

developing renewable energy and creating clean technology businesses. On the other hand, there

is still a huge gap between man and women in terms of board representation, although several

countries and regions have already made mandatory regulations and laws to increase the presence

of female directors in the boardrooms. Under such a circumstance, this essay tries to answer the

question: do female directors really increase company performance? Clean-tech ventures often

face all kinds of obstacles to succeed in their business domains, such as: government policy

changes, technology uncertainties, difficulties of penetrating into mainstream energy markets.

Building on legitimacy theory, I frame these difficulties into two types of legitimacy constrains:

cognitive legitimacy constrains and sociopolitical legitimacy constrains. While I suggest that

clean-tech ventures can overcome these constraints by increasing female director representation,

because the female board of directors can serve as support specialists and community influential,

through which venture performance will be boosted. I also find that this relationship is more

pronounced for small ventures than for large ventures, and for ventures operating in a higher level

of environmental ideology area. This essay highlights the importance of female representation on

boards of directors in clean-tech ventures thereby contributing to the current sustainability research.

Furthermore, this paper addresses a timely and important issue given that an more and more

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countries and regions have enacted, or are considering making mandatory laws and regulations to

increase female board representation.

In Chapter 3, I intend to answer the research question: compared with non-family firms, do family

firms perform better in terms of CSR, with an emphasis on corporate diversity issues. The extant

literature provides mixed empirical findings on this topic, which offers me a great research

opportunity to disentangle this relationship and contribute to the family business and CSR

literature, especially given that this topic is gaining more and more attention in the CSR literature

over the past decades (Godfrey et al. 2009; Johnson and Greening 1999; Ruf et al. 1998). From a

Socioemotional Wealth (SEW) perspective, family businesses have more incentives to pursue non-

monetary goals (e.g. reputation, image, and succession) rather than financial ones (Gómez-Mejía

et al. 2007). Therefore, family firms are more likely to take part in CSR activities than their

counterparts (Cui et al. 2016; Dyer and Whetten 2006). However, the Agency Theory suggests

otherwise, that families as controlling/majority shareholders are more likely to seek their own

interests even at the expense of minority shareholders (Jensen and Meckling 1976). For instance,

researchers have found that family firms are more likely to appoint family board of directors and

guarantee key positions for family members (Dyer and Whetten, 2006; Morck and Yeung 2004).

The contradicting predictions by SEW perspective and Agency Theory motivates me to see do

family firms differ from non-family firms with regard to corporate diversity. Because corporate

diversity is an interesting research subject. This is especially true for family business research since

too much diversity can dilute family control while too little diversity may raise social concerns

and self-deal. I also examine the moderating effect of dual-class share structure on the relationship

between family involvement and corporate diversity. Because with dual-class share structure,

families can become the majority shareholder with full control of the decision-making process in

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a firm (Claessens et al. 2000; Gompers et al. 2010; Liu and Magnan 2011). For family business,

this may cause more self-interest behaviors and fewer activities in terms of taking social

responsibilities. This study sheds light on the family business, and corporate diversity literature by

applying the behavioral agency theory.

The second stream of this dissertation focuses on how corporate governance can shape CSR

performance and enhance firm value in emerging markets. Emerging markets now accounts for

over 50% of global Gross Domestic Product (GDP). Whereas their rapid growth has always been

found accompanied with severe environmental damages. To maintain a sustainable economic

growth, the local authorities of emerging economies have begun to put more emphasis on

environmental protection and to enact various laws and regulations to overturn environmental

damage. They have also realized that the effectiveness and the efficiency of enforcing such

regulations and laws are conditioned on their legal and business environments (Ding, Jia, Wu, and

Yuan, 2016). In addition, the quality of environmental protection is also conditioned on the

companies’ corporate governance mechanisms and their CSR strategies (Berrone et al., 2010).

In Chapter 4, this essay explores how to improve the transparency of environmental information

both internally and externally. In the extant studies, many efforts have been made on investigating

the relationship between firm characteristics on environmental protections (Maung et al., 2015).

Whereas the empirical findings are still decidedly mixed (Post and Byron, 2015). By incorporating

agency theory, legitimacy theory, and resource dependence theory, I find that firms with better

corporate governance operate in an emerging market have more incentives to seek an external

verification to mitigate traditional agency conflicts. Moreover, results have shown that internal

corporate governance mechanisms can increase firm environmental transparency directly and

indirectly through external verification. I also find that the broader institutions (e.g., legal and

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business environments) have a moderating effect on these relationships. This work contributes to

the CSR literature as well as corporate governance literature. It also has timely implications for

governments and authorities in emerging economies, offering them a new perspective to encourage

local companies to improve their environmental performance through a combination of internal

and external mechanisms.

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 CHAPTER 2: ESSAY 1
Do Female Board Directors Help Clean-Tech Ventures Succeed?

ABSTRACT

Clean-tech ventures often face difficulties because of changes in government subsidies, lack of

access to infrastructure for energy generation and transmission, and technology uncertainties. As

a consequence, it may be difficult for clean-tech ventures to succeed in their business domains. By

building on legitimacy theory, we posit that one strategy clean-tech ventures can use to overcome

these constraints is to appoint female board directors. We analyze data from 193 clean-tech

ventures in the U.S. during 1996-2016, and find that female board representation has a positive

effect on the financial performance of these ventures. We also find that this effect is stronger for

small firms than it is for large firms, and for clean-tech ventures operating in states where the

public has a higher level of environmental ideology. These findings contribute to sustainability

research by demonstrating the importance of female representation on boards of directors in clean-

tech ventures.

Keywords: female board representation, clean-tech ventures, cognitive legitimacy, sociopolitical

legitimacy, public environmental ideology

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2.1 INTRODUCTION

Rising populations and continuous development around the world mean a greater reliance

on, and an increased demand for, energy supplies. However, conventional energy sources such as

fossil fuels (natural gas and coal) are limited in quantity, and also generate large amounts of waste

and hazardous emissions. Consequently, the whole world is faced with the significant challenge

of achieving both development and sustainability simultaneously (Shepherd and Patzelt, 2011). In

order to meet this challenge, researchers and practitioners have made increasing efforts to address

issues associated with environmental pollution, climate change, and potential energy shortages

(Toman and Withagen, 2000).

Clean-tech ventures employ advanced scientific knowledge and cutting-edge engineering

skills to generate and utilize energy from more sustainable sources such as solar, wind, biofuel,

water movement, and underground heat (Schilling and Esmundo, 2009). As well, the process of

generating and utilizing energy from such renewable sources produces less waste and hazardous

emissions than those from fossil fuel and coal (Jacobson and Delucchi, 2011). Therefore,

researchers and practitioners have commonly believed that clean-tech is a viable and promising

way to achieve sustainable development (Cohen and Winn, 2007; Shepherd and Patzelt, 2011).

Unfortunately, compared with conventional energy companies, the development of clean-

tech ventures has been hindered by economic, technological, and sociopolitical barriers. In terms

of economics, clean-tech ventures have generally had difficulty generating sufficient revenues and

profits to overcome their initial and operating costs, and this has resulted in a strong reliance on

governmental supports and subsidies (Bohnsack, Pinkse, and Kolk, 2014; Schilling and Esmundo,

2009). These revenue and profitability problems have occurred partly because clean-tech ventures

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often lack access to infrastructure (such as roads and grid access in remote locations) as they work

toward energy generation and transmission, (Painuly, 2001).

With respect to technology, clean-tech companies are often in the early stages of

development and are thus exposed to significant technology uncertainties (Schilling and Esmundo,

2009). With respect to sociopolitical issues, conventional energy companies are monopolies in

many economies, and therefore have an advantageous position that enables them to exercise unfair

competition against clean-tech ventures (Painuly, 2001). For instance, Tesla Inc. has introduced a

direct and online channel to sell its electric cars, but automobile franchise laws in some states in

the U.S. do not allow automobile firms to sell vehicles directly to individual customers (Stolze,

2014). This legal barrier can significantly affect the financial performance of a company like Tesla

Inc.

By adopting a legitimacy lens (Aldrich and Fiol, 1994; Suchman, 1995), we treat these

barriers as legitimacy constraints for clean-tech ventures. Legitimacy is a “generalized perception

or assumption that the actions of an entity are desirable, proper, or appropriate within some socially

constructed system of norms, values, beliefs, and definitions” (Suchman, 1995: 574).

Organizations in an emerging industry often collectively lack cognitive legitimacy and

sociopolitical legitimacy (Aldrich and Fiol, 1994). Cognitive legitimacy is the extent to which

stakeholders of a venture take for granted that it will succeed in its business domain (Shepherd and

Zacharakis, 2003). Because of the lack of access to infrastructures for energy generation and

transmission (Painuly, 2001), and the presence of technological uncertainties (Green et al., 2016),

clean-tech ventures may lack cognitive legitimacy. Sociopolitical legitimacy means to the extent

to which an organization’s activities conform to established rules, regulations, and the spirit of

laws (Aldrich and Fiol, 1994). The example of Tesla Inc. being unable to sell its electric cars

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directly to customers in some states suggests that clean-tech ventures may also lack sociopolitical

legitimacy (Stolze, 2014).

How can clean-tech ventures gain cognitive and sociopolitical legitimacy? We draw on

research on female representation on boards directors (Bear, Rahman, and Post, 2010; Hillman,

Cannella Jr, and Harris, 2002), and posit that female board representation enables clean-tech

ventures to gain legitimacy. A variety of strategies might be pursued to overcome the barriers that

face clean-tech companies, but in this research, we focus on a very fundamental and timely issue:

female representation on boards of directors (Rao, Chandy, and Prabhu, 2008). Researchers posit

that female board representation, or the ratio of female board members on board (Chen, Crossland,

and Huang, 2016), captures the difference between female and male directors. Hillman et al. (2002)

argue that female directors are more likely to serve as support specialists and community

“influentials”; More specifically, female board directors are more willing and able to provide

specialized expertise in regulations and laws, banking and financing, public relations, and

communicate constructive perspectives on social issues and problems, and influence powerful

groups and stakeholders in the local community (Hillman et al., 2002). These roles of female

directors can help clean-tech ventures gain both cognitive and sociopolitical legitimacy, which in

turn can enable them to overcome the above-mentioned barriers.

We posit that the impact of female directors as support specialists and as community

influentials depends on firm size. Specifically, smaller clean-tech ventures are more likely to suffer

from the lack of cognitive and sociopolitical legitimacy, and female directors may contribute

relatively more in terms of legitimacy attainment. We also posit that the influence of female board

representation on clean-tech venture performance is stronger for ventures operating in regions

where the public has a higher level of environmental ideology (e.g., pro-environment), which

9
makes it easier for female board directors of clean-tech ventures to serve as support specialists and

community influentials. In regions or markets where the public has a lower level of environmental

ideology (e.g., anti-environment or apathetic), female board directors may not have the capacity

to gain legitimacy for clean-tech ventures.

This paper contributes to the literature on sustainability in several ways. First of all, we

demonstrate that female board directors can help clean-tech ventures achieve above-normal

returns. Because of environmental pollution, climate change, and energy crises (Toman and

Withagen, 2000), researchers consider ventures employing renewable and clean technologies as

the mainstream of sustainable entrepreneurship (Cohen and Winn, 2007; Shepherd and Patzelt,

2011). However, being faced with business and sociopolitical constraints, clean-tech ventures

often find it difficult to achieve viable financial returns. Our finding that female board

representation has a positive effect on clean-tech venture performance thus has both theoretical

contributions and practical implications.

Second, we advance the legitimacy theory by incorporating insights from research on

female board members (Bear et al., 2010; Chen et al., 2016). How organizations create and capture

value by attaining and maintaining legitimacy is a central research question in the legitimacy

literature (Nagy et al., 2012). This is particularly true for organizations in emerging industries

(e.g., clean-tech ventures) that collectively lack cognitive legitimacy and sociopolitical legitimacy

(Aldrich and Fiol, 1994). Our study indicates that appointing female board of directors is a viable

instrument for ventures to gain and maintain legitimacy. Moving beyond the main effect, we find

that smaller ventures and ventures operating in regions where the public has a higher level of

environmental ideology can benefit more from female board members. These boundary conditions

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advance legitimacy theory by offering more refined mechanisms through which firms can gain

legitimacy by appointing female board members.

2.2 THEORY AND HYPOTHESES

2.2.1 Clean-Tech Ventures at a Crossroads

By using advanced scientific and engineering knowledge and techniques to generate and

utilize energy from solar, wind, biofuel, water movement, and underground heat (Schilling and

Esmundo, 2009), clean-tech ventures have been commonly seen to have the potential to

simultaneously enable continuous development and environmental protection (Jacobson and

Delucchi, 2011). However, clean-tech ventures face a variety of difficulties as they try to penetrate

mainstream energy markets (Johnson and Suskewicz, 2009). Clean-tech ventures often lack

infrastructures for the generation and transmission of renewable energy (Painuly, 2001). They

generally have a higher start-up and operating costs compared with conventional energy

companies that can benefit from access to existing infrastructures. For example, electric vehicles

cost more to build than do traditional vehicles (Bohnsack et al., 2014). Higher manufacturing costs

result in higher product prices, thus reducing demand from customers. As a consequence, investors

may doubt the ability of electric cars to compete with conventional vehicles in the mainstream

markets (Stringham, Miller, and Clark, 2015).

Meanwhile, clean-tech ventures often rely on government support in the form of revenue

subsidies, tax reductions, and access to public resources (Zhang et al., 2014). But such supports

change frequently. For example, the Trump administration has reduced government support for

the development of clean power and has withdrawn from the Paris Climate Agreement (Tomain,

2017). By contrast, the Obama administration made substantial efforts to develop clean energy

innovation by scaling up investments (The White House, 2015). The policy changes adopted by

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the Trump administration are likely to have a negative impact on the operations and performance

of clean-tech ventures (Liebreich, 2016).

Clean-tech ventures may also need to overcome resistance from other stakeholders beyond

government because competing interests among stakeholders are common (Mitchell, Agle, and

Wood, 1997). The benefits that are captured by one stakeholder group may be at the expense of

other stakeholder groups (Lamin and Zaheer, 2012; Wang and Thornhill, 2010). In fact, gaining

social support and removing social resistance can be a deciding factor in the success of clean-tech

ventures (Wustenhagen, Wolsink, and Burer, 2007). For example, the wind is a source of clean

and renewable energy, but wind turbines often generate annoying noise in local communities

(Rygg, 2012) and they kill numerous birds during migration seasons (Smallwood, 2007). Local

communities and animal activists therefore often oppose the installation and operation of wind

power generation units.

It is useful to examine these barriers to clean-tech ventures from a legitimacy perspective.

It has been widely recognized that organizations in emerging industries often suffer from a lack of

cognitive legitimacy and sociopolitical legitimacy (Aldrich and Fiol, 1994). Cognitive legitimacy

reflects the extent to which stakeholders of a venture take for granted that the venture will succeed

in its business domain. Clean-tech ventures lack infrastructures for energy generation and

transmission and also encounter technology uncertainties, suggesting that investors may not

believe the business case for clean-tech ventures. Changes in government support and resistance

from other stakeholders in society suggest that clean-tech ventures may also lack sociopolitical

legitimacy as well, particularly in some regulated regions and markets.

2.2.2 Mixed findings of Female Board Representation and Venture Performance

Recently, a few nations have established the mandatory laws to increase the presence of female

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board of directors in the boardrooms. In 2003, Norway became the first country to impose such

quotas, requiring at least 40% public companies board seats be filled by female. After this, many

other European countries, such as Iceland, Spain, and France also mandate 40% targets. In 2015,

Germany adopted such quota, requiring 30% of board seats be hold by female. Recently, Canada

is targeting a national goal of 30% women on boards by 2019, and in the US, California just

became the nation’s first-ever state requiring at least one female director by passing the Senate

Bill 826.

Despite all the effort to increase the female board representation worldwide, the empirical findings

in the literature are still mixed on whether this helps improving firm performance (Post and Byron,

2015). For instance, Adams and Ferrira (2009) used an unbalanced S&P 500 panel dataset and

identified a negative relationship between board diversity and financial performance., Post and

Byron (2015) applied a meta-analysis to disentangle the conflicting results by using a 140 studies

sample. They do find a positive relationship between female board representation and accounting

returns (e.g. ROA, ROE). Whereas, they didn’t find any empirical evidence to support a positive

relationship between female board representation and market performance (e.g. Market-Book ratio

and Tobin’s Q). However, they pointed out there is highly likely a moderating effect on such

relationship, “However, the heterogeneity statistic associated with female board representation and

market performance suggests that a search for moderators is warranted” (Post and Byron, 2015:

1557).

Instead of composing a sample of established firms from different industries as previous studies

(e.g. Adams and Ferrira, 2009), in which endogeneity appears to be an issue because of appointing

male/female board of directors may depend on firm characteristics and firm performance, this

paper analyzes the relationship in question under the context of the clean-technology industry.

13
Because based on a growing body of social science studies, we know that female is generally more

concerned with environmental issues than male, and that women consistently showing stronger

altruism, personal responsibility and empathy when they are dealing with environmental issues.

According to the research conducted by the OECD, women in North American are more interested

in buying organic foods and using eco-friendly products, they are more willing to recycle and pay

environmental taxes (Daniels et al., 2012; Millock, 2014).

2.2.3 Female Board Representation and Clean-Tech Venture Performance

An obvious question to ask is “How can clean-tech ventures gain cognitive and

sociopolitical legitimacy”? There are various strategies that might be pursued (Rao et al., 2008),

but in this paper we focus on one aspect of the gender and governance literature: female board

representation, to be specific, the number of female directors in relation to the total number of

directors on a board (Chen et al., 2016). Researchers have increasingly recognized that there are

differences between male and female board of directors (Bear et al., 2010; Hillman et al., 2002).

