“Does corporate governance moderate the effect of corporate social responsibility on a firm’s financial performance?”

Drawing on the agency and resource dependence theories, the paper assumes that the impact of corporate social responsibility on companies’ financial performance should be investigated not in a binary manner but against the backdrop of corporate governance. The analysis is based on testing the dataset retrieved from the Chinese Stock Market and Accounting Research database containing 28,200 company-year observations of 3,576 Chinese listed companies covering 2008–2019. The findings accentuate that corporate social responsibility, interacting with board size, equity concentration, and CEO duality, positively impacts a firm’s financial performance. In contrast, the study fails to substantiate the claim that board gender diversity and board independence moderate the bond between corporate social responsibility and financial performance. Thus, by exploring five elements of corporate governance, this study takes a step forward in understanding exactly which elements of corporate governance best suit corporate social responsibility to enhance financial performance in China’s institutional settings. This study assists in filling the gap in corporate social responsibility research by displaying and corroborating the moderating effects of corporate governance attributes on the nexus between corporate social responsibility and financial performance in China. Therefore, this paper presents valuable information and details for companies and regulators alike to improve the impact of corporate social responsibility on financial performance by focusing on corporate governance quality.

Does corporate governance moderate the effect of corporate social responsibility on a firm's financial performance?

INTRODUCTION
In the last few decades, due to the growing pressure from various stakeholder groups, a global trend toward corporate social responsibility (CSR) has been evident. With this activity, companies try to mitigate the concerns of stakeholders and increase their legitimacy in their eyes (D'Souza et al., 2022; Pasko et al., 2021c). Moreover, to maintain their 'license' to operate in society, companies resort to various CSR strategies and tactics in trying to solidify their corporate citizenship (Homer, 2022;Pasko et al., 2021d).
However, those CSR-related activities are often inconsistent with, unrelated to, or at odds with shareholder value, which in turn can result in activities harming a company's financial performance, both in the short-and long-term. Based on this fact, which is founded on common sense and simple logic, many researchers began to investigate CSR's impact on companies' financial results in a direct binary fash-ion. For example, some research infers that CSR enhances a firm's financial performance ( Wang et al., 2020). Moreover, stronger CSR firms are less likely to become bankrupt relative to weaker CSR firms, all else being equal (Cooper & Uzun, 2019, p. 130). In comparison, others indicate that costs incurred due to CSR exceedingly offset any gains from social contributions and, therefore, it does not boost a firm's financial performance (Mahoney & Roberts, 2007;Rehman et al., 2020).
Recently, several studies have extended this direct bond -CSR-firm's financial performance -forward, inferring that it could be conditional on other moderating factors. This paper follows several rationales and infers that due to the gradual evolution of CSR within companies' goals and firm governance hierarchy and owning to the incremental transition from a CSR compliance approach to an approach of active integration of CSR into corporate structures, core business, it is expected that the efficiency and effectiveness of CSR largely depend on how companies are managed and governed internally. Adopting a contemporary view on corporate governance that incorporates implications of corporate decisionmaking on non-financial stakeholders as well (as opposed to only shareholders) (Zaman et al., 2022), this study views corporate governance as a mechanism of balancing the interests of all stakeholders (not only shareholders) while ascertaining a firm survival in a highly competitive environment. Therefore, corporate governance mechanism composition could be regarded as a most fitting explication concerning the 'social contract' among all stakeholders (Sacconi, 2011). Furthermore, some studies indicate that corporate governance significantly influences CSR dimensions (Ding et al., 2022). Thus, corporate governance can be considered an omitted link between CSR and the financial performance of companies as a vehicle of adoption, application, and implementation of CSR activity into the company's fabric with the endorsement of the company's top management. Therefore, the impact of CSR on a firm's financial performance is better to be explored against the backdrop of corporate governance. Moreover, given that corporate governance is a country's specific phenomenon instituted through myriads of legal frameworks, as well as institutional and cultural factors, research should focus on particular jurisdictions to elucidate the peculiar effect of corporate governance on CSR link to a firm's financial performance in a particular institutional context. This study responds to the latest calls offered by Pekovic and Vogt (2021) and Servaes and Tamayo (2013). Wasiuzzaman et al., 2022). Therefore, agreeing with previous arguments and reasoning in the field, this paper focuses on those five components of corporate governance as potential moderators.

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT
The above discussion implies that corporate governance can be an excellent road to unraveling the riddle of the interrelation between CSR and financial performance. Next, an argumentation is given as to why and how board size, ownership concentration, board gender diversity, CEO duality, and board independence affect CSR and, ultimately, financial performance.

