Uncovering the role of foreign ownership in the relationship between board nationality diversity and ESG

This study investigates the relationship between board nationality diversity (BND) and environmental, social, and governance (ESG) in developing countries. It also highlights the role of legitimacy concerns in investigating how foreign ownership moderates the connection between BND and ESG due to the increased liability of foreignness. Using a sample of listed firms in Johannesburg stock exchange (JSE) in South Africa over 2015–2020, our two-step system GMM findings show that board nationality diversity positively affects ESG. Moreover, our study found that foreign ownership strengthens the positive connection between BND and ESG. Our study contributes to the literature by highlighting the importance of legitimacy theory in the dynamic nexus between BND and ESG. The findings of this study have substantial implications for firms, investors, and stakeholders. © 2023 by the authors. Licensee SSBFNET, Istanbul, Turkey. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license


Introduction
The integration of environmental, social, and governance (ESG) concerns into firms' strategies has attracted considerable interest from policymakers, investors, and the academic community (Gillan et al., 2021;Wasiuzzaman & Subramaniam, 2023).The benefits of a firm's social and environmental performance are not limited to society, they are reflected in firms as well.By incorporating considerations of environmental and social issues into the firm's strategy, they could mitigate risk (Broadstock et al., 2021;Shakil, 2021), enhance their reputation (Boubakri et al., 2016), and increase the firm's value (Bouslah et al., 2023;Duan et al., 2023;Fatemi et al., 2018).Due to these favorable outcomes of ESG and stakeholder and public pressures on firms to be socially responsible (Harjoto et al., 2015), the focus of firms has shifted towards incorporating environmental and social concerns into their agenda alongside their financial performance.
Numerous scholars have dedicated their endeavors to uncovering the determinants of ESG, with the board of directors holding a key position in the literature as they serve as the main decision-makers responsible for the sustainability agenda of firms (Veltri et al., 2021;Zaid et al., 2020b).While gender diversity has dominated the literature on board diversity and ESG, nationality diversity has received little attention (Baker et al., 2020).Foreign directors' representation has increased tremendously in recent years as a response to the globalization phenomenon.However, their role in corporate board dynamics, particularly social and environmental issues, is still in its infancy (Zaid et al., 2020b).Additionally, the results of foreign directors and ESG are inconclusive, with many researchers finding a positive connection (Beji et al., 2021;Garanina & Aray, 2021;Setiawan et al., 2021), while others found a negative (Katmon et al., 2019), and a neutral impact (Colakoglu et al., 2020;Lau et al., 2016;Maswadi & Amran, 2022).Thus, more research is required to delve deeply into the mechanisms that influence or shape the dynamic link between BND and ESG (Baker et al., 2020).
Foreign directors bring a broad spectrum of expertise and experiences pertaining to various institutional settings (Nielsen & Nielsen, 2013), hence enhancing the decision-making quality of firms (Fuente et al., 2017;Ruigrok et al., 2007).Additionally, the presence of foreigners on the board reflects the diversity of the distinctive strategic resources, which is essential in tracing the environmental issues in the dynamic environment (Usman et al., 2020;Uyar et al., 2023).Moreover, firms with higher board nationality diversity face increased pressure from numerous stakeholders to include environmental and social issues in firms strategies (El-Bassiouny & El-Bassiouny, 2019).Since local stakeholders see foreign directors (e.g., foreign CEO) as less trustworthy, they are more likely to be concerned about ethical issues such as CSR activities in order to build their legitimacy and trustworthiness (Bertrand et al., 2021).The prevailing body of research on foreign directors indicates that they exhibit a higher degree of ethical behavior (Areneke et al., 2023;Ashraf & Qian, 2021;Lau et al., 2016), which makes them more inclined to engage in board discussions pertaining to the ESG agenda, ultimately enhancing firms' legitimacy.
Previous studies connected BND and ESG have drawn their arguments on resource-based theory and agency theory, with little attention to the role of legitimacy theory (Setiawan et al., 2021).To address this gap, our research highlights the legitimacy concern that arises due to the liability of foreignness and aims to investigate the moderating role of foreign ownership in the interplay between BND and ESG.The legitimacy concern increases with increased foreign ownership because foreign investors are more concerned about the reputation of hosted firms due to the increased riskiness and uncertainty associated with investing in emerging countries (Siegel & Vitaliano, 2007).Firms should align their actions with social norms to acquire legitimacy (Kong et al., 2023).It has been argued that different types of shareholders could exert their influence to shape firms' CSR behaviors (Zaid et al., 2020a).Foreign owners, in particular, are more likely to enhance board performance and push managers to advance the firm's social and environmental obligations (Hussain et al., 2022) to gain the legitimacy.Previous studies support the arguments of using environmental (Mardini & Lahyani, 2021;Uyar et al., 2023) and social performance (Muttakin et al., 2015;Ntim & Soobaroyen, 2013;Setiawan et al., 2021) as tools to signal the firms' legitimacy.To ensure that firms address ESG issues to gain legitimacy, foreign investors could exert their influence through the board of directors (Schmid & Roedder, 2021).It is therefore conceivable that foreign directors increase firms' commitment to social and environmental issues in order to gain the legitimacy of local society and signal the trustworthiness of foreign investors.Thus, the relationship between BND and ESG is more prominent when foreign ownership is high.
We tested our hypothesis using a sample of listed firms in JSE over 2015-2020 and employed the two-step system GMM to deal with the endogeneity problem that inherently exists in the nexus of the board of directors and CSR/ESG (Beji et al., 2021;Zaid et al., 2020b).The findings largely support our arguments.We found that board nationality diversity positively affects ESG, and foreign ownership positively moderates this association.Our results are robust, using alternative measurements for independent and dependent variables.
Our study contributes to the existing literature as follows: although most previous studies have drawn their arguments on resourcebased theory and agency theory (Maswadi & Amran, 2022;Shatnawi et al., 2022), the role of legitimacy theory in the dynamic nexus between BND and ESG has gotten little attention (Setiawan et al., 2021).Our study adds to the literature on BND and ESG by highlighting the importance of legitimacy concern in this respect.In doing so, our study expands our understanding of the mechanisms that affect foreign directors' behaviors toward ethical issues like ESG.Additionally, our study extends beyond the prevailing emphasis on the direct association between BND and ESG by providing a deeper understanding of the factors that shape foreign directors' decisions, like ESG.As far as we know, no study has investigated how foreign ownership influences the link between BND and ESG.Although Setiawan et al. (2021) and Garanina and Aray (2021) have investigated the impact of foreign directors and foreign ownership simultaneously, they only tested the direct effect.Our study is distinct from these previous studies by exploring the moderating effect of foreign ownership on the relationship between BND and ESG.In doing so, our study contributes to the scholarly discourse on board nationality diversity, foreign ownership, and ESG alike.
The remainder of this study is as follows: in Section 2, we summarize the literature and theory to build the hypotheses.Section 3 illustrates the methods used, including the data sample and variable measurement.Followed by Section 4 to present the findings of this study.Finally, in Section 5, we discuss the results and the implications of the findings.In Section 6, we conclude our study.