For instance, female directors are more likely to serve as support specialists by providing

“specialized expertise in law, banking, public relations, or marketing, as well as access to vital

resources such as legal support or financial capital” (Hillman et al., 2002: 749). They can also

serve as community “influentials” and provide “non-business perspectives on issues, problems,

and ideas, as well as expertise about and influence with powerful groups in the community”

(Hillman et al., 2002: 749).

We posit that female board representation enables clean-tech ventures to gain legitimacy,

which in turn can enhance their financial viability and performance. First, serving as support

specialists, female board directors can help clean-tech ventures build a credible business case.

Female board directors may help clean-tech ventures to establish strategic alliances, which is a

14
viable way for organizations to gain legitimacy (Dacin, Oliver, and Roy, 2007; Khoury, Junkunc,

and Deeds, 2013). Post et al., (2015) find that energy companies with female board directors are

often able to establish renewable energy alliances that consist of both clean-tech ventures and oil

companies. Such alliances enable the related partners to enhance their environmental performance

ratings (Post et al., 2015) and develop a positive image that can ultimately enhance their financial

performance.

Second, serving as community “influentials,” female board directors may also enable

clean-tech ventures to gain sociopolitical legitimacy. As explained previously, clean-tech ventures

are exposed to and influenced by a variety of stakeholders, including local communities, investors,

government agencies, and so forth (Wustenhagen et al., 2007). Interests of such stakeholders are

not always aligned, and in various situations, they may actually be in conflict (Mitchell et al.,

1997). Generally speaking, women care more about others more than men do (Jaffee and Hyde,

2000), and this characteristic may make women directors more effective in addressing conflicts

between across stakeholder groups. That, in turn, enables clean-tech ventures to gain sociopolitical

legitimacy. For example, researchers found that female board directors can help their organizations

pursue socially responsible activities (Bear et al., 2010) by addressing different stakeholders’

interests. Similarly, organizations with female board of directors are more likely to make an impact

in community service (Groysberg & Bell, 2013), which also means that local communities are

more likely to encourage the operations and increase the odds of clean-tech ventures success

(Wustenhagen et al., 2007).

Overall, we posit that female board representation plays an important role in enabling

clean-tech ventures to gain and maintain legitimacy, and this should result in improved financial

viability and performance. Although previous researches have primarily focused on the impact of

15
legitimacy on organizational survival (Delmar and Shane, 2004), researchers have increasingly

acknowledged that legitimacy helps organizations gain tangible resources and achieve superior

performance (Fisher, Kotha, and Lahiri, 2016; Wang, Thornhill, and De Castro, 2017). Therefore,

Hypothesis 1: Female board representation has a positive relationship with clean-

tech venture performance.

2.2.3 The Moderation of Firm Size

In terms of legitimacy attainment, we posit that female board directors play a more

important role for small clean-tech ventures than for large ones. Other things being equal, small

clean-tech ventures are more likely to suffer from the lack of legitimacy than large ones. There

often exists a legitimacy threshold, “below which the new venture struggles for existence and

probably will perish, and above which the venture can achieve further gains in legitimacy and

resources” (Zimmerman and Zeitz, 2002: 42). With resources and abilities to buffer shocks from

the environment (Djupdal and Westhead, 2015; Hannan and Freeman, 1989), large organizations

are more likely to have passed their legitimacy thresholds than small organizations. As discussed

previously, the lack of access to energy generation and transmission infrastructure is a barrier to

clean-tech ventures and this barrier is particularly challenging for small firms. If female board

directors can enable clean-tech ventures to attain legitimacy, the relative benefits are likely to be

stronger for small than for large clean-tech ventures.

Firm size may also reflect the capacity of female board members to influence legitimacy

attainment. As other researchers note, “when women are in the numerical minority in a group,

there is a serious risk that their voices and values will not be heard or taken into account” (Post et

al., 2015: 425). As a result, female board directors may face resistance from other individuals and

groups while trying to implement their preferred strategies and practices. Researchers find that in

16
large organizations, female board members can influence organizational decisions and social

performance only if the board has three or more females (Huse, 2011; Post, Rahman, and Rubow,

2011; Torchia, Calabro). In contrast, in small organizations, the power of female board members

can more easily surface. Small clean-tech ventures are likely to face a smaller number of

stakeholders. It is thus reasonable to expect that a female board diresctor is more capable of

reconciling stakeholder conflicts for a small than for a large firm.

To summarize, we suggest that firm size is a contingent variable that can shape not only

the relative importance but also the capacity of female board members in terms of enabling clean-

tech ventures to gain legitimacy. Thus,

Hypothesis 2: Firm size moderates the relationship between female board

representation and clean-tech venture performance; this relationship is stronger

(more positive) for small than for large clean-tech ventures.

2.2.4 The Moderation of Public Environmental Ideology

The acceptance of renewable energy in a market largely depends on the environmental

ideology of customers, regulators, and other stakeholders in the market (Percival et al., 2017;

Wustenhagen et al., 2007). Environmental ideology refers to individuals’ logically coherent

explanations, predictions, and evaluations of social conditions to address environmental and

sustainability issues (Harring, Jagers, and Matti, 2017). Although ideology is typically viewed as

an individual-level concept, the public in one region may, on average, demonstrate a different level

of environmental ideology than the public in another region. For example, in the state of California,

there are many environmentalists, non-profit clubs, and other organizations and individuals who

vote green and live green (Kahn, 2007). These individuals and organizations form a customer base

for clean-tech products and services, and also influence decisions of regulators and policymakers

17
that can ultimately determine government support and subsidies for clean-tech ventures (Percival

et al., 2017).

We suggest that environmental ideology can also moderate the effect of female board

representation on clean-tech venture performance. First, female board directors may better utilize

their expertise when they deal with a group of individuals and organizations with a high level of

environmental ideology (i.e., pro-environment). In regions or markets where the public has a high

level of environmental ideology, individuals and organizations are more aware of the causes and

consequences of environmental issues (Kahn, 2007). They can better understand business models

of clean-tech ventures than regions with a low level of environmental ideology (i.e., anti-

environment).

Second, female board directors of clean-tech ventures may share the same ideology with

individuals and organizations in regions where the public has a high level of environmental

ideology because females are generally more concerned with environmental issues than their male

counterparts (McCright, 2010). It is thus reasonable to believe that female board directors have a

higher level of environmental ideology than male board directors. Furthermore, the reason why

some females decide to serve as board members in clean-tech ventures may be because they have

a high level of environmental ideology. Sharing similar value and beliefs with a public that has a

high level of environmental ideology helps female board members more easily serve as community

“influentials.” Otherwise, conflicts in environmental ideology may make it difficult for female

board members to persuade the local community to accept renewable energy products and services

from their company.

In summary, although we posit that female board directors help clean-tech ventures gain

legitimacy, this mechanism can be maximized when clean-tech ventures operate in regions or

18
markets where the public has a high level of environmental ideology. Therefore,

Hypothesis 3: Public environmental ideology moderates the relationship between

female board representation and clean-tech venture performance; this relationship

is stronger (more positive) for clean-tech ventures in regions or markets with a

higher level of environmental ideology.

Figure 2.1 Theoretical Framework

Venture Size Public Environmental

Ideology

H2 H3

Female Board Venture

Representation Performance
H1

2.3 METHODS

2.3.1 Sample and Data

We tested the foregoing hypotheses by collecting and analyzing data from clean-tech

ventures operating in the U.S. during the period 1996-2016. First, the U.S. economy is the largest

in the world, and the U.S. is also one of the largest energy consumption countries in terms of

energy use per capita (The World Bank, 2014). Therefore, findings from U.S. clean-tech ventures

have important implications. Second, the U.S. economy is characterized by more advanced

governance than the majority of other countries in the world (Moore et al., 2012). Although there

19
are fewer women than men on boards of directors, there is a trend toward more and more women

and minority directors serving on corporate boards in American companies (Hillman et al., 2002).

Third, different regions and markets in the U.S. differ in terms of the public’s environmental

ideology (Kahn, 2007). Since we hypothesized the moderating effect of public environmental

ideology, the U.S. data provide a reasonable context in which to test our hypotheses.

We obtained our sample of clean-tech ventures from the Bloomberg New Energy Finance

(BNEF) database. The BNEF database defines clean-tech ventures rather broadly, and includes

renewable energy generation, smart grid, energy storage, electric vehicles, grid integration, and

bio fuels and materials. Although still in its infancy, the clean-tech sector has witnessed significant

technology development in all these areas (Petkova et al., 2014). By including these technologies

and businesses, the BNEF database thus provides comprehensive coverage.

Ventures in the clean-tech sector rely heavily on external financing from equity investors

and creditors to fund their operations (Petkova et al., 2014). The BNEF database excludes inactive

ventures (e.g., those without any financing activities), so it provides us with information that

enables us to test our hypotheses about clean-tech ventures with active operations. Company

filings were available from the Edgar portal of the U.S. Stock Exchange Commission (SEC)

starting in 1996, and our observations run from 1996-2016. Applying the “activity” criterion, we

identified 193 ventures with 1,132 firm-year observations during 1996-2016.

2.3.2 Variable Measures

Venture performance. Our data source for venture performance is the Compustat North

American annual fundamental database. We measured venture performance using Tobin’s Q. It

captures a firm’s financial performance by adopting a forward-looking perspective and

incorporating growth prospects (Dezso and Ross, 2012). This forward-looking perspective is

20
particularly important for clean-tech ventures. Most ventures in the renewable energy field were

still in their early stages of development and lack sufficient sales and profits from their operations

(Petkova et al., 2014). As a result, accounting performance measures such as return on assets and

return on sales were either not available or were not relevant. Tobin’s Q has been widely accepted

as a performance measure, as evidenced by its use in various literature (Berger and Ofek, 1995;

Porta et al., 2002; Yermack, 1996).

Following others (Baxter et al., 2013; Younge and Marx, 2016), we calculated Tobin’s Q

by: Tobin’s Q = (market value of the firm + book value of total assets – book value of common

equity) / book value of total assets. In order to mitigate the heavy-tailed distribution of the

dependent variable, we winsorized Tobin’s Q by one percent in each tail (i.e., values higher than

the 99th percentile and lower than the 1st percentile were replaced by the next values counting

inwards from these extremes) (Gnanadesikan and Kettenring, 1972).

Firm size. We calculated the firm size using total assets (log transformed). In robust

analyses not reported in the paper, we checked other size measures (e.g., total sales and number of

employees) and found qualitatively identical results.

Female board representation. Our primary data source for female board representation is

the BoardEx database (El-Khatib, Fogel, and Jandik, 2015), which includes detailed information

about boards of directors in both large and small companies. We found the BoardEx database to

be quite inclusive, but for our sampled ventures that were not included in the BoardEx database,

we collected that information from in their proxy statements, which are available from the Edgar

portal of the SEC. Following other researchers (Chen et al., 2016), we defined female board

representation as the ratio of female directors to the total number of directors on the board.

21
 Public environmental ideology. To measure public environmental ideology, we collected

data from the League of Conservation Voters (LCV), which has published national environmental

scorecards since 1970. The LCV scorecards show the level of consensus among experts from

approximately 20 recognized ecological and environmental protection associations who chose the

key votes on which individual Congressmen ought to be scored (National Environmental

Scorecard, 2014). The LCV recorded the votes for pro-environmental actions and anti-

environmental actions for all members of Congress.

To create a measure of public environmental ideology, we first located the state where each

of the clean-tech ventures had their corporate office (from the Compustat database). We measured

public environmental ideology by using the state where the venture’s corporate office was located

(rather than their registration offices), given that their major customers and operations are likely

to be in the state where the corporate office is located. (Note: A firm’s corporate office may differ

from its registration office, which is often used for tax purposes.)

For each state, we obtained vote scores for environmental actions provided by the LCV

(Dunlap, McCright, and Yarosh, 2016). We then calculated public environmental ideology by

using the average LCV vote scores of the two senators that represented the state, as suggested by

prior research (Nelson, 2002). This score ranges from zero to one hundred, where zero means that

the two senators of the state voted for none of the pro-environmental bills, and 100 hundred means

they voted for all of the bills. The higher the number is, the higher the public environmental

ideology of the state is.

Control variables. Tobin’s Q may be determined by a firm’s profitability. Since various

factors affect profitability, we controlled for those. For example, we controlled for the effect of

return on equity, measured by the ratio of the firm’s net income to its book value equity. Because

22
good performers have more available capital to expand their businesses and operations, we

controlled for a venture’s cash ratio, which is calculated by dividing its cash by its total assets.

Researchers have found that technology ventures, due to their asset specificity, often find it

difficult to use debt as an important capital source for their businesses and operations (Wang and

Thornhill, 2010). We, therefore, controlled for the long-term debt ratio, measured by a firm’s long-

term debt divided by its total assets. Board size may also affect the performance of the firm

(Yermack, 1996), and we controlled for the effect of board size using the total number of directors

on a firm’s board. We also controlled for Total sales and Firm age by using the log of total sales

and the number of years has been operated, respectively.

Recall that we developed our hypotheses using the legitimacy lens. One way for firms to

gain legitimacy is to establish alliances with other companies (Dacin et al., 2007; Khoury et al.,

2013), so we first obtained data on strategic alliances from Thomson Reuters's SDC Platinum

database, a major data source for alliance research (Chakrabarti, Gupta-Mukherjee, and

Jayaraman, 2009; Puranam, Singh, and Zollo, 2006; Reuer and Ragozzino, 2014). We then counted

the number of alliances that a sampled venture had established during the three years prior to the

focal year of observation (Reuer and Ragozzino, 2014).

Macro-level factors (e.g., financial crises) occur over time, and they can ultimately affect

the valuation of public firms like our sampled ventures. This is particularly true for the clean-tech

sector, given the rapid development of renewable technologies and the adoption of clean

businesses practices around the world (Petkova et al., 2014). We used 19 dummy variables to

control for the time difference between 1996 and 2016, with 1996 as the reference point.

Generally speaking, public companies announce the hiring of new board members. For

example, when Apple Inc. recruited Sue Wagner as a new director to replace Bill Campbell, a

23
formal announcement was made (Colt, 2014). If the appointment of new directors affects the

performance of a company’s stock, changes in the stock price are likely to occur within a short

period of time because of investors’ reactions to such news. For this reason, we examined the

relationship between female board representation and Tobin’s Q measured in the same fiscal year.

We lagged other predictors by one year so as to reflect our presumed causality.

2.4 EMPIRICAL RESULTS

Table 2.1 displays the descriptive statistics and bivariate correlations of all the variables

excluding the year dummies. The mean value of Tobin’s Q for the sampled ventures was 3.12. On

average, 11 percent of the sampled ventures appointed female directors on their boards; this is

consistent with findings from other studies (Chen et al., 2016).

We used the fixed-effect model to test our hypotheses. Compared with the random-effect

model, the fixed-effect model controls for unobserved firm-specific factors that may affect firm

performance (Hamilton and Nickerson, 2003; Short et al., 2007). To avoid potential collinearity

problems among variables, such as total sales and firm size, we checked VIF (Variance Inflation

Factor) values for all the regression models. The values were ranging from 2.99 to 3.14 ruled out

such concern. As reported in Table 2.2, Model 1 is the base model in which only control variables

were included. In Model 2, the regression coefficient of female board representation was positive

and significant (b = 5.049, p < 0.01), thus supporting Hypothesis 1. This means that a higher level

of female board representation improves the performance of clean-tech ventures.

In Model 3, the interaction term of female board representation and firm size was added.

The regression coefficient of the interaction term was negative and significant (b = – 2.071, p <

0.01), marginally supporting Hypothesis 2. To illustrate the moderation effect of firm size, we

plotted the results from Model 3 in Figure 1. As can be seen, the relationship between female board

24
representation and clean-tech venture performance was positive, but this relationship was stronger

for small firms (mean value minus one standard deviation) than it was for large firms (mean value

plus one standard deviation).

25
 Table 2.1
Descriptive Statistics and Bivariate Correlations
Mean S.D. Min Max 1 2 3 4 5 6 7 8 9 10
1. Tobin’s Q 3.12 7.14 0.65 83.58
2. FBR 0.11 0.13 0.00 1.00 –0.05
3. Firm size 5.94 2.41 0.38 10.61 –0.38 0.35
4. PEI 64.91 34.76 0.00 100.00 0.02 0.01 –0.206
5. Number of 0.30 0.66 0.00 5.00 –0.01 –0.03 0.03 0.03
6. Return on equity –0.21 2.65 –83.97 21.61 –0.03 –0.00 0.02 0.01 –0.07
alliances
7. Cash ratio 0.22 0.24 0.00 0.98 0.25 –0.23 –0.47 0.26 0.15 0.01
8. Debt ratio 0.22 0.49 0.00 11.59 0.13 0.07 0.07 –0.13 –0.02 0.01 –0.21
9. Board size 6.75 2.69 1.00 18.00 –0.25 0.32 0.57 0.03 0.16 0.04 –0.24 –0.01
10. Total sales 5.14 2.67 0.01 10.66 -0.34 0.28 0.90 -0.15 -0.01 0.02 -0.49 0.07 0.56
11. Firm age 18.39 17.22 1.00 65.00 -0.14 0.30 0.49 0.03 -0.06 0.04 -0.31 0.03 0.58 0.51
Note. FBR = female board representation. PEI = public environmental ideology. Correlations with absolute value larger than 0.07 were significant
at p < 0.05, two-tailed tests.