Ownership concentration
The literature clearly recognizes that ownership concentration significantly increases information asymmetry between stakeholders in a firm's governance (Ameer,  Thus, the effect of CSR on financial performance needs to be investigated not in a binary manner but rather against the backdrop of corporate governance. This study aims to establish whether corporate governance moderates the effect of corporate social responsibility on a firm's financial performance in Chinese institutional settings.
Accordingly, taking into account previous discussions putting forward both arguments that support both positive and negative moderating roles, the following hypotheses are proposed: H1a: Board size has a positive moderating effect on CSRD and FP.
H1b: Board size has a negative moderating effect on CSRD and FP.
H2a: Equity concentration has a positive moderating effect on CSRD and FP.
H2b: Equity concentration has a negative moderating effect on CSRD and FP.
H3a: Board gender diversity has a positive moderating effect on CSRD and FP.
H3b: The board gender diversity has a negative moderating effect on CSRD and FP.
H4a: CEO duality has a positive moderating effect on CSRD and FP.
H4b: CEO duality has a negative moderating effect on CSRD and FP.
H5a: Independent directors have a positive moderating effect on CSRD and FP.
H5b: Independent directors have a negative moderating effect on CSRD and FP.
The hypotheses with the 'a' are the moderated hypotheses, while those ended with the 'b' are to be called non-moderated.

Data and sample
The data source of this paper is the By convention, in the study, some data have been excluded that impact the study results. Among the latter are the data of the first year of listing because in the first year of listing, listed companies are cash-rich, and each aspect's indicators differ from the normal operation years. Excluded are also the data of the financial industry, considering the statements of the financial industry are different from the other non-financial companies. Third, companies that received delisting warnings and have been delisted are excluded from the erstwhile sample. Fourth excluded are the data before 2008 due to lack or scarcity of data in that period. Making those mentioned-above adjustments to the erstwhile sample, this paper ended up with a balanced panel dataset containing 28,200 company-year observations of 3,576 companies covering the 2008-2019 period. The period covered in this paper is predicated on two limitations that have been considered. First, the lower threshold of the period, 2008, is explained by the lack of data on one of the components of the study, namely CSR. Secondly, the higher threshold of the chosen period is rationalized by the significant distortion of information as a result of the destructive impact of COVID-19; the inclusion of the statistics of the year 2020 would significantly blur the picture of the real state of affairs. The sample was selected in a 5-step process, shown in Table 1.   To measure the impact of social responsibility disclosure, corporate governance, and their interaction on financial performance, this study uses the following two models for parameter estimation and robustness testing. The empirical models are as follows: where i represents the firm, t is the year, δ is a vector of coefficients, Z is a vector of control variables, and u is a random error term.
In this study, three models are used. The first model estimates the effect of sustainability report disclosure and corporate governance on firm performance. The second model examines the effect of sustainability report disclosure, corporate governance, and the interaction between them on firm performance. The third one introduces tests for robustness. In addition, since more than 67.5% (17,916 company-years) of the sample were manufacturing companies, this study conducts separate regression analyses for manufacturing and non-manufacturing companies to verify the robustness of the results, considering the possible differences between manufacturing and non-manufacturing companies. The variables of the study are defined in Table 3.

Dependent variable
This study uses Tobin's Q as a measure of a firm's financial performance, which is the firm's market value divided by the replacement costs of its assets. This indicator is widely used in relevant studies to measure a firm's financial performance. Tobin's Q is a prospective performance yardstick founded on market value and resistant to accounting manipulation. To avoid the effect of outliers on the regression results, tailoring at the 1% and 99% percentiles is performed.

Independent variables
The independent variable in this study includes the disclosure of social responsibility reports. The social responsibility database in the CSMAR database counts the disclosure of social responsibility reports issued by Chinese-listed companies. It should be noted that CSRD is obtained by calculating the social responsibility disclosures in the CSMAR database. The data on social responsibility disclosures in CSMAR are divided into 11 items. If a company discloses an item, then the value of this item is 1; otherwise, it is 0. The CSRD is obtained by summing up all items for the formula of CSRD: CSRD = GRI + ShareholdersProtection + CreditorProtection + StaffProtection + DeliveryProtection + CustomerProtection + EnvironmentProtection + PublicRelations + SystemConstruction + WorkSafety + Deficiency.
The paper cumulates these essential items using the methodology used in previous studies (Isaksson & Woodside, 2016). After calculation, the final CSRD value is obtained, which ranges from 0 to 11. Although this method does not measure weights for individual items, it is the most feasible calculation method so far.

Board characteristics
The paper calculates the five items of corporate governance used (board size, ownership concentration, board gender diversity, CEO duality, and board independence) according to the formulas indicated in Table 3, while the raw data come from the CSMAR database.