Literature Review Theoretical Review
Prior research that examined foreign directors' impact on ESG has built its arguments using different theoretical perspectives, such as resource dependence theory, agency theory, and institutional theory.For example, in their recent study, Shatnawi et al. (2022) examine the impact of foreign directors on CSR in Australia.Their findings support the resource dependency perspective, revealing that board nationality diversity positively influences CSR practices.Similarly, (Beji et al., 2021;Ibrahim & Hanefah, 2016) support the resource dependency of foreign directors since they bring diverse perspectives to the board, such as skills, political connections, networks, and experience.However, the results of Zaid et al. (2020b) contradict this perspective because foreign directors exhibited cultural homogeneity with the local directors due to their geographical proximity.Similarly, Colakoglu et al. (2020) found no evidence for the influence of foreign directors on CSR.Maswadi and Amran (2022) also found that board nationality diversity could not affect CSR quality.Setiawan et al. (2021) employed agency theory and institutional theory to investigate the role of BND on CSR engagement within the context of the two-tier board system.Their findings show a positive relationship between BND and CSR levels.Similarly, Jouber (2020) found foreign directors increase a firm's CSR in the context of two-tiers settings.In the same vein, Garanina and Aray (2021) found that foreign directors increase CSR discourse in Russia.However, Lau et al. (2016) found no evidence for the presence of foreign directors could affect CSR in China.The authors conclude that using agency theory alone is not enough to explain the behavior of foreign directors in Chinese context.
Although previous research utilized different theoretical perspectives, they have produced mixed results.To reconcile these ambivalent results, our study highlights the role of legitimacy concerns faced by foreign investors due to the increased liability of foreignness.According to the legitimacy theory, firms could use their social and environmental performances as tools to gain the legitimacy of society (Garanina & Aray, 2021;Mardini & Lahyani, 2021;Ntim & Soobaroyen, 2013).Our study therefore suggest that foreign investors will pay more attention to the hosted firms' reputations and legitimacy, which increase the attention of foreign directors to address the social and environmental issues to lessen foreign investors' legitimacy concerns.We consequently draw on the ethical premise of the foreign directors and the legitimacy theory to build our arguments as follows:

Empirical Review and Hypotheses Development Board nationality diversity and ESG
With increasing globalization in the contemporary business environment, the increased presence of foreign directors and their role in firms' boards have attracted researcher attention, especially their role in strategic decisions such as ESG/CSR.The existing body of literature concerning board nationality diversity recognizes that foreign directors have an effective role in shaping firms behaviors and improving decisions' quality (Fuente et al., 2017;Ruigrok et al., 2007) because they bring different experiences from different environments (Nielsen & Nielsen, 2013).According to the resource dependence theory (RDT), diverse boards proved firms with different resources, such as diverse perspectives, skills, networks, and different experiences, which are essential to CSR decisions (Beji et al., 2021).Additionally, the presence of foreign directors are more likely to affect environmental and social performance by transferring knowledge related to carbon emissions and enhancing product safety (Katmon et al., 2019).Moreover, board nationality diversity reflects diverse cultural values, which result in a deeper comprehension of stakeholders' needs and increase the engagement of firms in social activities (Dodd et al., 2022;Harjoto et al., 2019).Zaid et al. (2020b) argue that the increased nationality diversity on boards encourages firms to engage in their social duties, which enhances their social and environmental performance.This is especially true given the prevalent assumption that ethical standards within Western countries are superior (Lau et al., 2016).In this regard, many studies have evidenced the ethical assumption of the foreign directors on boards; for instance, Oxelheim and Randøy (2003) show that having foreign directors on boards represents a signal to improve firms transparency and governance systems inside the firms.Consistent with this evidence, Ashraf and Qian (2021) found that foreign directors on boards alleviate earnings management practices.Moreover, board nationality diversity is expected to increase the level of transparency and CSR disclosure due to their connection to international foreign stakeholders (Ibrahim & Hanefah, 2016).Furthermore, Bertrand et al. (2021) argue that the local stakeholders see the foreign directors as less trustworthy, which pushes foreign directors to put more concern toward ethical issues such as CSR activities in order to build their legitimacy and trustworthiness.The authors found that local firms with foreign CEOs are more committed to CSR than firms with local CEOs.
Empirically, Naciti (2019) found that diversity in nationality has a significant effect on both social and environmental performance.Garanina and Aray (2021) provide evidence that foreign directors help firms increase accountability by enhancing CSR performance.Katmon et al. (2019) contradicted the earlier findings and found a negative relationship between foreign directors and CSR in the Malaysian context.However, Zaid et al. (2020b) and Colakoglu et al. (2020) found no connection between nationality diversity and sustainable and CSR performance.
Despite the above contradictory results, we follow the ethical premise of foreigners to argue that foreign directors are more likely to behave ethically in local companies in order to enhance the reputation of their firms, minimize the risk, and ultimately gain the trust of different local stakeholders.Foreign directors therefore are more likely to utilize their diverse backgrounds, cultures, values, and ties with different foreign stakeholders to address the ESG issues in board dynamics.We therefore formulate our first hypothesis as follows: H1: Board nationality diversity positively related with ESG score.