26
 Table 2.2 Regressions on Tobin’s Q

Model 1 Model 2 Model 3 Model 4 Model 5

FBR 5.049*** 4.634*** 4.504*** 4.308***
(0.001) (0.002) (0.003) (0.004)
Firm size -1.141*** -1.192*** -1.196*** -1.139*** -1.156***
(0.000) (0.000) (0.000) (0.000) (0.000)
FBR*Firm size -2.071*** -1.651***
(0.001) (0.008)
PEI 0.000 -0.000 -0.002 -0.003 -0.004
(0.950) (0.985) (0.784) (0.644) (0.579)
FBR*PEI 0.113*** 0.085**
(0.001) (0.020)
Number of alliances -0.385** -0.368** -0.335* -0.309* -0.298
(0.039) (0.049) (0.072) (0.098) (0.110)
ROE 0.002 0.005 -0.002 -0.002 -0.006
(0.961) (0.875) (0.948) (0.963) (0.862)
Cash flow 0.334 0.330 0.313 0.270 0.271
(0.709) (0.711) (0.724) (0.761) (0.759)
Long-term debt ratio -3.249*** -3.276*** -3.282*** -3.252*** -3.262***
(0.000) (0.000) (0.000) (0.000) (0.000)
Board size -0.095 -0.103 -0.118 -0.115 -0.124*
(0.204) (0.172) (0.117) (0.125) (0.098)
Total sales 0.450** 0.458** 0.422* 0.469** 0.438*
(0.048) (0.043) (0.062) (0.038) (0.052)
Firm age -1.687*** -1.642*** -1.570*** -1.630*** -1.576***
(0.000) (0.000) (0.000) (0.000) (0.000)
Constant 44.594*** 42.760*** 41.686*** 42.474*** 41.690***
(0.000) (0.000) (0.000) (0.000) (0.000)
R-squared 0.200 0.215 0.225 0.224 0.230
Note. FBR = female board representation. PEI = public environmental ideology. The product terms were
constructed after centering the simple terms to reduce potential multicollinearity. Year dummies were
included but not reported to save space. Unstandardized regression coefficients (numbers in brackets are
standard errors). * p < 0.1, ** p < 0.05, *** p < 0.01, two-tailed tests.

Model 4 reports the moderation effect of public environmental ideology. The coefficient

of the interaction term between female board representation and public environmental ideology

was positive and significant (b = 0.113, p < 0.001), thus supporting Hypothesis 3. We plotted the

results from Model 4 to provide a visual illustration. As can be seen in Figure 2.2, the relationship

between female board representation and venture performance was positive for clean-tech ventures

operating in states where the public had a high level of environmental ideology (mean value plus

one standard deviation). However, this relationship does not seem to be present for clean-tech

27
ventures operating in states where the public had a low level of environmental ideology (mean

value minus one standard deviation).

Figure 2.2 Moderation of Firm Size

Note. FBR = female board representation.

28
 Figure 2.3 Moderation of Public Environmental Ideology

Note. PEI = public environmental ideology.

The full model was shown in Model 5, the coefficient of the two moderators are statistically

significant, to be specific, the coefficient of the interaction term of female board representation

and firm size is -1.651 (P<0.01), and the coefficient of the interaction term of female board

representation and public environmental ideology is 0.085 (p < 0.05), thus, again support the

Hypothesis 3. The model fitness has also been improved by from Model 1 to Model 5 by adding

interaction terms. We also found negative coefficients of size across models. Although the classic

entrepreneurship literature suggests that big firms are more likely to be the major source of

innovation thereby gaining the market value (Schumpeter, 1934; Shane & Venkataraman, 2000),

recent researches have shown a surprisingly strong role of small businesses in capitalizing the

market value of innovation, such as the emerging of PC industry in the 1970s, and the

biotechnology boom in the 1990s (Hirschey, 2003). Moeller et al., (2005) point out that acquiring

29
small firms are more profitable, but it is opposite for large companies. The coefficients of leverage

are also negative and significant in our regression models, which consistent with the prior findings

of McConnell and Servaes (1995), they divided a non-financial U.S firms sample into two groups:

strong growth opportunities group and weak growth opportunities group, and found that growth

opportunities (measured by Tobin’s Q) are negatively associated with the leverage, which indicates

that high leverage may cause underinvestment thereby reducing the firm market value (Lang et al.,

1996). Furthermore, the coefficients of the alliances are negative and significant in most of the

models, counter-intuitive as it seems, it actually makes sense since more alliances indicates that

the venture is more mature and established, which means the less potential or growth opportunities

(Tobin’s Q) the firm has. All these findings suggest that clean-technology ventures in the U.S are

on the rise in terms of market value and growth opportunities.

2.5 DISCUSSION

By analyzing data collected from 193 clean-tech ventures operating in the U.S. during

1996-2016, we indicate that female board representation improves the performance of these firms.

We also prove that the effect of female board representation on clean-tech venture performance is

stronger for small firms than it is for large firms, and for firms operating in regions or markets

where the public has a higher level of environmental ideology. The theoretical contributions and

managerial implications of these findings are discussed below.

2.5.1 Theoretical Contributions

We contribute to sustainability research by demonstrating a unique mechanism through

which clean-tech ventures can succeed in their business domains. The production and utilization

of energy from fossil fuels has resulted in significant increases in environmental pollution, climate

30
change, and energy crises (Toman and Withagen, 2000). Researchers and practitioners generally

accept the idea that developing and applying clean technologies is the primary way for the world

to simultaneously achieve sustainability and development (Schilling and Esmundo, 2009). In fact,

ventures adopting and employing clean technologies to generate and utilize energy have become

a major form of sustainable entrepreneurship (Cohen and Winn, 2007; Shepherd and Patzelt,

2011). In the meantime, clean-tech ventures have been faced with various business and

sociopolitical barriers, making it difficult for them to achieve financial viability. We suggest that

one of the strategies that clean-tech ventures can employ to overcome these barriers is by

appointing female directors on their boards, who are more capable than their male counterparts of

serving as support specialists and community “influentials” (Bear et al., 2010; Hillman et al.,

2002).

This article also contributes to the legitimacy literature by incorporating gender research

and emphasizing the legitimation function of female board representation. Legitimacy is critical

for organizations to survive in their early stages of development (Bruderl and Schussler, 1990;

Delmar and Shane, 2004), acquire tangible resources (Zimmerman and Zeitz, 2002), and achieve

financial returns (Wang et al., 2017). Researchers have identified a variety of strategies, structures,

and practices that organizations can use to gain and maintain legitimacy (Rao et al., 2008). To the

best of our knowledge, this study is among the first that considers female board representation as

an instrument for attaining legitimacy for clean-tech ventures, thus providing a novel perspective

to the legitimacy literature.

Our investigation also extends the main effect of female board representation on new

venture performance by looking into its boundary conditions. We first suggest that female board

directors are more likely to serve as support specialists and community “influentials” for small

31
clean-tech ventures rather than for large ones. This is not surprising, because (a) small firms

generally suffer more from the lack of cognitive and sociopolitical legitimacy than large firms, and

(b) female board members are more likely to be able to influence other individuals and groups in

small rather than large organizations.

Furthermore, we suggest that the extent to which female board directors can serve as

support specialists and community “influential” in clean-tech ventures depends on public

environmental ideology. Because female often cares more about environmental issues more than

male does (McCright, 2010), it is reasonable to argue that female board members also have a

stronger environmental ideology than male board directors. The match of female board members

and the public in terms of environmental ideology makes them more effective as support specialists

and community “influentials.” Overall, these boundary conditions demonstrate more refined and

nuanced mechanisms through which female board representation affects the performance of clean-

tech ventures.

2.5.2 Managerial Implications

The findings of this paper offer meaningful guidance for clean-tech venture managers,

female board members, and policymakers. Our study suggests that one way for clean-tech ventures

to overcome their business and sociopolitical barriers is to appoint more women to boards of

directors, particularly those who have the willingness and ability to serve as functional specialists

and community influentials, as others researchers have reported (Bear et al., 2010; Hillman et al.,

2002).

For female board directors, our recommendations mainly focus on the fit between their

skill sets and the types of clean-tech ventures that they can join. As reported in Table 2.2 and

Figures 2.2 and 2.3, our empirical results suggest that women should choose small clean-tech

32
ventures rather than large ones. Compared with large firms, small firms suffer more from a lack of

legitimacy (Djupdal and Westhead, 2015; Hannan and Freeman, 1989), and this suggests that the

contributions of female board directors will mean more for small than for large firms. Because

female directors may have limited power in a large organization, they may derive more job

satisfaction by serving as a support specialist or community “influential” in a small clean-tech

venture. Female board members need to pay attention to the environmental ideology of the public,

given that our results indicate that their contribution may not be appreciated in states or markets

where the public has a low level of environmental ideology.

For policymakers, we aim to highlight the hidden effect of pro-environmental policies on

public environmental ideology. We find that female board member are more likely to make a

difference in clean-tech ventures that are located in states where the public has a high level of

environmental ideology. Although ideology is a subjective concept determined by an individual’s

logically coherent explanations, predictions, and evaluations of social conditions to address

environmental and sustainability issues (Harring et al., 2017), different administrative regions

have demonstrated varying levels of public environmental ideology (Kahn, 2007). We thus suggest

that policymakers take a broader view while initiating and voting pro-environmental or anti-

environmental acts and actions, which can potentially shape the environmental ideology in the

public.

2.5.3 Limitations and Future Research

This study has several limitations, but these limitations provide some promising directions

for future research. First, we develop our hypotheses based on the evidence that female board

directors are willing and able to serve as support specialists and community “influentials.”

Although these roles have been widely recognized and reported in prior research (Bear et al., 2010;

33
Hillman et al., 2002), our dataset did not allow us to empirically test these activities and behaviors.

We acknowledge the need to examine more specific contributions of female board directors, which

can be identified and tested by collecting individual-level data.

Related to the previous point, it is important to differentiate the contributions of female

board directors. Individuals often differ in their mindsets and skill-sets, so it may not be accurate

to say that a female board member can serve equally well as support specialists and as community

“influentials.” From the clean-tech venture’s perspective, the question is how to mix the strengths

of different female directors. Again, researchers with access to data at the individual-level of board

members can test whether and how the mix of different types of female directors affects clean-

tech venture performance.

While our hypotheses are based on a unique context—clean-tech ventures—most of our

arguments apply to other industries and businesses that are facing business and/or sociopolitical

barriers. Therefore, it is useful to test our hypotheses by collecting data from other industries and

business segments. As well, since our sampled firms are ventures in the U.S., it is important to

replicate our findings across countries that are likely to have different levels of environmental

ideology. As for the methodology, we have 193 clean-tech ventures nested in 33 states of America,

therefore, conducting a Hierarchical Linear Modeling (HLM) analysis appears to be more accurate

and proper, but we found that in the empty model, the intraclass correlation (ICC) was too small

(0.014), which indicates a poor reliability if we stick to ues HLM regression. However, for the

future studies with different nested sample, we might be able to capitalize by utilizing multi-level

modeling.

2.5.4 Concluding Remarks

34
 Although it is widely believed that the development and adoption of clean technologies is

the primary way to simultaneously achieve sustainability and development, clean-tech ventures

often encounter significant business and sociopolitical barriers. This study finds that one way for

clean-tech ventures to overcome these barriers is by appointing female board directors, resulting

in improved financial viability and performance.

35
 CHAPTER 3: ESSAY 2

It is our business! How family firms balance control and diversity

ABSTRACT

Using a sample of 2,000 largest industrial firms in the U.S, we investigate how family involvement

influences corporate diversity and whether a governance mechanism – dual-class share –

moderates such effect. The results suggest that family involvement decreases the level of

aggregated diversity, but family firms present more diversity-related concerns than non-family

firms. Meanwhile, we find that the adoption of dual-class share structure in corporate governance

decreases family firms’ overall diversity. These results suggest that family involvement does not

promote diversity as many would hope; rather, it suppresses diversity to ensure continued family

control. These findings provide important policy and practical implications.

Keywords: Family involvement; dual-class share structure; diversity; socioemotional wealth;

agency problem

36
3.1 INTRODUCTION

The interest in understanding family business has been growing remarkably over the past

decade (Anderson and Reeb 2003; Dyer and Whetten 2006; Wang 2006). We follow Chua et al.

(1999) and define family firms as those with all four aspects of family involvement including

ownership, management, governance, and intention for succession. Owning family members of a

firm always hope their business to survive for more than one generation, certainly under family

control (Anderson et al. 2003; Chrisman and Patel 2012; Chua et al. 2011). Thus, these firms are

motivated to build a family legacy, embracing a long-term orientation in decision making and

valuing “socioemotional wealth” (SEW). As Zellweger et al. (2012) summarize, SEW includes

such things as “fulfilling needs for belonging, affect, and intimacy; continuation of family values

through the firm; perpetuation of the family dynasty; preservation of family firm social capital;

and social status……” (p. 851).

According to the socioemotional wealth theory, family firms often pursue non-pecuniary

goals beyond financial concerns in order to build and retain socioemotional wealth (Gómez-Mejía

et al. 2011). For instance, some scholars have found that family business tends to engage more of

corporate social responsibility (CSR) activities than non-family firms (Cui et al. 2016; Dyer and

Whetten 2006; Liu et al. 2015). However, agency theory suggests that, as controlling shareholders,

family members are motivated to pursue and maximize their own benefits, often at the expense of

minority shareholders (Jensen and Meckling 1976). This means that family firms may not always

promote social goals, sometimes can do even less than non-family firms. For instance, Dyer and

Whetten (2006) have found that behaviors such as entrenchment and nepotism can lead to self-

interest behaviors, such as guaranteeing employment for family members in family firms (Morck

and Yeung 2004).

37
 Given the seemingly contradicting predictions regarding family business’s commitment to

social goals, we are interested to investigate whether family involvement truly makes a difference

and what about the difference. Specifically, we focus on corporate overall diversity, an aggregation

of four individual dimensions of CSR that has been increasingly valued over the past several

decades (Godfrey et al. 2009; Johnson and Greening 1999; Ruf et al. 1998). We choose diversity

also because it represents a dilemma for the family business as too much diversity can dilute family

control while too little diversity may raise concerns of social ignorance and potential self-dealing.

Inconsistent with family firms’ engagement in CSR as reported in previous studies (Dyer and

Whetten 2006), this paper suggests that family firms are less likely to promote diversity in terms

of women and minorities promotion and subcontracting board composition, and notably

progressive policies regarding the gay and lesbian employees. This echoes the findings of Cruz et

al. (2014) that, unlike non-family firms, family firms tend not to adopt social practices.

We also introduce dual-class share in the business and investigate how this governance

mechanism may moderate the relationship between family involvement and diversity. Dual-class

share structure enables controlling shareholders to obtain board control with relatively less cash

flow rights (Claessens et al. 2000; Gompers et al. 2010; Liu and Magnan 2011), thus can

complicate the dynamics of control in the family business and potentially cause more serious

agency issues. For family firms, when the ownership wedge increases (the difference between

controlling shareholders’ control rights and cash flow rights), family members could be motivated

to conduct financially self-interest behaviors while ignoring their social responsibility.

Based on a regression sample of 8,904 firm-year observations from 2,000 largest industrial

companies in the U.S, our empirical results show that family involvement has a significantly

negative effect on overall diversity, which contradicts with the SEW argument. Our results

38
demonstrate that family firms present more diversity concerns than non-family firms. This is

consistent with the self-interest agency argument. Moreover, our findings show that family

involvement decreases overall diversity when the dual-class share structure exists. Taking together,

this study suggests that family involvement does not seem to promote social goals such as diversity;

rather, it can damage social equity by ignoring important stakeholders while preserving family

control over the business.

This study sheds light on the literature on family business, corporate structure, and

corporate diversity in at least two aspects by applying the behavioral agency theory. First, our

study adds knowledge to the current family business literature by documenting evidence that

family firms’ preservation of social image is not unconditional but conditional on corporate

structure. The empirical results of this study corroborate the behavioral agency theory under the

context of family firms and dual-class share structure. Secondly, our study extends CSR literature

by focusing on a single dimension corporate diversity, rather than examining a boarder CSR

concept. Besides the above academic contributions, this study also provides important practical

implications for family firm owners, investors, policy makers, and socialist for diversity issues by

adopting a sample of large publicly listed companies. It provides them better understandings of the

drivers of corporate diversity under the context of family firms and dual-class share structures.

The rest of the paper continues as follows. In Section 2, we conduct a literature review and

build our hypotheses. In Section 3, we report the data source, sample, and methodology. We

provide the empirical results and discussions in Section 4, and conclude in Section 5.

3.2 THEORY AND HYPOTHESES

3.2.1 Family Involvement and Diversity

From the SEW perspective (Gómez-Mejía et al. 2007), families view their companies as a

39
legacy to their future generations, which is not just a sustainable income source, but also an

extension of their identity and beliefs (De Vries 1977; Dyer Jr 1992; Schein 1983). Usually, a

family firm has its owning family’s name attached to its properties and business (De Vries 1994;

Post 1993; Ward 1987). Negative events in a family firm such as labor strikes, customer complaints,

or legal suits can become indelible stain to the attached family name (Post 1993). Thus, family

firms cherish their identity and would do good things to protect their family names. In fact, Dyer

and Whetten (2006) composed a S&P 500 firms’ sample from 1991 to 2000, and point out that

family firms are more socially responsible than non-family firms along many dimensions, and they

attribute the difference to family concern about their reputation and image.

Many researches have compared family firms with non-family firms on both financial and

non-financial performance (Anderson and Reeb 2003; Beehr et al. 1997; Christman et al. 2004;

Cui et al. 2016; Daily and Dollinger 1992; Dyer and Whetten 2006; Gallo et al. 2000; Liu et al.