Control variables
To make the regression results more realistic, the study controls for firm size, profitability, leverage, and industry; the specific calculation method is given in Table 3. Given that the number of listed companies varies greatly across industries, for example, in the paper's sample, manufacturing firms account for 60% of the total; the industry codes are utilized as control variables in the study. Table 4 shows the results of descriptive statistics. It can be seen that the mean value of Tobin's Q for listed companies is 2.032, the mean value is 1.602, the minimum value is 0.878, and the maximum value is 8.6. The mean value of Tobin's Q is significantly larger than the median, and the difference between the minimum and maximum values is large, close to 10 times. This indicates that, in general, the distribution of Tobin's Q is skewed to the left, with large values for individual companies. In addition, the median value of CSRD is 0, indicating that the mean value is only 1.919, indicating that most Chinese listed companies do not have high CSR scores and should be at a low level overall. The values and distributions of other variables are within the normal range. Table 5 presents the results of the Pearson correlation test, and it can be seen that the largest value occurs between Leverage and LnSize (0.465). In contrast, the smallest value occurs between LnSize and TobinQ (-0.430), and the sign of these relationships is as expected. Table 6 presents the results of models 1 and 2 and the robustness tests.     Table  7 shows in easy-to-digest form the overall results of this paper.

DISCUSSION
Having turned into a mandatory element of corporate activity, CSR attracted more and more attention, which led to an increasing number of questions related to the new elements and goals of corporate activity (CSR) and old ones (financial performance). This paper approaches this question by examining the effect of the alignment of corporate governance elements with a company's CSR strategy on the company's financial performance. In this way, this study examines the moderating effect (if any) of corporate governance on the impact of CSR on financial performance when there is a befitting link or "fit" between CSR and corporate governance.
The study finds that CSR interaction with board size positively affects a firm's financial performance, which is on par with previous studies in other institutional settings (Pekovic & Vogt, 2021). Concerning board independence and its interaction with CSR the study delivers similar to previous studies' results (no association). However, this paper comes to opposite conclusions about moderating effect of ownership concentration (positively in the study, negatively -previously) and board gender diversity (negatively in the study, positively -previously). Moreover, having searched through and through this study did not find any preceding study investigating how CSR, interacting with CEO duality, impact a firm's financial performance. Hence, this paper's findings that CSR, interacting with CEO duality, positively impacts a firm's financial performance are incomparable.
This study provides some significant implications for companies and regulators alike. First, directors should be alert and aware that the design, construction and composition of the corporate governance policy affects not only the amount of dividends earned by shareholders but also the interests of other stakeholders. Therefore, during the construction of the board of directors, it is necessary to consider and analyze numerous characteristics of the board of directors, paying attention to the fact that modern corporate governance serves not only the interests of shareholders but also stakeholders (Zaman et al., 2022).
Second, companies should seek to increase the size of their board of directors only if they intended to fulfill and conduct CSR activities effectively in terms of future financial returns from such activities.
Thirdly, this study and its results, which confirm the link between the quality of corporate governance and its moderating effect through CSR on financial performance, lead to some recommendations. Following Chan et al. (2014, p. 59), instead of mandating specific disclosures, regulators might be better served to focus on corporate governance quality to increase CSR disclosures.

CONCLUSION
This paper investigates the befitting link between corporate social responsibility and corporate governance and how it can improve a firm's financial performance in Chinese intuitional settings. Moreover, it answers the research question of whether corporate governance moderates the effect of corporate social responsibility on a firm's financial performance. Using a sample of 28,200 company-year observations of 3,576 Chinese listed companies covering 2008-2019, the study finds that corporate social responsibility, interacting with board size, equity concentration, and CEO duality, positively impacts a firm's financial performance. However, the paper fails to support the suggestion that board gender diversity and board independence in Chinese institutional settings moderate the corporate social responsibility-financial performance nexus.
This study makes several significant contributions to corporate social responsibility research. First, the study responds to calls for investigating the moderating effect of corporate governance on the relation-ship between corporate social responsibility and financial performance, especially in under-researched jurisdictions. In contrast to most previous studies that investigated the binary impact of corporate social responsibility on financial performance, this study identifies elements and components of corporate governance (internal governance) that moderate this relationship. This paper contributes to further improving the understanding of the unresolved relationship and impact of corporate social responsibility on financial performance by suggesting that corporate governance can influence and affect this relationship. Second, by examining five different components (elements) of corporate governance, this study takes a significant step forward in understanding exactly which forms and elements of corporate governance best suit corporate social responsibility to enhance financial performance in China's institutional environment, which in many ways differs from the western world. Thus, this paper emphasizes the necessity of achieving a level of compatibility between the corporate social responsibility strategy and the internal governance structure of the company in order for the former to produce a positive effect on the firm's financial performance.