The moderating role of foreign ownership
Prior studies on ownership structure suggests a significant role of ownership in influencing firms' social and environmental actions.Foreign ownership is a prominent form of ownership structure that paves significant attention towards corporate social and environmental initiatives (Setiawan et al., 2021).Foreign owners are more concerned about the reputation of hosted firms because investing in foreign emerging countries could be quite risky and uncertain (Siegel & Vitaliano, 2007).As a result, foreign investors seek to decrease the risk of their investments by retaining their legality and trustworthiness (Garanina & Aray, 2021).Given the increased visibility and potential scrutiny of foreign-owned businesses by the host government, they are more likely to be committed to their society (Ghazali, 2007).In this respect, foreign owners are more likely to push firms to address stakeholders' needs through increased CSR activities; by doing so, they signal their trustworthiness (Siegel & Vitaliano, 2007).In a similar vein, Ahmad et al. (2023) argue that foreign owners increase the disclosure of firms' social performance to signal transparency and accountability in addition to building a trust, which ultimately enhances the shareholders' wealth.
Empirical findings support the role of foreign ownership in advancing ESG issues in firms.Setiawan et al. (2021) investigated the role of foreign ownership on CSR in Indonesia and found a positive relationship.Haniffa and Cooke (2005) highlighted the role of CSR as a legitimation strategy, and they found foreign investors have a significant role in increasing firms' CSR activities.In the context of China Mcguinness et al. (2017) found that foreign institutional investors help non-state-owned firms gain a comparative advantage through increasing CSR.They also found that foreign ownership positively affects CSR in state-owned firms.Similarly, Oh et al. (2011) found a positive relationship between foreign ownership and CSR in the Korean context.Additionally, the empirical findings support the moderating role of foreign ownership.Ahmad et al. (2023) found that foreign ownership attenuates the positive relationship between CSR and earnings management, denoting that foreign investors value ethical behaviors.Hussain et al. (2022) reveal that the relationship between directors' foreign experience and environmental disclosure is stronger in the presence of foreign ownership.
Since foreign owners care more about their firm's transparency and legitimacy, they consequently push firms toward the decisions that help them to signal their legitimacy and trustworthiness.This consistent with the arguments that firms' ownership structure have significant role in shaping firms' CSR behaviors (Zaid et al., 2020a).We, therefore, argue that the importance of addressing environmental and social issues increases with the presence of foreign owners in their firms to gain the legitimacy of the local society.Consequently, the relationship between BND and ESG is more prominent in firms where foreign ownership is high.The above discussion leads to the second hypothesis as follows: H2: Foreign Ownership positively moderates the connection between BND and ESG.

Sample and data collection
We used a sample of publicly listed firms in Johannesburg Stock Exchange (JSE) over the period 2015-2020 to test our hypothesis.We chose South Africa for two reasons: first, responding to the call of previous research to explore the role of foreign directors in the context of developing countries (Zaid et al., 2020b).To our best knowledge, the role of foreign directors on ESG has not been explored in the context of South Africa.Second, Naidu et al. (2021) have documented a positive trend in foreign ownership in JSE firms, which helps us to investigate the relationship between BND and ESG at different levels of foreign ownership.
We started our sample with all firms listed in JSE during the period of interest, the financial firms have been excluded due to their special accounting standards, in addition to their performance being affected by many regulations (Ntim & Soobaroyen, 2013).We also exclude firms with missing ESG scores and integrated reports.After employing these criteria, we ended up with 72 firms with 432 observations belonging to five main industries according to GICS (industrials, basic materials, consumer goods, technology, and consumer services).
We collected our variables' data from multiple sources: the financial data were retrieved from the Compustat database; the data on board nationality diversity, board independence, board size, number of meetings, and foreign ownership were collected manually from the integrated reports of the firms; and finally, the data on ESG scores were collected from the Refinitiv Eikon database.

Variable Measurements
The dependent variable: ESG Following previous studies (Bătae et al., 2021;Drempetic et al., 2019;Shakil, 2021), we measured environmental, social, and governance performance by using the ESG score retrieved from the Refinitiv Eikon database, which ranges from 0 to 100 percent.Since nationality diversity could be a part of the governance score, we only used the environmental and social pillars to measure the dependent variable in order to avoid the endogeneity problem.

The independent variable: Board nationality diversity (BND)
Most of the previous studies used the percentage of foreign directors to measure board nationality diversity (Beji et al., 2021;Lau et al., 2016).Following these studies, we used the percentage of foreign directors as a measurement of BND.Additionally, we used the Blau index for heterogeneity as an alternative measurement.

Moderator variables: Foreign ownership (FOWOR)
Measured as a continuous variable of the percentage of shares held by the foreign investors (Haniffa & Cooke, 2005;Oh et al., 2011).

Control variables
We follow the previous studies to control the effect of firm and board characteristics, in addition to the firm's performance.Regarding the firm characteristics, we controlled for firm size and firm age.Firm size (FSIZE) is computed as the natural logarithm (ln) of total assets.Firm age (FAG) is the natural logarithm of the number of years since the firm has been founded.Firm leverage (LEV) computed as total debt over total assets.For the board characteristics we controlled, board size (BSIZ) is the number of firms' board members.Board independence (INDP) is the percentage of independent directors on the firm's board.Female CEO (FECEO) is a dummy variable codded 1 if the CEO is female and 0 otherwise.For firm performance, we controlled the return on assets (ROA), computed by dividing net income by total assets.We also controlled the board meetings (MEET), which is the number of meetings held annually.Finally, we considered the national long-term orientation culture (LTOculture) of the foreign directors due to the temporal nature of ESG decisions as a long-term decision.Foreign directors who come from long-term-oriented countries are more likely to be long-term-oriented.LTO-culture is a dummy variable that takes 1 if the majority of the foreign directors come from longterm countries and 0 otherwise.