2015; Tanewski et al. 2003). However, diversity has rarely been brought onto the radar in this

stream of research. This is a bit surprising since diversity issues represent a great domain to study

how family firms balance family control with the needs of human capital and reputation. For

example, although worldwide legislation has provided stronger support for female and minority

representation on board, women and racial minorities are still struggling in getting onto the board

(Miller et al. 2010). A recent study conducted by Per-Olof Bjuggren et al., (2018), which uses a

sample consists of over 1,000 Swedish private firms. Although they found that female directors

and CEOs can improve family firms’ financial performance, scholars find that women and ethnical

minority are underrepresented on corporate board in many countries including the United States

(Singh and Vinnicombe 2004; Terjesen and Singh 2008). In Malaysia, Abdullah (2014) find that

the appointment of women to board is more of a family tie action than a diversity response.

40
 The family firm owner is more likely to be guided by preferences that are not economically

motivated (Berrone and Gómez-Mejía 2009; Gómez-Mejía et al. 2000, 2011; Wiseman and

Gómez-Mejía 1998). In this study, we argue that when family owners control the corporation, the

firm is more likely to diversify its board for the following reasons. Firstly, the notion of

organizational identity, image and reputation are the central concerns for family firms, they care

about reputation and image, therefore they need to be labeled socially responsible, portraying a

positive image and be a good corporate citizen (Dyer and Whetten, 2006). Secondly, by sending

“good signals”, there is a socioemotional reward from the public and other stakeholders, so family

firms can gain good image and reputation when they confirm to the social norm or follow the

legislation. Such favorable publicity can lead to significant enhancement of the family’s reputation,

and in turn family firms may have more socioemotional wealth and better financial performance.

Yet, managers in non-family firms are less likely to be concerned about these issues because they

do not have too many emotional ties with their companies, and they do not value their personal

image and reputation in the same way as family firms do. Thus, we propose the first hypotheses

as follows:

Hypothesis 1: Compared with a non-family firm, a family firm is more likely to promote

diversity issues.

3.2.2 The Moderating Effect of Dual-Class Share Governance

Dual-class share structure is one type of disproportional ownership, which is designed to

allow shareholders to control a larger proportion of voting rights than their proportion of cash flow

rights (Adams and Ferreira 2008). By implementing dual-class share governance, controlling

shareholders can manage their companies and make decisions without having to worry about other

shareholders’ intervention (Bergström and Rydqvist 1990; Bianco and Casanova 1999; Destefanis

41
and Sena 2007). Research also shows that highly concentrated levels of control rights in a firm can

significantly reduce the probability of unwanted takeover (DeAngelo and Rice 1983; Jarrell and

Poulsen 1988). Not surprisingly, in the 2,000 largest industrial firms, about 10% of family firms

adopt a dual-class share structure, since maintaining family control over the business is a baseline

to many family executives (Casson 1999), which is particularly true for founder CEOs (Miller et

al. 2011).

In this study, we propose that the use of dual-class share structure negatively moderates the

relationship between family involvement and diversity such that the positive effect of family

involvement on diversity will be weaker when a dual-class share is adopted in the firms. On the

one hand, as explained previously, the disproportional voting rights that accompany dual-class

share already ensure good control of the board, so the family member may be less worried about

the potential loss of control when greater diversity is introduced to the board. Family firms would

improve their diversity to a more or less degree, such as by reducing the number of actions that

cause public concerns on diversity. On the other hand, not only does the broad institutional

environment encourages diversity (Luoma and Goodstein 1999; Pfeffer 1992), but investors may

use diversity as an indicator to evaluate the effectiveness of corporate governance (Beatty and

Ritter 1986; Fama and Jensen 1983). So family firms need to send a positive signal to the public

and investors. In fact, there is evidence that racial and gender diversity is linked to greater corporate

reputation. (Certo 2003; Miller and Triana 2009).

Hypothesis 2: The adoption of dual-class share negatively moderates the relationship

between family involvement and board diversity such that the positive impact of family

involvement on board diversity will become weaker with the presence of dual-class share.

42
 Figure 3.1 Theoretical Framework

Dual-class
Share

H2

Family Board
Involvement Diversity
H1

3.3 METHODOLOGY

3.3.1 Sample

Our sample consists of 2,000 largest industrial firms that are publicly traded in the U.S.

stock markets. Our measure of family involvement takes into the consideration of both family

ownership and family management that previous studies have suggested (Dyer and Whetten 2006;

Wang 2006; Weber et al. 2003). We obtain yearly firm-level diversity ratings from the Kinder,

Lydenberg, and Domini dataset (hereafter KLD). The construct validity of the KLD dataset has

been approved in the previous literature (Sharfman, 1996). It is widely accepted and used in

academic research as one of the most reliable datasets for environmental, social and governance

measures (Bear et al. 2010; Cai et al. 2011; Jo and Harjoto 2012). The financial information and

other information were retrieved from the Compustat North America and hand-collected from

publicly available proxy statements.

The list of the 2,000 largest industrial firms, their characteristics, such as: ownership

structure could have changed overtime, therefore, to deal with the survival bias, we strictly follow

43
the list and the list of family firms as of 2001 across the period from 2001 to 2010. To put it another

way, we do not include those firms added to the list after 2001. Financial institutions (SIC code

6000-6999) and utility companies (SIC code 4900-4999) were also excluded from our sample since

they have different financial reporting procedures and follow different regulations. After removing

missing values, our regression sample comprised 8,904 firm-year observations spanning the 2001–

2010 period. Among the sampled firms, 30% (2,701/8,904) of them are family firms. The sample

covers 17 industries, such as: agriculture, mining, construction, manufacturing, and retail.

3.3.2 Variables

Diversity. We construct the measure of Diversity (Divtotal) from the KLD database. In the

KLD, a firm’s level of diversity is evaluated by ten categories on strengths and concerns. Both of

them are appraised either 1 or 0, contingent upon whether a firm meets the criteria. We used the

four strengthens dimensions (Representation 1 , Board of Directors, Women and Minority

Contracting, and Gay and Lesbian Policies) and two concerns dimensions (Workforce Diversity

Controversies and Representation) to construct the Strength (Divstr) and Concern (Divcon)

measures, and we use the differences between these two variables to measure the overall diversity

(Divtotal).

Family involvement. A dummy variable where 1 means that founding family is holding a

significant portion of shares and there is at least one family top management team member or

director on boards.

Dual-Class share structure. A dummy variable, Dualclass takes the value 1 if a firm

adopts dual-class share structure, and 0 otherwise. Data on the status of dual-class ownership are

manually collected base on the firm’s proxy statement.

1 The organization has shown notable efforts regarding promoting women and minorities.

44
 Control variables. Following prior studies (Berrone and Gómez-Mejía 2009; Christmann

and Taylor 2001), we controlled for several variables in our regression model: Size is measured as

the natural logarithm of total assets. slack is measured as the natural logarithm of the firm’s total

amount of cash dividends paid; Leverage is measured as long-term debt divided by total assets;

Sales refers to the natural logarithm of total sales. Loss indicates when a firm has a negative net

income, it equals to one if net income is negative, and zero otherwise. Table 3.1 provides detailed

information and data source for each variable.

3.3.3 Method

To test our hypotheses, we apply the Fit population-averaged Generalized Estimating

Equations (GEE) method with family (gaussian) specifies the distribution of dependent variable;

link (i) specifies the link function; and corr (ar1) specifies the within-group correlation structure

to mitigate the heteroscedasticity concern to examine the potential impact of family involvement

on diversity and the moderating effect of dual-class share on this association. However, there

could be a selection bias as family firms may intend to adopt dual-class share rather than a random

choice. Thus, we adopt Heckman two-step methods by computing the inverse mills ratio when

testing Hypothesis 2 and introduce it into empirical analysis to control the likelihood that firms

with family involvement in management are inclined to adopt dual-class share. We also controlled

for the industry and year fixed effects. In addition, to rule out the potential reverse causality issue,

we further tested our hypotheses by using one-year lagged predictors, and we found no statistically

significant difference. We also performed Granger causality test, the results did not reject the null

hypothesis (Prob > chi2=0.198), which means that our dependent variables (Divtotal, Divstr, and

Divcon) do not Granger-cause independent variable (Famfirm) (Dumitrescu and Hurlin, 2012;

Hurlin and Venet, 2001). As the nature of our dataset is a multilevel data structure, therefore it

45
seems using multilevel regression model makes more sense. However, we tested the empty model

by using Hierarchical Linear Modeling (HLM), and found a very low intraclass correlation (ICC),

which suggests that multi-level modeling is not a reliable option.

3.4 EMPIRICAL FINDINGS

3.4.1 Descriptive Statistics

Table 3.2 demonstrates a descriptive statistics table for the full sample and subsamples for

both family and non-family firms. It shows that non-family firms have better overall diversity

performance than family firms. The compare mean and median t-statistics are 7.680 and 7.363,

respectively, and both of them are significant at the 1% level. The compare median test was

conducted in STATA 13 by using the ranksum syntax, which applies the Wilcoxon rank-sum test,

(Wilcoxon 1945). This table also indicates that a greater portion of family firms choose to adopt

dual-class share structure than non-family firms. As a matter of fact, 27.8% of family firms adopt

dual-class share structure, which is

46
 Table 3.1 Variable Definitions

Variables Definitions Sources

Divtotal the total diversity strength score (Divstr) minus the total diversity concern score (Divcon) KLD
the total diversity strength score from five qualitative dimensions (Representation, Board of Directors,
Divstr KLD
Work/Life Benefits, Women & Minority Contracting, and Employment of Underrepresented Groups);
the total diversity concern scores from two qualitative dimensions (Workforce Diversity Controversies
Divcon KLD
and Representation);
a dummy variable that takes the value 1 if a significant portion of shares of a firm is held by members
Weber et al.
Famfirm from its founding family and family members serve on the management team or board of directors, and
(2003)
0 otherwise;
Proxy
Dualclass a dummy variable that takes the value 1 if a firm adopted dual-class structure, and 0 otherwise;
Statement
Size natural logarithm of total assets; Compustat
Slack natural logarithm of the total amount of cash dividends paid; Compustat
Sales natural logarithm of total sales Compustat
Big4 an indicator variable that takes the value 1 if a firm is audited by a Big 4 auditor, and 0 otherwise; Compustat
Leverage long-term debt scaled by total assets; Compustat
Loss an indicator variable that takes a value of 1 if net income is negative, and 0 otherwise; Compustat

Representation1: The organization has shown notable efforts regarding promoting women and minorities.

47
substantially higher than the percentage of the non-family firms (1%) of the sample. As the

compare mean t-statistics is -44.592 and significant at 1% level. In addition, according to the

compare mean and median statistics, family firms and non-family firms have shown significantly

difference across all the variables.

Table 3.3 reports the correlation of the variables. Some of the them are highly correlated.

In particular, we find that diversity strengths (Divstr) are negatively related to diversity concerns

(Divcon), suggesting that the two are substitutes. Family involvement (FamFirm) is positively

significant related to dual-class share structure (dualclass), which is consistent with previous

findings (Dyer and Sánchez 1998; Sharma et al. 2001) and this also confirms our argument that

family firms are more likely to adopt a dual-class share structure than non-family firms due to

socioemotional considerations. Family involvement (FamFirm) is negatively associated with

diversity at 1% significant level. The correlation matrix also confirms that family firms are smaller,

have lower total sales, use less leverage, and are less likely to experience losses. Potential

collinearity among our variables is not a concern since the mean of VIF is under 10.

48
 Table 3.2 Descriptive and Correlation

Full sample Famfirm=1 Famfirm=0 Compare Compare

variable mean median
Obs. Mean SD Min Mdn Max. Obs. Mean Median S.D. Obs. Mean Median S.D.

Divtotal 8904 0.219 1.110 -2.000 0.000 4.000 2701 0.083 0.000 1.052 6203 0.279 0.000 1.129 7.680*** 7.363***

Divstr 8904 0.589 0.903 0.000 0.000 4.000 2701 0.484 0.000 0.805 6203 0.635 0.000 0.939 7.261** 6.810***

Divcon 8904 0.370 0.498 0.000 0.000 2.000 2701 0.401 0.000 0.511 6203 0.356 0.000 0.492 -3.928*** -3.786***

Famfirm 8904 0.303 0.460 0.000 0.000 1.000 2701 1.000 1.000 0.000 6203 0.000 0.000 0.000 - -

Dualclass 8904 0.091 0.288 0.000 0.000 1.000 2701 0.278 0.000 0.448 6203 0.010 0.000 0.100 -44.592*** -40.318***

Size 8904 7.633 1.374 4.051 7.467 13.590 2701 7.329 7.151 1.266 6203 7.766 7.609 1.398 13.940*** 14.360***

Slack 8904 1.992 2.248 0.000 1.371 9.426 2701 1.910 1.917 1.940 6203 2.028 0.253 2.368 2.271** -0.326

Sales 8904 7.500 1.501 0.000 7.389 12.960 2701 7.238 7.096 1.348 6203 7.613 7.515 1.549 10.917*** 12.109***

Big4 8904 0.957 0.202 0.000 1.000 1.000 2701 0.914 1.000 0.280 6203 0.976 1.000 0.154 13.276*** 13.147***

Leverage 8904 0.199 0.189 0.000 0.176 1.802 2701 0.186 0.146 0.203 6203 0.205 0.186 0.183 4.266*** 7.746***

Loss 8904 0.201 0.401 0.000 0.000 1.000 2701 0.178 0.000 0.382 6203 0.212 0.000 0.409 3.693*** 3.690***

For compare-mean test, the df=8902, *** p<0.01, ** p<0.05, * p<0.1

49
 Table 3.3 Correlation

Divtotal Divstr Divcon Famfirm Dclass Size Slack Sales Big4 Leverage Loss
Divtotal 1.000
Divstr 0.898*** 1.000
Divcon -0.600*** -0.186*** 1.000
Famfirm -0.081*** -0.077*** 0.042*** 1.000
Dualclass 0.004 0.016 0.020* 0.427*** 1.000
Size 0.401*** 0.451*** -0.077*** -0.146*** -0.009 1.000
Slack 0.321*** 0.339*** -0.100*** -0.024** -0.001 0.588*** 1.000
Sales 0.395*** 0.435*** -0.091*** -0.115*** -0.030*** 0.882*** 0.586*** 1.000
Big4 0.074*** 0.059*** -0.058*** -0.139*** -0.052*** 0.157*** 0.076*** 0.141*** 1.000
Leverage -0.013 -0.022** -0.010 -0.045*** 0.091*** 0.150*** 0.015 0.050*** 0.053*** 1.000
Loss -0.053*** -0.046*** 0.034*** -0.039*** 0.040*** -0.155*** -0.242*** -0.239*** -0.016 0.152*** 1.000
*** p<0.01, ** p<0.05, * p<0.1

50
 Table 3.4 Main Results

Overall Diversity Strengths Concerns

VARIABLES
(1) (2) (3) (4) (5) (6) (7)
Famfirm -0.231*** -0.237*** -0.223*** -0.142*** 0.074***
(0.000) (0.000) (0.000) (0.002) (0.008)
Dualclass 0.009 0.051 0.354* 0.256** -0.070
(0.907) (0.508) (0.097) (0.041) (0.520)
Famfirm*Dualclass -0.377* -0.262** 0.087
(0.088) (0.050) (0.443)
invmills -0.167 -2.937*** -0.150 -2.907*** -2.921*** -2.231*** 0.714*
(0.787) (0.002) (0.817) (0.002) (0.002) (0.003) (0.061)
Size 0.176*** 0.165*** 0.176*** 0.165*** 0.165*** 0.164*** 0.013
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.375)
Slack 0.041*** 0.042*** 0.041*** 0.042*** 0.043*** 0.030*** -0.011**
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.011)
Sales 0.057** 0.066** 0.057** 0.066** 0.066** 0.060*** -0.017
(0.030) (0.012) (0.030) (0.012) (0.012) (0.008) (0.204)
Big4 0.062 0.052 0.062 0.052 0.054 0.016 -0.063*
(0.173) (0.248) (0.172) (0.246) (0.234) (0.557) (0.060)
Leverage -0.044 -0.040 -0.044 -0.041 -0.044 -0.038 -0.026
(0.467) (0.508) (0.465) (0.498) (0.463) (0.384) (0.467)
Loss 0.048*** 0.047*** 0.048*** 0.047*** 0.047*** 0.029** -0.012
(0.008) (0.009) (0.008) (0.010) (0.009) (0.030) (0.240)
Constant -2.210*** -0.184 -2.223*** -0.204 -0.194 -0.036 0.084
(0.000) (0.799) (0.000) (0.778) (0.788) (0.948) (0.816)
Industry dummy Yes Yes Yes Yes Yes Yes Yes
Observations 8,904 8,904 8,904 8,904 8,904 8,904 8,904
Wald chi(2) 1176.23*** 1240.73*** 1175.13*** 1218.34*** 1267.63*** 1443.27*** 11377.99***
*** p<0.01, ** p<0.05, * p<0.1

51
3.4.2 Multivariate Test Results

Table 3.4 reports the regression analysis findings from the dependent variables - overall

diversity performance (Divtotal) as well as two aspects of diversity: Strengths (Divstr) and

Concerns (Divcon), the independent variable family involvement (FamFirm), and the moderator

dual-class share (dualclass). As indicated from Table 4, there is a significant negative relationship

between family involvement and diversity in Model 2, Model 4 and Model 5, and thus Hypothesis

1 is supported. Overall, these findings suggest that instead of sending signals to the public to

achieve a good reputation, family firms are more incline to entrenchment and nepotism, therefore,

more interested in protecting and seeking their own interests (Dyer and Whetten 2006; Morck and

Yeung 2003). In addition, we identify a positive significant relationship between family

involvement and diversity concerns (Model 7 of Table 3.4), where the coefficient of Famfirm is

positive and significant at the 1% level. Therefore, our findings are consistent with the self-interest

behavior argument, that entrenchment and nepotism motivate family firms to protect their own

financial interests (Morck and Yeung 2004).

Hypothesis 2 proposes that the relationship between family involvement and diversity on

the board is negatively moderated by dual-class share structure, such that family firms with dual-

class share structure are less likely to improve diversity. These hypotheses are tested by examining

the interaction term between family involvement and dual-class share structure in the full model

(Model 5 of Table 3.4). In this model, the interaction term is negatively significant at the 10% level,

which suggests a negative moderating effect of dual-class share structure on the relationship

between family involvement and board diversity. Therefore, Hypothesis 2 is supported. To further

illustrate this moderating effect, we followed Aiken et al. (1991) to display the nature of the

interactions in Figure 1. The negative association between family involvement and diversity

52
become weaker for those firms with dual-class share structure compared with those family firms

without dual-class share structure. It indicates that family firms with dual-class share structure

conduct less diversity-related activities than non-family firms with dual-class share.

Figure 3.2 Interaction

Without dual-class
With dual-class

In model 5, we also find that the coefficients for Size, Slack, Sales, and Loss are positively

associated with diversity performance. They suggest that firms with larger size, higher cash

dividend payment, higher total sales and firms did not report a loss for the previous year are more

likely to invest in diversity activities.

3.5 DISCUSSION

Agency theory provides a theoretical basis for the divergent and convergent interests

between controlling shareholders and minority shareholders and predicts how this affects diversity.

When firms adopted dual-class share structure, the controlling shareholders might exercise greater

discretionary power and tends to be more self-interested, and more likely to entrench themselves

at the expense of minority shareholders (Claessens et al. 2002; Gompers et al. 2010), which leads
53
to even more severe agency problems (Jensen and Ruback 1983). Therefore, family firms with

dual-class share structure are less likely to conduct diversity-related activities compared with their

counterparts.

In a nutshell, our empirical results are inconsistent with our prediction in Hypothesis 1,

where we argue that family firms are more likely to conduct diversity-related activities because

preserving socioemotional wealth is more important for family firms. However, results show that

family firms are more likely to entrenchment and nepotism, therefore, more interested in seeking

their own interests (Dyer and Whetten 2006; Morck and Yeung 2003). Admittedly, agency problem

may result in more self-interest behaviors thereby less willingness to conduct diversity activities,

but for family firms, agency problem can be alleviated since family control could align the interests

of managers with the family’s interests (Anderson and Reeb 2003; Maury 2006). From the results

in Model 5, the family firms with dual-class share structure show better overall diversity

performance than those without dual-class share structure. According to the interaction term in

Model 5, we know that although family firms with dual-class share contribute far less in overall

diversity than non-family firms with dual-class share, their overall diversity performance is slightly

better than those family firms without dual-class share. Because based on the SEW theory,

maintaining family control and fulfill a succession plan are the key issues to family firms.

Therefore, only when family firms acquired full control rights of the firm (for example by adopting

dual-class share structure), they may more likely to perform better in diversity than their

counterparts.

Overall, the above evidence suggests that the effect of family involvement on diversity

varies depending on dual-class share structure. In support of this argument, we find a negative

moderating effect of dual-class share structure on the relationship between family involvement and

54
diversity. It means that the family firm’s concern about preserving socioemotional wealth will

alleviate the agency problem in the disproportional ownership structure context. Our analysis

focuses on diversity rather than a boarder concept of CSR, and the evidence of the moderating

effect of disproportional ownership structure may provide researchers, firm decision-makers and

minority shareholders with a more nuanced perspective toward the mechanisms through which

family involvement influences board diversity.

3.5. CONCLUSIONS AND FUTURE RESEARCH DIRECTIONS

Recently, scholars studying family firms have begun to recognize the role of corporate

social responsibility (Berrone et al. 2010; Cui et al. 2016; Déniz and Suárez 2005; Perrini and

Minoja 2008; Wiklund 2006). Nevertheless, there exist alternative arguments about the

relationship between family involvement and CSR performance. On one hand, socioemotional

wealth theory predicts that family firms are more likely to be socially responsible to preserve social

image and reputation. On the other, family firms are more likely to be entrenched and more self-

interest behaviors (Morck and Yeung 2004). Accordingly, they are less likely to be socially

responsible in order to maximize their self-interests. This study bridges these gaps in the literature

by simultaneously incorporating the family involvement and board diversity, and taking into

account overall board diversity as well as individual diversity aspect: strengths and concerns.

Based on both behavior-related socioemotional wealth theory and agency theory-based corporate

governance, this paper examines the impact of family involvement on the overall corporate

diversity and how dual-class share structure moderates such relationship. Our empirical analysis

starts with a sample of 2,000 largest industrial firms data obtained from multiple data sources,

including KLD, Proxy Statement and Compustat, and the empirical findings suggest that family

involvement has no significant effect on overall board diversity, but family firms have more

55
diversity concerns than their counterparts, which supports the argument that entrenchment and

nepotism motivate family firms to conduct more self-interest behaviors at the expense of other

minority shareholders. More importantly, our results have shown that the relationship between

family involvement and diversity is moderated by dual-class share structure. Further analysis

implies that, for firms with dual-class share structure, family firms carry out less diversity-related

activities than non-family firms do, and that, for firms without dual-class share, there is little

difference in board diversity between family firms and non-family firms. Thus, it sheds light on

the different aspects of board diversity activities by which family involvement can influence

through dual-class share structure.

This essay contributes to the literature by adding knowledge of family firms, ownership

structure, and agency theory under the context of board racial and gender diversity. In addition,

the findings have important implications for policies about corporate ownership structure and

board diversity. For instance, given that we divided diversity into three categories: aggregated

diversity, strengths, and concerns, we identified a positive relationship between family

involvement and diversity concerns. Therefore, for professional managers who work within a

family firm, they may want to pay more attention to the diversity concerns, such as workforce

diversity controversies, lower women and minorities representation, because their decisions will

directly influence these issues, and their overall performance will be evaluated accordingly. For

the policy makers, they may show more interest in how to effectively increase the overall diversity

in the private sectors, since family firms show less interest in improving diversity, especially after

obtaining the full control by adopting dual-class share. Furthermore, this paper provides several

avenues for future studies. First, corporate diversity should not limit to board members. It would

be worth investigating corporate diversity in terms of employee background. Second, it would also

56
be of interest to go beyond 2,000 largest industrial firms or family firms to investigate corporate

diversity, which will open up more research opportunities. Third, this paper fails to offer empirical

support for the direct connection between family involvement and board racial and gender diversity.

Future studies could dig further using family succession or family control (e.g., CEO is a family

member) to re-examine the above relationship.

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 CHAPTER 4: ESSAY 3

Corporate Governance, External Control, and Environmental Information Transparency:

Evidence from Emerging Markets

ABSTRACT

Using a sample of 4,195 observations from 19 emerging markets, we investigate how internal

corporate governance, external monitoring, and legal and business environment jointly affect a

firm’s managerial effectiveness in environmental information transparency in an international

setting. The empirical results show that in emerging economies, firms with stronger corporate

governance mechanisms tend to adopt an external control strategy in order to mitigate owner-

manager agency conflicts. Furthermore, internal corporate governance mechanisms are found to

directly increase firm transparency concerning environmental damage and to indirectly do so

through an external control device. The legal and business environments of countries in which

firms operate moderate these relationships.

Keywords: Corporate Governance, External Control, Legal Environment, Information

Transparency

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4.1 INTRODUCTION

Although emerging markets accounted for 37% of global Gross Domestic Product (GDP)

in 2000, rising to 50% in 2013 (Euromonitor International Report 2013), their rapid growth and

status as the engine of recovery from the most recent economic recession have begun to ring alarm

bells over the potentially severe environmental consequences. Recognizing the importance of

environmental protection and suffering from past environmental mistakes, the governments of

emerging market economies have begun to allocate more resources and impose stricter regulations

in an attempt to halt, or even overturn, environmental damage without sacrificing economic growth.

They have also begun to realize that the implementation and effects of such regulations and

enforcement efforts are largely dependent on their legal and business environments (Ding, Jia, Wu,

& Yuan, 2016; Maung, Wilson, & Tang, 2015). More importantly, how well the environment is

protected also depends on the corporate social responsibility (CSR) strategies that companies adopt

and the strength of their corporate governance mechanisms (Berrone, Cruz, Gomez-Mejia, &

Larraza-Kintana, 2010).

Despite their importance in economic and social sustainability as addressed in the CSR

literature (Garriga, & Melé, 2004), however, environmental issues in emerging markets are

underexplored to date (Chen, Ding, Wu, & Yang, 2016). Due to a lack of data, moreover, there is

very little international evidence on environmental protection measures in these markets. Most of

the extant studies on emerging markets focus on either the effects of firm characteristics such as

family involvement, ownership structure, and political connections (Berrone et al., 2010; Maung

et al., 2015) or on such external factors as subnational economic growth (Ding et al., 2016).

However, it is also of importance to explore how to improve environmental protection both

internally and externally, and one way to do so is to increase the transparency of environmental

59
information. In addition, while it is unclear whether the proxies for it, such as penalties and

environmental fees, employed by extant research (Maung et al., 2015) accurately measure

environmental performance, this study sheds light on managerial effectiveness in environmental

information transparency. To address these gaps in the literature, we pinpoint both the direct

effects of companies’ internal corporate governance mechanisms and their indirect effects through

external control device on managerial effectiveness in information transparency regarding

environmental damage in emerging economies, because these two serve as internal and external

drivers of managerial incentives to improve transparency of environment information especially

when the legal environment in emerging markets is not as strong as their developed counterparts.

External control device here refers to verification mechanism from an external third party, and

managerial effectiveness refers to how well a managerial system works with respect to

environmental protection. Furthermore, this study also explores the moderating effects of the legal

and business environments of the economies in which the companies operate.

We apply the traditional agency theory by using two governance mechanisms, board

monitoring and incentive compensation that are the most useful tools for mitigating agency

conflicts (Eisenhardt, 1989; Fama & Jensen, 1983), and incorporate both legitimacy (Suchman,

1995) and resource dependence theories (Hillman, Withers, & Collins, 2009) to pinpoint the joint

effects of corporate governance mechanisms, external control, and on managerial effectiveness in

environmental information transparency. Doing so integrates theories spotlighting internal and

external resources respectively into the agency theory which mainly link the internal and external

mechanism to the transparency of environmental protection. By providing international evidence

from emerging markets on the basis of a sample comprising information extracted from the

Sustainalytics database, World Bank, and Compustat, this study shows that in emerging economies,

60
firms with stronger corporate governance mechanisms tend to adopt an external control strategy

to mitigate owner-manager agency conflicts. Furthermore, internal corporate governance

mechanisms, such as incentive-compatible compensation and board independence, are found to

directly increase firm transparency concerning environmental damage and to indirectly do so

through external control device such as external verification. In addition, the legal and business

environments of countries in which firms operate are found to moderate these relationships.

This study makes at least three contributions to the literature. First, it adds to the corporate

governance literature by shedding light on how such governance combines with an external control

device, such as external verification, and legal and business environment systems, such as country-

level legal and business environments, to encourage managerial effectiveness in environmental

information transparency. Second, our findings contribute to the agency theory literature by

demonstrating that the interplay between internal monitoring and external control mechanisms

depends on the institutional environment, which differs between emerging and developed

economies. Third, we adopt the PROCESS Model to examine a complicated moderated mediation

mechanism and to use other methods to check the robustness of our findings, thereby making

methodological contributions to corporate governance research by applying advanced research

methods from other fields. In addition, the conclusions drawn from the analysis herein have critical

and timely implications for policymakers and regulators, providing them with a better

understanding of how to encourage managers to adopt better environmental protection measures

through a combination of internal and external mechanisms. These implications can be generalized

to jurisdictions throughout the emerging market world.

The remainder of the paper is organized as follows. Section 2 addresses the institutional

background to environmental protection issues in emerging economies. The theoretical framework

61
is constructed in Section 3, which also outlines the hypotheses. Section 4 introduces the research

methodologies adopted, and Section 5 presents our empirical results and discusses their

implications. Section 6 concludes the paper with directions for future research.

4.2 INSTITUTIONAL BACKGROUND

As a group, emerging markets do not currently meet all of the standards of developed

markets, but they have the potential to become developed markets in the future. Emerging markets

are home to 86% of the world’s population and cover 75% of its land area. In recent years,

emerging markets have played an increasingly important role in the global economy, accounting

for 50% of global GDP at purchasing power parity (BlackRock Investment Institute, 2011).

However, these markets as a country group are largely ignored in the academic literature (Chen et

al., 2016; Chen, Hou, Li, Wilson, & Wu, 2014; Fan & Wong, 2005). Some studies focus only on

developed economies (Faccio & Lang, 2002), although some international studies consider both

developed and emerging markets (Ding, Qu, & Wu, 2015; Liu & Magnan, 2011), and others

investigate a single emerging market (Fan, Huang & Zhu, 2013; Meyer & Nguyen, 2005).

Emerging markets differ from developed markets in terms of economic growth (Waheeduzzaman,

2011), foreign direct investment (FDI) (Filatotchev, Strange, Piesse, & Lien, 2007), legal

environment (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1998), and so on. To enhance our

understanding of emerging markets as a country group, this study investigated how the country-

level legal and business environments, corporate governance, and external control jointly affect

environmental information transparency.

International environmental agreements have been proposed as a solution to global

environmental problems. However, in practice, cooperation among countries is difficult to

accomplish. As countries are at different stages of economic development, the costs and benefits

62
of resolving environmental problems differ widely (Barrett, 2003). Emerging markets generally

pay less attention to environmental damage and solutions. Jorgenson (2009) investigates the

association between water pollution and FDI in emerging markets and shows a positive

relationship between them. Azadi, Ho, and Hashiati (2011) compare the agricultural land

conversion trends in developing countries. Their results suggest that developing countries,

particularly those undergoing rapid economic development, are experiencing greater agricultural

land loss. Emerging market countries face potential environmental harm when they seek to develop

their economies rapidly. Hence, government intervention in developing and enforcing an

environmental policy is a priority if a balance between economic development and environmental

protection is to be found.

The business environment varies among countries around the globe due to different legal

policies that countries have established. The literature documents a variety of links between

country-level legal policies and firm-level outcomes (e.g., Acharya, Amihud, & Litov, 2011; Ding

et al., 2015; Liu & Magnan, 2011). Acharya et al. (2011) investigate how creditor rights in

bankruptcy cases influence investment-related corporate risk-taking behavior in various countries.

Focusing on private-control mechanisms, Liu and Magnan (2011) demonstrate that firms have a

higher valuation in countries with stronger policies for self-dealing behaviors. Ding et al. (2015)

document an association between a country’s governance environment and unethical or illegal

behavior at the corporate level. More specifically, they find that firms operating in a more

developed and transparent legal and business environment pay less on bribes to government

officials.

Besides the existence of legal policies, the enforcement mechanisms of those polices are

also crucial to the success of legal and business environment (Bhattacharya & Daouk, 2002; Daouk,

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Lee, & Ng, 2006; Hail & Leuz, 2006; Jayaraman, 2012). Also, previous studies suggest that

favorable country-level legal policies and enforcement mechanisms are associated with better

corporate performance. Ding et al. (2015) investigate how macro-governance moderates the effect

of family involvement on corporate bribery behavior, and show that family control constrains such

behavior only in countries with weaker macro-governance. Consistent with Ding et al. (2015), this

study investigates the moderating role of macro legal and business environment. In emerging

markets, internal corporate governance and external control are complementary to the legal and

business environment, and the three mechanisms jointly influence management’s environmental

information transparency.

The existing literature largely focuses on legal enforcement of environmental damage on

developed economies (e.g., Earnhart 2000; Langpap 2007; Blondiau, Billiet and Rousseau 2015).

However, it seems that differences in enforcement associated with environmental damage among

emerging markets are understudied, and these are closely related to the development of legal

environment in various countries (Santhakumar 2003; Kochtcheeva 2013; Aklin, Bayer, Harish

and Urpelainen 2014). Kochtcheeva (2013) summaries environment-related damages in

developing countries, such as China, India, and Brazil. In addition, the study concludes that even

though these developing countries have established environmental regulations and laws, they are

still facing various challenges with regard to monitoring and enforcement. According to

Santhakumar (2003), the weak enforcement of environmental regulation in India is due to the

institutional deficiencies and the delay in resolving conflicts through court interventions. Aklin et

al. (2014) blame corruption for the lax enforcement of environmental laws in Brazil, which is

largely due to the interaction between wealthy individuals and government officials. Overall, the

environmental-related legal institutions in emerging economies are underdeveloped. Especially,

64
these economies face lax enforcement of environmental regulations and laws due to different types

of constraints.

In the following section, we discuss our hypotheses concerning the main effect of corporate

governance mechanisms and external control device on environmental information transparency

and the moderating effect of country-level legal and business environments on the association

between them.