Model specification
To conduct our main analysis, we used the two-step system GMM to deal with the endogeneity problem that has been acknowledged by previous research that investigate the relationship between board characteristics and ESG/CSR, in particular BND (Beji et al., 2021;Zaid et al., 2020b).When the endogeneity problem exists in the investigated model, the results yield a biased estimated coefficient (Ketokivi & Mcintosh, 2017).Thus, using GMM enables us to alleviate the prospective endogeneity caused by reverse causality, simultaneity, and omitted variables, which reflect at the end on the accuracy of our estimated coefficient.In this model, the lag of the dependent variable is used as an independent variable, thus our main analysis will be as illustrated in equations 1 and 2 as follows:

Descriptive statistics
The descriptive statistics of the variables included in our model have been reported in Table 1.It is noticeable that the ESG score differs substantially between the selected firms, as the minimum score is 0.092 and the maximum score is 0.911.The average score is 0.499, which is slightly lower compared with the average score in developed countries, where it is about 0.613 (Bătae et al., 2021).
The average of the foreign directors' percentage on the board is 0.086, which is relatively greater than the percentage of the foreign directors in other emerging markets such as Russia, which is 0.048 (Garanina & Aray, 2021).On the contrary, it is comparatively smaller when compared with developed countries, such as France, where it is about 0.25 (Mardini & Lahyani, 2021).The average of foreign ownership is 0.163, and the minimum percentage is 0 and the maximum is 0.780.This considerable variation in foreign ownership between the selected firms enables us to discover the effect of BND on ESG at different levels of foreign ownership.
Table 2 presents the results of the person correlation between the study variables.We can notice that the ESG score is significantly correlated with our main variables.

Multivariate regression analysis
As we mentioned above, we used GMM to test our hypothesis.To conduct this analysis, three main diagnostic tests have been employed to check the accuracy of the estimated coefficients and the validity of our results.Arellano and Bond tests (AR1) were used to check the serial correlations in the first difference residual.As we can see in all models, the P-value is less than 0.05, which suggests rejecting the null hypothesis of AR (1) because there is no autocorrelation in the first difference residual.On the contrary, the P-value of AR (2) is greater than 0.05 in all models, leading to accepting the null hypothesis for AR (2), which is that there is no autocorrelation in the second difference residuals.Furthermore, we used the Hansen test to validate the instruments we used in our GMM models.As shown in all models, the P-value of Hansen is greater than 10 percent, leading to accepting the null hypothesis of Hansen that the instruments utilized in GMM are exogenous.
Table 3 shows the results of our main analysis.Model 1 includes only our control variables and moderator.In Model 2, we add the independent variable (BND) to test the main effect of BND on ESG.In Model 3, we test the moderating effect of foreign ownership.In the first hypothesis, BND is predicted to positively affect ESG; the results from Table 3 Model 2 support this prediction, since (β = 0.076, p < 0.05), these findings support the ethical premise of foreign directors.Since foreign directors are more likely to behave ethically (Lau et al., 2016), their presence on boards therefore enhances firms' social and environmental performance.In the second hypothesis, we predict that foreign ownership positively moderates the link between BND and ESG.From Table 3 Model 3, we can see that the effect of the interaction term (BND*FOWOR) on the ESG is positive and significant (β =0.315, p < 0.05), hence these results support the second hypothesis of this study.These results align with the legitimacy theory, where foreign investors are more likely to enhance firms' social and environmental performance to gain legitimacy.We used the "margins plot" code in STATA14.0 to plot the interaction effect as depicted in Fig. 1.As we can see in Fig. 1, when foreign ownership is high, the relationship between BND and ESG is stronger.

Figure1:
The moderating effect of foreign ownership on the relationship between BND and ES

Additional analysis
To check the robustness of our results, a battery of additional analyses has been conducted.We conducted the analysis using the score of the environmental and social pillars separately instead of the ES as a dependent variable.From Tables 4 and 5, the results are quite similar to our main analysis and support our hypothesis.Secondly, we used alternative measurements of the independent variable called the Blau index of heterogeneity, and the results as presented in Table 6 confirm our results.The results of these additional analyses assure our results robustness.