4.3 HYPOTHESES DEVELOPMENT

Figure 4.1 Theoretical Framework

Berle and Means (1932) were the first to describe the problem arising from the separation

of ownership from control in large corporations. They argued that managers may pursue their own

self-interest rather than act in the best interest of shareholders. Building on Berle and Means (1932)

and Coase (1937), Jensen and Meckling (1976) developed an agency theory framework in which

managers may not act in the best interests of shareholders due to potential conflicts of interest or

interest misalignment. The agency relation is rooted in information asymmetry as managers can

access more information than shareholders. To mitigate agency problems and minimize conflicts

of interests, a variety of mechanisms have been suggested to align the interests of managers and

65
shareholders, including compensation plans, board monitoring, and the creation of new legal

standards (Fama, 1980; Fama & Jensen, 1983; Jensen, 2005).

The corporate governance literature has predominantly adopted the agency approach to

answer the question of how managers can be driven to pursue the interests of shareholders (e.g.,

Shleifer & Vishny, 1997). Effective corporate governance helps to mitigate the agency costs

associated with the separation of ownership from control. While monitoring the opportunistic

behavior of managers (Jensen & Meckling, 1976) can help reduce information asymmetry, it is,

however, not the only remedy. Another effective approach is signaling. Signaling theory was

initially developed to address the problems of information asymmetry in the labor market (Ross,

1977; Spence, 1974). In corporate settings, information asymmetry exists between managers and

shareholders. If shareholders have insufficient information about a firm’s performance, the firm’s

managers can exploit that information asymmetry to benefit themselves, which gives rise to the

moral hazard problem. Of course, managers may develop strategies for reducing the negative

effects that information asymmetry can have on the firm and the market (Campbell, Chen,

Dhaliwal, Lu, & Steele, 2014). Such information asymmetry can be reduced by the party with

superior information signaling it to others (Morris, 1987). Voluntary disclosure is one of the

signaling means, where managers have incentives to do so to assure investors and to enhance their

firm’s reputation (Sun, Salama, Hussainey, & Habbash, 2010). Prior studies have provided

evidence that environmental disclosure can be used as a legitimizing tool for companies to obtain

and maintain legitimacy (Cho and Patten, 2007).

Over the past decade, there has been increasing interest in corporate social responsibility

(CSR) where irresponsible actions toward the society and environment are considered a cost to

society (Miles & Covin, 2000). However, the empirical findings are still mixed, for instance, Patten

66
(2007) indicates that there is no significant relationship between environmental disclosure and

environmental performance. Nonetheless, Rana & Misra (2010) suggest that firms are more

willing to disclose their CSR performance when they are performing well. Signaling theory

suggests that firms with better CSR performance want to differentiate themselves from inferior

performers. Thus, they are willing to inform their shareholders of more information about their

CSR performance while bad CSR performers tend to disclose less information. Because the

disclosure of CSR is voluntary, the credibility of a firm’s CSR practices becomes critical. One way

to provide stakeholders an impartial view and fair assessment of a firm’s CSR record is to use

external control device, such as external verification (Rana & Misra, 2010; Sutantoputra, 2009)

like two international recognized standards: Assurance Standards (AA) 1000 and the International

Standard on Assurance Engagements (ISAE) 3000. External verification enhances firm value by

decreasing external uncertainty (Smith, 1986) as it is equivalent to a third-party certification. Thus,

on one hand, firms with strong corporate governance mechanisms have more incentives to seek

third-party certification in order to differentiate themselves and make it harder to be replicated.

On the other hand, firms with weaker corporate governance mechanisms and poor CSR

performance are less motivated to seek external verification. If such certification is used to provide

outsiders with more credible information about a firm’s performance, it helps to reduce

information asymmetry.

In short, due to the specific characteristics of severe informational asymmetry between a

firm’s management team and its shareholders in emerging markets, the trust level of shareholders

is low. Even if the management team has a strong corporate governance mechanism, it is worth

employing an external verification to serve as a third-party certification in order to further reduce

information asymmetry between the two parties (King, Lenox, & Terlaak, 2005). For badly

67
governed firms, however, it is very costly to seek external verification, given that the effects of

information asymmetry are present anyway. Therefore, we develop our first hypothesis on the

basis of the foregoing discussion:

H1: Firms with stronger corporate governance mechanisms are more likely to

seek external control.

Environmental performance involves the principal-agent problem to the extent that

shareholders and managers may prefer different environmental strategies. While shareholder may

demand for better environmental performance in emerging markets (Chen, et al., 2014; Su, Peng,

Tan, & Cheung, 2016), managers may avoid environmental strategies because of the high-level

uncertainty and long time to fruition (Aragon-Correa, 1998), and allocate resources to less risky

investments (Berrone & Gomez-Mejia, 2009). According to the agency theory, the primary

function of the board is to monitor and put pressure on managers to ensure that their actions are

aligned with shareholder interests (Fama & Jensen, 1983). The board has a fiduciary duty to

monitor management, including in the environmental arena, for the longer-term benefit of the firm

(Miller, 1993). If boards are to fulfill their monitoring role effectively and protect the interests of

shareholders, then boards of directors need to be independent from management. There is

empirical evidence showing the benefits of independent directors, such as reduced managerial

consumption of perquisites (Brickley & James, 1987), a greater probability of replacing poorly

performing CEOs (Borokhovich, Parrino, & Trapani, 1996; Weisback, 1988), a lower probability

of paying greenmail (Kosnik, 1990), and a lower probability of adopting a poison pill (Mallette &

Fowler 1992). When there is a discrepancy in preferred environmental strategies between

shareholders and managers, we argue that stronger board monitoring will enhance a firm’s

68
transparency concerning environmental damage, and this is based on the monitoring solution to

agency problems rooted in information asymmetry (Healy & Palepu, 2001).

In addition to the monitoring the management, board also acts a provider of service and

resources (Hillman & Dalziel, 2003). The theoretical framework of this role is based on resource

dependence theory proposed by Pfeffer and Salancik (1978). According to the resource

dependence theory, board of directors does not only provide advice and access to resources, but

also provide legitimacy (Pfeffer & Salancik, 1978; Hillman et al., 2009). By providing access to

resources that are not available otherwise, boards contribute to the sustained value creation

(Hillman et al., 2009). Whereas outside directors bring credibility and reputation to the board

(Daily & Schwenk, 1996), stakeholder directors tend to improve firm’s social performance

(Johnson & Greening, 1999). Furthermore, legitimacy is an important motivation of firms’ CSR

activities because they help build firms’, as well as boards’ and managers’, reputation in the market

environment they are in (Du & Vieira, 2012; Meyer & Scott, 1983; Panwar, Nybakk, Hansen, &

Thompson, 2014).

Another aspect of corporate governance is incentive mechanisms that serve as second-best

solutions to agency problems caused by information asymmetry. Executive compensation

packages can include incentives designed to resolve a divergence of interests between shareholders

and managers. Compensation contracts usually link a proportion of a manager’s compensation to

specific performance criteria (Jensen & Meckling, 1976). Incentive-based compensation is

positively associated with desirable managerial behaviors (Chng, Rodgers, Shih, & Song, 2012).

With respect to environmental activities, Henriques and Sardosky (1999) propose that if a

company wants to make environmental issues a priority, it may need to offer financial incentives

and other rewards to encourage managers to act as environmental stewards. Berrone and Gomez-

69
Mejia (2009) argue that structuring compensation around environmental performance enhances a

firm’s social legitimacy, which could result in improvements in corporate reputation, access to

resources, and stakeholder relations. Accordingly, tying executive compensation to sustainability-

related performance targets should encourage managers to engage in environmental activities that

are likely to have a positive impact.

Corporate governance, in the form of monitoring and incentive mechanisms, plays an

important role in management’s environmental activities (Kanashiro, 2013). However, only a few

studies have investigated the relation between corporate governance and environmental

performance, and results are mixed so far (Berrone & Gomez-Mejia, 2009; Stanwick & Stanwick,

2001; Walls, Berrone, & Phan, 2012). Kock, Santalo, and Diestre (2012) find that greater

stakeholder representation on the board of directors improves environmental performance,

whereas Berrone and Gomez-Mejia (2009) find such enhanced representation exerts no effect on

a firm’s environmental performance. However, they find a positive relationship between CEO

compensation and such performance. Manita et al., (2018) also indicate that board gender diversity

has no significant influence on companies’ environmental, social and governance (ESG)

disclosures. In the same line, Michelon and Parbonetti (2012) have examined the effect of different

kinds of board characteristics on sustainability disclosures by using a cross-sectional 57 Dow Jones

Sustainability Index (DJSI) firms in 2003, and identified a positive association between the ratio

of independent board of directors and environmental disclosure. They suggest that good corporate

governance can lead to good environmental disclosure, and vice versa. Stanwick and Stanwick

(2001), in contrast, show the two to be negatively related because, they posit, shareholders view

positive environmental performance as a financial burden and thus a hindrance to financial

performance. However, in this paper, we argue that tying executive compensation to

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environmental performance and board monitoring of environmental performance together

encourage managers to engage in more responsible environmental protection behavior. These

monitoring and incentive mechanisms can also be complemented by external verification to

mitigate the information asymmetry caused by the agency problem through the signaling of strong

corporate governance.

Thus, our second hypothesis is as follows:

H2: Internal corporate governance mechanisms improve managerial

effectiveness in environmental information transparency, both directly and

indirectly through external control.

The traditional agency theory has long been criticized because it fails to accommodate the

impact of social and institutional environment on principal-agent relationship (Aguilera & Jackson,

2003). Berrone and Gomez-Mejia (2009) show that institutional theory can reinforce the agency

theory because firms strive to gain legitimacy under the institutional pressure by improving their

environmental performance. However, firms in different legal and business environments are

likely to behave differently; according to the World Bank, a country-level legal and business

environment is gauged by voice and accountability, political stability and violence, government

effectiveness, regulatory quality, rule of law, and control of corruption (Kaufmann, Kraay, and

Mastruzzi, 2003). For example, La Porta et al. (1997, 1998) suggest that law and legal enforcement

play an import role in corporate governance, corporate external financing and investment, market

developments, and economic growth. There are systematic differences among jurisdictions with

different legal systems in which minority shareholders and creditors are protected. Djankov,

Glaeser, La Porta, Lopez-de-Silanes, and Shleifer (2003) argue that countries with different legal

traditions adopt different strategies for the social control of business. In an international setting,

71
Claessens and Laeven (2003) find that firms in weaker legal environments get less financing and

are less likely to invest in intangible assets. Shleifer and Vishny (1997) claim that differences in

corporate governance in different countries are likely to be rooted in differences in regulatory and

legal systems. The differences in corporate governance among Organization for Economic Co-

operation and Development (OECD) countries tend to be smaller compared to those between these

countries and the rest of the world.

Prior literature shows that firm-level corporate governance can be affected by country-level

macro-governance (Li, Moshirian, Pham, & Zein, 2006). Li, et al. (2006) show that the macro

environment impacts firm-level monitoring system. Ding et al. (2012) find that country-level

business and legal environments significantly affect firms’ engagement in unethical, and even

illegal, behaviors. In less developed macro environment, firms tend to pay more to bribe local

officials, and differences in the macro environment across countries moderate the relationship

between family involvement and firm’s unethical or illegal behaviors. In a more recent study, Chen

et al. (2014) examine how family involvement and legal and business environment jointly affect

entrepreneurial growth, and find that legal and business environment moderates the association

between family involvement and corporate governance; family involvement amplifies the negative

impacts of less favorable regulatory environment on entrepreneurial growth. More importantly,

Ding et al. (2014) find that, in an emerging market, institutional environment in sub-national

provinces, mainly economic growth and legal strictness, affects the relationship between firm-

level corporate governance and CSR measured by environmental performance.

As a result, we expect a country’s macro-governance environment to moderate the relation

between external control and internal corporate governance. When business environment is less

favorable, firms tend to focus more on pursuing economic goals and place lower priority on CSR,

72
so they are less likely to seek for external verification due to inferior CSR performance. In contrast,

managers of firms with strong corporate governance and superior CSR performance are more

likely to seek external verification for the signaling purpose when the business and legal

environment is strong and society puts more pressure on irresponsible actions on society and

environment. Furthermore, according to the institutional theory, firms operating in relatively weak

legal and business environment, especially those under institutional pressure, are likely to seek

external verification for window-dressing purposes (Ananchotikul, Kouwenberg, & Phunnarungsi,

2010; Westphal & Zajac, 2001). In countries with weak legal and business environment, in

addition, it is likely that providers of external verification and firms may collude and the marginal

cost for being caught is insignificant (Morck, Wolfenzon, & Yeung, 2004). Hence, we also expect

the country-level legal and business environments to play a moderating role in the relation between

external control and managerial effectiveness in environmental information transparency.

Therefore, we have the third set of hypotheses:

H3a: The macro-governance environment moderates the relation between firm-level

corporate governance and external control such that better macro-governance

environments strengthen this relationship.

H3b: The macro-governance environment moderates the relation between external

control and managerial effectiveness in environmental information transparency such

that better macro-governance environment strengthens this relationship.

4.4 METHODOLOGY

4.4.1 Sample

Following prior studies, we compiled a sample of firms from the Sustainalytics database

to obtain our monthly firm-level governance variables and environment-related variables (Orij

73
2010; Surroca, Tribó, & Waddock, 2010; Wolf 2014). Similar to Kinder Lydenberg Domini, which

provides CSR data on U.S. firms, Sustainalytics is recognized as a CSR data provider on firms

worldwide. It provides time series of environmental, social and corporate governance scores rated

on a scale from 0 (worst) to 100 (best) based on different indicators. Each indicator is assigned

with a sector specific weight. The overall CSR score is calculated as the weighted average of all

indicators and then demeaned. We merged Sustainalytics and Compustat data to obtain our firm-

level financial variables. We also included country-level macro-governance variables derived from

the World Bank’s Worldwide Governance Indicators, which contains data on six dimensions of

macro-governance for over 200 countries.

The primary focus of this study was emerging markets, and our classification of emerging

markets was based on the classifications of the World Bank, International Monetary Fund, and

OECD. A country was considered to be an emerging market if it was included in the developing

country lists of at least one of these organizations. Determination of the country a firm belongs to

is based on its headquarter. After removing observations with missing variables and firms from

the financial industry, our final sample comprised 4,195 monthly observations between January

2009 and December 2013; the choice of this sample period is based on data availability from

Sustainalytics. Table 4.1 summarizes the number of observations from each emerging market2.

Table 4.1 Number of Observations in Each Country in the Sample

Country Obs.
Bermuda 209
Brazil 178
Chile 15
China 1351
Colombia 45
Hungary 42

2 Note that more than half of the observations are from China and Singapore.

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 India 328
Indonesia 30
Malaysia 154
Mauritius 26
Mexico 166
Papua New Guinea 52
Poland 54
Russia 235
Singapore 1051
South Africa 189
Thailand 8
Turkey 14
United Arab Emirates 48
Total 4195

4.4.2 Variables

External verification of CSR reporting (ExtCert) is measured as whether the firm's CSR

reporting has been externally verified according to reputable international or national standards or

not. Managerial effectiveness in information transparency regarding environmental damage

(MgrEff) is proxied by whether the firm has received environmental fines or non-monetary

sanctions in the last three years or not. A similar measure was used as a proxy for environmental

performance, but in the meantime, it has casted some doubts on its accuracy (Ding et al., 2016;

Maung, et al., 2015). This is mainly because this variable only covers those environmental

damages that have been caught, and therefore creates selection biases by its nature. However, it

gauges the information transparency regarding environmental damages in a more accurate way.

We have two proxies for internal corporate governance (IntCG): 1. executive compensation

tied to sustainability performance (Comp). It measures the extent to which executive compensation

is tied to sustainability performance targets (e.g. health and safety targets, environmental targets,

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etc.); and 2. board independence (Board). It captures the percentage of independent members on

various boards. For example, whether up to one supervisory board member is non-independent in

a two-tier board, or whether two-thirds or more of board members are independent in a one-tier

board. Higher values of these variables are proxies for stronger corporate governance because they

help protect minority shareholders’ benefits.

The country-level governance score (CountPG) proxies for legal and business

environments. It is measured as the sum of total score from six dimensions of country-level

governance. The six dimensions include voice and accountability, political stability, government

effectiveness, regulatory quality, rule of law, and control of corruption. Other country-level

variables are annual GDP growth and educational level measured by adult literacy rate and gross

enrollment ratio extracted from the World Bank. Please note that, due to missing values of

education level, the number of observations drops dramatically when it is included in the analysis.

Formal environmental policy (EnvPoly) measures whether or not the firm has a strong and detailed

environmental policy. Return on assets (ROA) is measured as net income before interest, taxes,

depreciation, and amortization (EBITDA) scaled by lagged total assets. Leverage is proxied by

long-term liabilities scaled by lagged total assets. Growth captures sales growth rate, and Liquidity

is measured by operating cash flows. Refer to Table 4.2 for the detailed definition and source of

each variable.

Table 4.2 Variable Definition and Sources

Variables Definitions Sources

External verification of CSR reporting. It measures whether the firm's CSR
reporting has been externally verified according to reputable international or
ExtCert Sustainalytics
national standards or not (e.g., For example, AA1000 Assurance Standards and
The International Standard on Assurance Engagements (ISAE) 3000).

76
 Managerial effectiveness in information transparency regarding environmental
MgrEff damage. It measures whether the firm has received environmental fines or non- Sustainalytics
monetary sanctions in the last three years or not.
Executive compensation tied to sustainability performance. It measures the
Comp extent to which executive compensation is tied to sustainability performance Sustainalytics
targets (e.g. health and safety targets, environmental targets, etc.).
Board independence measures the percentage of independent members on
various boards. Whether up to one supervisory board member is non-
Board Sustainalytics
independent in a two-tier board, or whether two-thirds or more of board
members are independent in a one-tier board.
Formal environmental policy. It measures whether or not the firm has a strong
and detailed environmental policy that addresses the following three issues: 1.
EnvPoly support a precautionary approach to environmental challenges; 2. undertake Sustainalytics
initiatives to promote social and environmental responsibility; and 3. encourage
the development and usage of environmentally friendly technologies.
Country-level governance score proxies for legal and business environments. It
is measured as the sum of total score from six dimensions of country-level
CountPG governance. The six dimensions include voice and accountability, political World Bank
stability, government effectiveness, regulatory quality, rule of law and control
of corruption.
Return on assets. It is measured as net income before interest, taxes,
ROA Compustat
depreciation, and amortization (EBITDA) scaled by lagged total assets.
Leverage Long-term debt scaled by lagged total assets. Compustat
Growth Sales growth rate. Compustat
Annual percentage growth rate of GDP at market prices based on constant
local currency. Aggregates are based on constant 2005 U.S. dollars. GDP is
the sum of gross value added by all resident producers in the economy plus
GDPgrw World Bank
any product taxes and minus any subsidies not included in the value of the
products. It is calculated without making deductions for depreciation of
fabricated assets or for depletion and degradation of natural resources.
Liquidity Operating cash flow Compustat

4.4.3 Empirical Models

Our empirical models are a combination of those used in prior research (e.g., Berrone &

Gomez-Mejia, 2009; Kock et al., 2012; Walls et al., 2012). In addition, we used a newly developed

quantitative method, the PROCESS Model, to test the predicted mediating and moderating effects

(Preacher, Rucker, & Hayes, 2007). Process model is a newly developed quantitative method in

77
psychology and business studies (Hayes, 2013). Comparing with Two-Stage Least Squares (2SLS)

regression, which is an extension of OLS, the results may be biased due to various restricted

assumptions, for example, normally distributed error terms. Whereas, Process modeling allows us

to test multiple direct effects, intermediate mechanisms, and contingencies among tested variables

simultaneously by relaxing the restrictions of OLS and provide more accurate measures. For

example, it could examine complicated mechanisms such as moderated mediation (Preacher et al.,

2007).

Our detailed models are as follows:

ExtCert =  0 +  1IntCG +  2CountPG +  3IntCG * CountPG +  4 EnvPoly +  5 EnvMgt

(1)
+  6 ROA +  7 Leverage +  8Growth + 

MgrEff =  0 +  1ExtCert +  2IntCG +  3CountPG +  4 ExtCert * CountPG +  5 EnvPoly

(2)
+  6 EnvMgt +  7 ROA +  8 Leverage +  9Growth + 

4.5 EMPIRICAL RESULTS AND DISCUSSION

4.5.1 Descriptive Statistics

Table 3 reports descriptive statistics for the full sample, as well as those of subsamples categorized

by the quality of legal and business environment (CountPG). They indicate that emerging markets

with below-mean CountPG have significantly lower MgrEff values and lower ExtCert and Comp

values in the compare-means t-test. The compare-mean t-test results suggest that there is no

significant difference in the Board measure between the two subsamples. To spare space, we do

not repeat the information presented in Table 3 here.

Table 4 displays the correlation matrix of the key variables used in the regression analyses.

Many of the variables are significantly correlated with each other. The correlation matrix indicates

that the external verification of CSR reporting (ExtCert) is positively correlated with internal

78
corporate governance (Comp and Board), suggesting that firms with better such governance are

more likely to have their CSR reports externally verified. In addition, we find that managers whose

executive compensation is tied to sustainable performance (Comp) and whose CSR reporting is

less likely to be externally verified (ExtCert) are less effective in the area of environmental

information transparency (MgrEff). Country-level corporate governance (CountPG) is negatively

correlated with effectiveness in information transparency (MgrEff), external verification of CSR

reports (ExtCert), and board independence (Board), which confirms the potential moderating

effect of country-level governance on firm-level outcomes. With regard to correlations with the

control variables, we find that firms with a lower ROA, greater Leverage, and better environmental

policy (EnvPoly) is more likely to have their CSR reports externally verified (ExtCert). Also,

managers of firms with a higher ROA and sales growth rate (Growth), and a worse environmental

policy (EnvPoly) is less effective in providing transparent information on environmental damage

(MgrEff). To check for potential multicollinearity among the test and control variables, we

conducted variance inflation factor (VIF) tests for both of our regression models. These tests

produced VIF values ranging from 1.24 to 2.32, which are much lower than the threshold value of

10. As a result, multicollinearity was not a concern.

To ensure the robustness of our empirical findings, we have also employed Rogers’ (1993)

procedure and clustered standard errors in order to cope with potential heteroskedasticity and auto-

correlation concerns. Furthermore, we have used the propensity score matching method (Lennox,

Francis, & Wang, 2011) to mitigate potential selection biases rooted in the voluntary choices of

implementing environmental policies. Firms with formal environmental policy (EnvPoly) may

have better CSR and market performance. To address this potential selection issue, we have

adopted a propensity score matching method to control differences of the formal environmental

79
policy quality. We first calculated the median of the EnvPoly in order to separate our sample into

two subsamples. Then, we matched. To be specific, we used Stata psmatch2 syntax to match a

below the median of the EnvPoly firm with an above the median of the EnvPoly firm without

replacement. Then, we calculate the propensity scores based on the firm characteristics, such as

return on assets, sales growth, and leverage within a radius of 0.03 from Equation 3 (Lawrence,

2011). We have a propensity-score matched sample of 19,624 firm-years, of which 9,812 above

the median EnvPoly value and 9,812 below the median EnvPoly value. After deleting all the

missing values from the Equation (1) and Equation (2), the final Propensity-score matched sample

contains 3,863 firm-year observation.

𝐸𝑛𝑣𝑃𝑜𝑙𝑦 = 𝛽0 𝑅𝑂𝐴 + 𝛽1 𝐺𝑟𝑜𝑤𝑡ℎ + 𝛽2 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒 (3)

80
 Table 4.3 Descriptive Statistics - Full Sample and Subsamples Categorized by the Quality of Legal and business environment

Emerging Markets Above mean value of CountPG Below mean value of CountPG Compare-
variable mean t-test
Obs. Mean Median S.D. 25 Pc. 75Pc. Obs. Mean Median S.D. Obs. Mean Median S.D.

MgrEff 4195 -0.044 -0.232 0.380 -0.794 -0.019 2873 -0.023 -0.215 0.392 1322 -0.089 -0.177 0.347 -5.261***

Comp 4195 0.074 0.000 0.248 0.000 0.000 2873 0.085 0.000 0.266 1322 0.049 0.000 0.204 -4.298***

Board 4195 0.281 0.000 0.379 0.000 0.500 2873 0.283 0.000 0.395 1322 0.276 0.200 0.341 -0.551

CountP 4195 4.539 8.364 4.970 -0.774 8.844 2873 5.143 8.364 4.656 1322 3.226 3.848 5.364 -11.792***
G
ExtCert 4195 -0.035 -0.126 0.277 -0.180 -0.053 2873 -0.014 -0.126 0.313 1322 -0.080 -0.120 0.167 -7.254***

EnvPoly 4195 0.227 0.136 0.267 0.000 0.275 2873 0.235 0.200 0.264 1322 0.211 0.134 0.273 -2.692**

ROA 4195 0.154 0.131 0.115 0.083 0.198 2873 0.111 0.099 0.097 1322 0.248 0.224 0.092 43.116***

Growth 4195 0.129 0.079 0.331 -0.010 0.216 2873 0.124 0.074 0.380 1322 0.139 0.116 0.186 1.352

Leverag 4195 0.202 0.178 0.170 0.062 0.302 2873 0.234 0.215 0.168 1322 0.133 0.099 0.151 -18.542***
e
GDPgrw 4195 4.706 4.400 4.365 2.700 6.600 2873 4.292 4.000 4.365 1322 5.606 5.100 4.227 9.147***

Liquidit 4195 0.116 0.104 0.105 0.055 0.157 2873 0.087 0.084 0.083 1322 0.178 0.162 0.120 28.456***
y
* p＜0.05; ** p＜0.01; *** p＜0.001

81
 Table 4.4 Correlation Table

Variables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
(1) MgrEff
1.000
(2) Comp
0.076*** 1.000
(3) Board
-0.037* 0.237*** 1.000
(4) CountPG
-0.037* -0.002 -0.075*** 1.000
(5) ExtCert
-0.094*** 0.290*** 0.063*** -0.105*** 1.000
(6) EnvPoly
-0.130*** 0.024 0.009 -0.200*** 0.260*** 1.000
(7) ROA
0.168*** 0.136*** 0.007 -0.278*** -0.080*** 0.060*** 1.000
(8) Growth
0.042** -0.031* -0.007 -0.022 -0.041** -0.064*** -0.048** 1.000
(9) Leverage
-0.027 -0.088*** 0.021 0.104*** 0.068*** 0.018 -0.208*** 0.065*** 1.000
(10) GDPgrw
-0.066*** -0.023 0.020 -0.048** -0.118*** -0.087*** 0.036* 0.213*** -0.111*** 1.000
(11) Liquidity
0.075*** 0.093*** 0.058*** -0.140*** -0.017 0.104*** 0.675*** 0.124*** -0.111*** 0.118*** 1.000
The table presents the correlation matrix among all the variables employed in this study. Refer to Table 4.1 for detailed variable descriptions.
* p＜0.05; ** p＜0.01; *** p＜0.001

82
4.5.2 Main Results and Discussion

Table 5 presents the main findings of emerging markets. The Equation 1 results are

presented in Columns 1, 3, and 5, and Equation 2 results are presented in Columns 2, 4, and 6. We

run the PROCESS Model using the two corporate governance measures, Comp and Board,

individually and in combination. Year and industry dummies for fixed effects are included in all

models. Results from robustness tests including a country-level variable measuring educational

level, Exponedu proxied by the percentage of government expenditure on education, are presented

on the right-hand side of Table 5. No qualitative change has been found.

Results indicate that the coefficients on internal corporate governance mechanisms,

proxied by Comp and Board, are significantly positive in Stage 1 of all three models. This finding

supports Hypothesis 1, which posits that firms with stronger corporate governance, measured by

executive compensation tied to environmental, social, and governance (ESG) performance and

board independence, are more likely to seek external verification.

83
 Table 4.5 Main Results
Main Tests Robustness Tests with Country-Level Education
Comp Board Comp & Board Comp Board Comp & Board
VARIABLES
Eq.1 Eq.2 Eq.1 Eq.2 Eq.1 Eq.2 Eq.1 Eq.2 Eq.1 Eq.2 Eq.1 Eq.2
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
Comp 0.177*** -0.081*** 0.143*** -0.050* 0.171*** -0.031 0.106*** -0.008
(0.000) (0.001) (0.000) (0.052) (0.000) (0.214) (0.009) (0.760)
Comp*CountPG 0.018*** 0.024*** 0.016*** 0.026***
(0.000) (0.000) (0.001) (0.000)
Board 0.084*** -0.092*** 0.056*** -0.086*** 0.135*** -0.075*** 0.109*** -0.074***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Board*CountPG -0.016*** -0.017*** -0.021*** -0.022***
(0.000) (0.000) (0.000) (0.000)
CountPG -0.004*** 0.014*** 0.002 0.013*** 0.000 0.014*** -0.002 0.020*** 0.004** 0.019*** 0.003* 0.019***
(0.000) (0.000) (0.164) (0.000) (0.837) (0.000) (0.165) (0.000) (0.029) (0.000) (0.092) (0.000)
ExtCert -0.439*** -0.445*** -0.439*** -0.711*** -0.703*** -0.702***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Excert*CountPG 0.066*** 0.064*** 0.064*** 0.100*** 0.098*** 0.098***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
EnvPoly 0.207*** -0.232*** 0.206*** -0.238*** 0.208*** -0.240*** 0.263*** -0.002 0.246*** 0.003 0.253*** 0.002
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.945) (0.000) (0.922) (0.000) (0.940)
ROA -0.550*** 0.099 -0.559*** 0.028 -0.579*** 0.038 -0.108* -0.322*** -0.095 -0.385*** -0.149** -0.383***
(0.000) (0.161) (0.000) (0.690) (0.000) (0.587) (0.082) (0.000) (0.140) (0.000) (0.017) (0.000)
Growth -0.002 0.028* -0.011 0.023 -0.009 0.023 0.016 0.031* 0.009 0.025 0.010 0.025
(0.880) (0.096) (0.373) (0.184) (0.488) (0.183) (0.194) (0.059) (0.482) (0.118) (0.401) (0.117)
Leverage -0.015 -0.105*** -0.040 -0.086** -0.016 -0.089** 0.088*** -0.175*** 0.070** -0.167*** 0.097*** -0.167***
(0.563) (0.003) (0.1323) (0.014) (0.530) (0.011) (0.003) (0.000) (0.022) (0.000) (0.001) (0.000)
GDPgrw -0.002* -0.003** -0.001 -0.003** -0.002 -0.003* -0.004*** 0.002 -0.003** 0.003 -0.003** 0.003
(0.052) (0.050) (0.288) (0.049) (0.107) (0.058) (0.001) (0.173) (0.044) (0.105) (0.019) (0.104)
Liquidity 0.065 -0.210*** 0.138** -0.199*** 0.092* -0.192** -0.119** -0.057 -0.045 -0.040 -0.081 -0.038
(0.224) (0.005) (0.012) (0.007) (0.084) (0.010) (0.046) (0.456) (0.464) (0.600) (0.170) (0.617)
Exponedu - - - - - - -0.008*** 0.008*** -0.006*** 0.007** -0.008*** 0.007**
- - - - - - (0.000) (0.004) (0.005) (0.012) (0.000) (0.011)
Constant 0.113*** 0.033 0.098*** 0.036 0.090*** 0.035 0.216*** -0.191*** 0.150*** -0.167*** 0.176*** -0.169***
(0.000) (0.212) (0.000) (0.172) (0.000) (0.187) (0.000) (0.001) (0.001) (0.003) (0.000) (0.003)
Year dummy Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Industry dummy Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Observations 4,195 4,195 4,195 4,195 4,195 4,195 3,221 3,221 3,221 3,221 3,221 3,221
R-squared 0.246 0.241 0.207 0.246 0.257 0.247 0.320 0.259 0.281 0.264 0.334 0.264
F-test 64.66*** 60.09*** 51.81*** 61.85*** 62.68*** 59.37*** 68.41*** 48.49*** 56.83*** 49.74*** 66.65*** 47.66***
*** p<0.01, ** p<0.05, * p<0.1

84
 Hypothesis 2 is about whether stronger corporate governance increases managers’

environmental information transparency. As shown in those results presented in Table 5, the

coefficients on internal corporate governance are significantly negative in Stage 2 of all three

models, regardless of whether the two IntCG measures are used individually or in combination.

The results show that stronger internal corporate governance mechanisms such as incentive-

compatible compensation and board independence render managers more likely to disclose

information on environmental damage, thus leading to greater environmental penalties.

Furthermore, the coefficients on external verification (ExtCert) are significantly negative in Stage

2 of all three models. These findings indicate that internal corporate governance improves

information transparency on environmental damage indirectly through external control. Thus,

Hypothesis 2 is supported.

Hypothesis 3a tests the moderation effect of legal and business environment on the relation

between external verification and internal corporate governance. The interaction terms between

firm-level governance and legal and business environment yield different results for the two

proxies of corporate governance. The coefficients of the interaction based on Comp (Comp x

CountPG) are significantly positive, whereas those of the interaction based on Board (Board x

CountPG) are significantly negative. Plotting these results in Figure 2 we find that Hypothesis 3a

is only partially supported. Tying executive compensation to ESG performance is more likely to

encourage firms to adopt an external verification strategy in emerging markets with better legal

and business environments. However, internal governance mechanism, as measured by board

independence, in those emerging markets with better legal and business environments is

complemented by external verification. On the contrary, in emerging markets with relatively poor

85
legal and business environments, firms with independent boards are more likely to adopt such a

strategy as external verification.

Figure 4.2 Interactions in Equation (1)

Interaction between Compensation and Legal and business environment

Interaction between Board independence and Legal and business environment

Hypothesis 3b investigates the moderation effects of legal and business environment on

the relation between external verification and environmental information transparency. The

coefficients of the interaction ExtCert x CountPG are significantly positive in all three models. As

shown in Figure 3, in emerging markets with less favorable business and legal environments, as

86
suggested by a low CountPG value, firms that seek external verification provide more transparent

information on environmental damage, and thus pay more environmental penalties. However,

when the favorability of these markets’ business and legal environments is demonstrated by a high

CountPG value, external verification no longer exerts a positive effect on information transparency.

Instead, it reduces the effectiveness of environmental information disclosures, and in turn, reduces

environmental penalties. In other words, external verification only works effectively to improve

manager’s environmental information transparency in emerging markets with relatively poor

business and legal environments. One explanation for this finding is that when a national policy

or environmental enforcement regime is stringent, external verification tends to play a

supplementary role in improving environmental information transparency. Thus, our results

partially support Hypothesis 3b, echoing those of Ding et al. (2015), who find that the negative

association between legal and business environment and environmental fees.

Figure 4.3
Interactions between External Verification and Legal and business environment in Equation (2)

Results from robustness tests based on Rogers’ (1993) procedures and propensity score

matching methods are presented in Table 6. No qualitative changes have been found. This paper

contributes to environmental management literature by answering two research questions. (1)

87
 Table 4.6 Results from Robustness Tests - Rogers’ Procedure and Propensity Score Matching

Rogers’ Procedure Propensity Score Matching

Comp Board Comp & Board Comp Board Comp & Board
VARIABLES
Eq.1 Eq.2 Eq.1 Eq.2 Eq.1 Eq.2 Eq.1 Eq.2 Eq.1 Eq.2 Eq.1 Eq.2
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
Comp 0.177*** -0.081*** 0.143*** -0.050** 0.178*** -0.093*** 0.143*** -0.064**
(0.000) (0.001) (0.000) (0.048) (0.000) (0.001) (0.000) (0.016)
Comp*CountPG 0.018*** 0.024*** 0.018*** 0.024***
(0.000) (0.000) (0.000) (0.000)
Board 0.084*** -0.092*** 0.056*** -0.086*** 0.088*** -0.086*** 0.058*** -0.078***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Board*CountPG -0.015*** -0.017*** -0.015*** -0.016***
(0.000) (0.000) (0.000) (0.000)
CountPG -0.004*** 0.014*** 0.002 0.013*** 0.000 0.014*** -0.003*** 0.010*** 0.003** 0.010*** 0.002 0.010***
(0.000) (0.000) (0.146) (0.000) (0.826) (0.000) (0.010) (0.000) (0.011) (0.000) (0.166) (0.000)
ExtCert -0.439*** -0.445*** -0.439*** -0.432*** -0.439*** -0.430***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Excert*CountPG 0.066*** 0.064*** 0.064*** 0.072*** 0.069*** 0.071***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
EnvPoly 0.207*** -0.232*** 0.206*** -0.238*** 0.208*** -0.240*** 0.225*** -0.205*** 0.226*** -0.209*** 0.228*** -0.213***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ROA -0.550*** 0.099 -0.559*** 0.028 -0.579*** 0.038 -0.545*** 0.229*** -0.547*** 0.157** -0.569*** 0.171**
(0.000) (0.159) (0.000) (0.688) (0.000) (0.591) (0.000) (0.002) (0.000) (0.033) (0.000) (0.023)
Growth -0.002 0.028** -0.011 0.022* -0.009 0.023* -0.002 0.030*** -0.012 0.025*** -0.008 0.025***
(0.865) (0.029) (0.310) (0.061) (0.469) (0.061) (0.842) (0.000) (0.197) (0.002) (0.393) (0.001)
Leverage -0.015 -0.105*** -0.040* -0.086*** -0.016 -0.089*** -0.049* -0.059*** -0.079*** -0.044*** -0.052* -0.049***
(0.537) (0.000) (0.088) (0.000) (0.519) (0.000) (0.065) (0.000) (0.004) (0.003) (0.056) (0.001)
GDPgrw -0.002*** -0.003*** -0.001** -0.003*** -0.002*** -0.003*** -0.003*** -0.005*** -0.002*** -0.005*** -0.002*** -0.005***
(0.000) (0.004) (0.020) (0.003) (0.001) (0.006) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Liquidity 0.065 -0.210*** 0.138*** -0.199** 0.092* -0.192** 0.048 -0.154* 0.122** -0.153 0.070 -0.143
(0.200) (0.005) (0.004) (0.013) (0.089) (0.011) (0.376) (0.083) (0.016) (0.105) (0.215) (0.110)
Constant 0.113*** 0.033*** 0.098*** 0.036*** 0.090*** 0.035*** 0.146*** 0.004 0.131*** 0.010 0.122*** 0.008
(0.000) (0.000) (0.001) (0.000) (0.004) (0.000) (0.000) (0.668) (0.000) (0.272) (0.000) (0.393)
Year dummy Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Industry dummy Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Observations 4,195 4,195 4,195 4,195 4,195 4,195 3,863 3,863 3,863 3,863 3,863 3,863
R-squared 0.245 0.241 0.207 0.246 0.257 0.247 0.268 0.251 0.226 0.255 0.279 0.256
F-test 712.06*** 6567.51** 943.33*** 3401.05** 999.53*** 6909.97** 735.96*** 3983.87** 880.11*** 3515.66** 1062.88** 3630.31**
*
*** p<0.01, ** p<0.05, * p<0.1 * * * * * *

88
How does internal corporate governance directly or indirectly affect managers’ environmental

information transparency? (2) Does legal and business environment play a moderating role on the

relation between such governance and transparency? Although recent years have witnessed

increased interest in the role of corporate governance in a firm’s environmental performance, the

empirical evidence is inconclusive and drawn from U.S. studies (Berrone & Gomez-Mejia, 2009;

Kock et al., 2012; Walls et al., 2012). We add to the agency theory literature by investigating

whether two proxies of internal corporate governance, namely, incentive-compatible

compensation and board independence, directly or indirectly (through external verification)

influence management’s environmental information transparency. Our findings suggest that the

use of both internal monitoring and external control mechanisms mitigates the agency costs caused

by information asymmetry between managers and shareholders because it encourages managers

to become more effective in disclosing firm information with respect to environmental issues. We

also contribute to the signaling theory literature by showing that firms tend to send signals to the

market through external verification, thereby providing investors with more credible information

on the environmental damage they cause.

Theories suggest that environmental activities can be influenced by either external

institutional constraints and pressures or a firm’s own strategies. As shown in Table 7, results

indicate that the joint effects of internal corporate governance and external verification on

environmental information transparency are different between firms above and those below

aspiration levels. Following Chrisman and Patel (2012), we use industry average ROA to gauge

whether a firm is above or below the aspiration level. Impacts of internal corporate governance

mechanisms are significantly smaller, while external verification has significantly larger effects,

in firms above the aspiration levels than in those below the aspiration levels. Therefore, we also

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 add a further dimension to institutional theory by examining the joint effect of legal and business

environment and internal corporate governance on the effective disclosure of environmental issues

among firms with various levels of aspirations.

Finally, by focusing on emerging markets, we believe their legal and business

environments to be less favorable to investors than those in developed markets, thereby

highlighting the importance of internal corporate governance mechanisms for firms’ social

business behavior. Contrary to Child and Tsai’s (2005) finding that firms play a passive role in

developing environmental protection strategies in emerging economies, our evidence suggests that

internal corporate governance complements legal and business environment in increasing

management’s information disclosure in these economies.

Table 4.7 Robustness Test – Above vs. Below Aspiration levels (Process Model)

Comp Board
VARIABLES Above Aspiration Below Aspiration Above Aspiration Below Aspiration
Eq.1 Eq. 2 Eq.1 Eq.2 Eq.1 Eq.2 Eq.1 Eq.2
Comp 0.273*** -0.047 -1.037*** -0.282***
(0.000) (0.111) (0.000) (0.000)
Comp*CountPG 0.025*** 0.119***
(0.000) (0.000)
Board 0.052** -0.075*** 0.097*** -0.240***
(0.014) (0.000) (0.000) (0.000)
Board*CountPG -0.008*** -0.014***
(0.001) (0.000)
CountPG -0.006*** 0.020*** -0.001 -0.004 -0.001 0.021*** 0.003*** -0.008***
(0.000) (0.000) (0.424) (0.162) (0.472) (0.000) (0.008) (0.001)
ExtCert -0.480*** -0.194*** -0.491*** -0.085
(0.000) (0.003) (0.000) (0.199)
ExCert*CountPG 0.067*** 0.041*** 0.067*** 0.022**
(0.000) (0.000) (0.000) (0.047)
EnvPoly 0.235*** -0.107*** 0.149*** -0.399*** 0.244*** -0.115*** 0.137*** -0.421***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ROA -1.398*** 0.141 0.352*** 0.810*** -1.360*** 0.072 0.448*** 0.549***
(0.000) (0.192) (0.000) (0.000) (0.000) (0.502) (0.000) (0.000)
Growth -0.030** 0.043** 0.004 -0.083 -0.022 0.038** -0.007 -0.084
(0.033) (0.018) (0.875) (0.121) (0.138) (0.037) (0.792) (0.110)
Leverage -0.040 -0.203*** 0.160*** -0.173*** -0.055 -0.201*** 0.134*** 0.004
(0.230) (0.000) (0.000) (0.006) (0.113) (0.000) (0.000) (0.952)
GDPgrw -0.003* -0.003 -0.001 -0.008*** -0.003** -0.003 -0.002 -0.011***
(0.093) (0.137) (0.358) (0.003) (0.040) (0.191) (0.130) (0.000)
Liquitidy 0.065 -0.292** -0.194*** 0.272*** 0.165* -0.264** -0.172*** 0.288***
(0.460) (0.010) (0.000) (0.009) (0.079) (0.020) (0.000) (0.005)
Constant 0.204*** -0.001 -0.070*** -0.288*** 0.198*** 0.003 -0.121*** -0.165***
(0.000) (0.984) (0.005) (0.000) (0.000) (0.912) (0.000) (0.003)
Year dummy Yes Yes Yes Yes Yes Yes Yes Yes

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Industry dummy Yes Yes Yes Yes Yes Yes Yes Yes
Observations 2,873 2,873 1,322 1,322 2,873 2,873 1,322 1,322
R-squared 0.345 0.307 0.323 0.269 0.263 0.311 0.320 0.289
F test 71.55*** 57.43*** 32.75*** 23.96*** 48.33*** 58.51*** 32.21*** 26.41***
*** p<0.01, ** p<0.05, * p<0.1

4.6 CONCLUSIONS AND FUTURE RESEARCH DIRECTIONS

Combining an international sample of firm-level data extracted from various sources,

including Sustainalytics and Compustat, with country-level legal environment data acquired from

the World Bank, we investigated the joint effects of internal corporate governance, external control,

and legal and business environment mechanisms on managerial effectiveness in the realm of

environmental information transparency. Our findings demonstrate that internal corporate

governance mechanisms and external control device are more likely to be complementary in

emerging markets, whereas those in developed countries tend to be supplementary. Furthermore,

in emerging economies both the direct and indirect effects of internal corporate governance

mechanisms, including incentive compensation and board independence, on managers’

environmental information transparency are observed. Both corporate governance mechanisms

and external control device helps to boost such transparency. Although the moderating effects of

the legal and business environments on the corporate governance-external control-information

transparency relationship are observed in both emerging and developed economies, those effects

appear to differ.

The findings of this study not only add to our knowledge of corporate governance and

agency theory, but they also have important policy implications for environmental protection

efforts in emerging markets. The study also makes methodological contributions to corporate

governance literature by adopting the PROCESS Model. Furthermore, this research opens up

several avenues for future research. First, the personal attributes of management team members,

91
CEOs in particular, have been cited as important factors in the effectiveness of information

transparency. It would be worth collecting these attributes and including them in analysis to render

the findings more convincing. Second, this paper presents results concerning managers’

environmental information transparency. It would also be of interest to open the “black box” of

the managerial decision-making process in relation to environmental damage by investigating how

internal corporate governance and external mechanisms jointly influence that process. Third, an

alternative proxy for managerial effectiveness in information transparency is market reactions. If

the information on stock market reactions to such effectiveness and to environmental penalties

were collected, then an event study could be conducted to provide management teams and

policymakers with further feedback. Such information can enable them to better understand how

to encourage managers to have better environmental performance through both internal and

external mechanisms.

Meanwhile, this study suffers from some limitations. First, in the data extracted from

Sustainalytics, only 5% of the observations are from emerging markets, with the rest collected

from developed economies. Thus, it is likely that comparing the joint effects of internal corporate

governance mechanisms and external control device within a certain legal and business

environment between emerging and developed markets is potentially not meaningful. As a result,

this study focuses on the emerging markets only, and makes a contribution to these effects in these

particular markets by taking into consideration the differences in their legal and business

environments. A future research direction is to collect more observations from emerging markets

and build matched samples between them and developed countries in order to avoid potential

biases rooted in the dominance of observations from developed countries in the sample.

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 CHAPTER 5 GENERAL CONCLUSION

In this dissertation, the three essays together provide a more nuanced understanding of CSR by

examining three different entrepreneurial entities including clean-technology ventures, family

firms in United States, and companies operate in emerging markets, as well as their contextual

determinants. This general conclusion section highlights how my empirical findings contribute to

the extant literature, and provide useful implications to managerial and entrepreneurial practice.

Chapter 2 contribute to sustainability research in several ways. The first contribution lies in that I

analyze the association between female board representation and clean-tech venture performance

through a legitimacy lens. Although it has been well documented that it is critical for ventures

acquiring legitimacy to obtain necessary resources to increase the surviving odds and achieve

sustained growth (Delmar & Shane, 2004; Zimmerman & Zeitz, 2002), and increasingly

recognition of the importance role of female directors (Bear et al., 2010; Chen et al., 2016), we

still have very limited understanding of whether introducing female directors on board is one

effective way to help clean-tech ventures to gain legitimacy thereby boosting clean-tech ventures’

performance.

Second, the empirical findings support the view that female directors may differ from their male

counterparts regarding to enabling clean-tech ventures to gain cognitive and sociopolitical

legitimacy. To be specific, female directors play two important roles in clean-tech ventures, female

directors can serve as support specialists in a clean-tech firm by providing specialized expertise in

many areas of strategic planning, for example, they outperform male directors in dealing with

public relations or getting legal support or financial capital (Bear et al., 2010; Hillman et al., 2002).

Female directors are also serving as community influential to overcome sociopolitical barriers,

since they are proved to be more influential in addressing non-business issues within a community

93
(Hillman et al., 2002). This advantage may be even more pronounced for the clean-tech ventures,

because they are facing a wide range of stakeholders, such as local communities, local authorities,

and investors (Wustenhagen et al., 2007), and female directors are more capable of reconciling the

conflicts among different groups of stakeholders (Bear et al., 2010; Grosberg and Bell, 2013).

Third, this study provides more nuanced understandings of the relationship between female board

representation and firm performance by introducing two crucial moderators: size and public

environmental ideology. I found that small size magnifies the importance of the female directors

in terms of legitimacy attainment comparing with large clean-tech ventures. On one hand, large

ventures may have already past their legitimacy threshold and survival won’t be an issue. Whereas,

small clean-tech ventures struggling for survival and sustainable growth because of limited access

to energy generation and transmission infrastructures. On the other hand, the role of female

directors in large clean-tech ventures is less pronounced than small ones, especially when the

number of female directors is at a disadvantage (Post et al., 2015). The results also demonstrated

that the relationship between female board representation and firm performance will be varied with

different levels of public environmental ideology. In a high level of environmental ideology

regions, clean-tech ventures with female directors will outperform those located in a low level of

environmental ideology regions. For example, in a pro-environment, the key

audiences/stakeholders are better equipped with renewable energy knowledge, therefore can better

understand business models and embrace the expansion of clean-tech ventures. Moreover, sharing

the same environmental ideology make it easy for female board directors to reconcile the conflicts

between clean-tech ventures and a wide variety of stakeholders in a certain area, or persuade a

particular region to accept renewable energy products and services from their ventures.

94
Findings of this study also provide meaningful guidance for clean-tech ventures, policy makers,

and shareholders/investors of clean-tech ventures. Introducing female board directors can help

clean-tech ventures profit from obtaining cognitive and sociopolitical legitimacy, this benefit will

be even more pronounced for those small firms and start-ups operating in a pro-environmental

region. Thus, clean-tech ventures should consider introducing female directors on board, which

will ultimately enhance their firm performance. Policymakers who encourage and support clean

technology industry often believe that pursuing generating and utilizing energy from these

sustainable sources also produces fewer wastes and hazardous emissions than that from fossil fuel

and coal (Jacobson and Delucchi, 2011). So that policymakers should formulate their firms’

strategic decisions by emphasizing a high level of environmental ideology, which is likely to lead

to favorable outcomes for clean-tech ventures and clean technology industry as a whole.

Chapter 3 sheds lights on the recent research on the role of family involvement on CSR

performance. The family business is an interesting setting. From SEW perspective, which suggests

family firms have incentives to be socially responsible than their counterparts to protect family

reputation and image. Whereas from an agency theory perspective, the controlling family are more

likely to exploit minority shareholders benefit and be entrenched (Morck and Yeung, 2004). This

study fills the gaps in the literature by incorporating family involvement and corporate overall

diversity simultaneously. Building on a rich sample, my empirical findings suggest that family

firms have more concerns about corporate diversity than non-family firms. Moreover, I find a

negative moderating effect of dual-class share structure on the association between family

involvement and diversity, such that family firms with dual-class share structure have fewer

incentives to increase diversity within the firm; while for firms without dual-class share, there is

little difference in board diversity between family firms and non-family firms.

95
This study also has important implications for family business owners and policymakers.

Furthermore, this study identifies a few paths for future research. First, including alternative

diversity measures instead of corporate overall diversity may open up this ongoing debate. Second,

it is also very interesting to generalize the findings of this paper, because there is a large literature

about the heterogeneity of family firms. Using alternative samples in different contexts may

provide more research opportunities.

I explore the joint effects of internal corporate governance, external control, and

institutional environment on managerial effectiveness in the realm of environmental information

transparency in Chapter 4. The empirical findings show that internal corporate governance

mechanisms and external control device are complementary in emerging economies, while

supplementary to each other in developed countries. In addition, this essay provides evidence that

internal corporate governance mechanisms have both direct and indirect effects on managers’

environmental information transparency. I also found the moderating effects of the institutional

environments on the corporate governance-external control-information transparency relationship

in both emerging and developed economies. The empirical findings of this essay offer several

avenues for future studies. To begin with, the individual characteristics of the Top Management

Team (TMT), for instance, CEOs have been referred to as a decisive factor in environmental

performance. Gathering their individual traits and incorporating them in empirical analysis can

offer more persuading evidence. Moreover, future studies can also investigate market reactions,

which is a great proxy for managerial effectiveness in information transparency. For instance,

conducting an event study on the causal effect of market reaction to environmental penalties can

add new knowledge to the TMT members as well as policymakers.

96
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