Discussion and Implication
The literature on ESG has well documented the role of the board of directors in pushing firms' ESG agenda.Most of the prior research focused on the role of gender in promoting the ESG (Byron & Post, 2016;Cucari et al., 2018;Husted & Sousa-Filho, 2019;Jizi, 2017;Nerantzidis et al., 2022;Wasiuzzaman & Subramaniam, 2023;Yarram & Adapa, 2021;Zaid et al., 2020b), with a little interest given to the role of foreign directors (Baker et al., 2020), mostly in developed countries.However, globalization has increased the movements of foreign investments and foreign directors, which raises questions about their role in sustainability issues in developing countries, which have been rarely investigated.
Generally, foreign directors enrich the table discussion by bringing different perspectives that reflect on the quality of decisions (Fuente et al., 2017;Ruigrok et al., 2007).Foreign directors are more likely to behave ethically in the hosted firms in order to gain the trust and legitimacy of the local stakeholders (Bertrand et al., 2021).A wide range of studies have supported the ethical behavior of foreign directors (Areneke et al., 2023;Ashraf & Qian, 2021;Ibrahim & Hanefah, 2016;Oxelheim & Randøy, 2003).Thus, they are more likely to push the ESG agenda.
We used a sample of listed firms in the Johannesburg Stock Exchange in South Africa to investigate the relationship between BND and ESG.We found that BND positively affects ESG.Our results are consistent with the ethical primes of the foreign directors.Given that most foreign directors in the context of developing countries come from developed countries, they consequently could affect social and environmental performance by transferring knowledge related to carbon emissions and enhancing product safety (Katmon et al., 2019).Our results also are aligning with findings of previous research of (Beji et al., 2021;Harjoto et al., 2019).However, it contradicts the results of (Katmon et al., 2019) who found a negative effect.
Beyond the direct relationship our study goes deeply into investigating the moderating role of foreign ownership and finds that foreign ownership positively moderates the relationship between BND and ESG.This result supports the legitimacy theory and the arguments on the role of shareholders in shaping decision-making through the board of directors.This result also supports the argument that foreign investors care more about the reputation of their investment (Siegel & Vitaliano, 2007).These findings also consistent with the results of (Ahmad et al., 2023;Hussain et al., 2022).

Theoretical and practical implications
Our study adds to the literature on BND and ESG as follows: although the mainstream of previous studies that connect BND and ESG have utilized resource dependence theory, agency theory, and institutional theory to base their arguments, they produce mixed results.Our study highlighted the importance of legitimacy theory in exploring the dynamic nexus between BND and ESG, which has been overlooked in the literature.Besides, while previous research focused on the direct relationship between BND and ESG, our study goes beyond the direct effect and sheds light on the factors that shape this nexus.We underline the importance of the role of foreign ownership in raising legitimacy concerns that make foreign owners more concerned with ESG issues (Oh et al., 2011), urging foreign directors to pay more attention to ESG issues.By doing so, our study adds to the literature on how foreign directors help foreign investors establish legitimacy and signal their trustworthiness by increasing ESG activities.
The findings of this study have substantial implications for both shareholders and originations.Our study found the presence of foreign directors on board has a favorable role in addressing ESG issues.Consequently, those firms that want to advance their responsibility toward society and the environment may consider appointing foreigners to their boards.Moreover, our study finds that the relationship between BND and ESG is stronger in the presence of foreign ownership.Therefore, foreign investors who care about the reputation of the firms and want to secure their investments could consider appointing foreign directors to achieve this end.

Conclusion
Although prior research focused on the role of board diversity in ESG, the role of board nationality diversity received little attention.Our study uncovers the role of board nationality diversity in ESG in the context of developing markets.To this end, we used a sample of JSE-listed firms over 2015-2020 and applied the GMM to deal with the endogeneity problem that inherently exists in the literature on board diversity and ESG.Our study finds that foreign directors on the board increase ESG activities.Moreover, the interaction effect suggests that foreign ownership is more likely to increase the attention of foreign directors toward ESG to increase the legitimacy of their firms.Our results are robust for using a battery of alternative measurements for dependent and independent variables.
Despite the practical and theoretical contributions of this study, it has some limitations.Our findings are based on developing countries where investors' protection laws are low and their legitimacy concerns are high, leaving the door opened for future research to explore whether the role of foreign ownership in shaping the nexus between BND and ESG differs between developing and developed countries or not.Additionally, although our study introduces moderator variable in the relationship between BND and ESG, the mechanisms through which foreign directors affect ESG still need more exploration.Future studies could consider mediator variables in this regard.

Table 3 :
GMM: the effect of Board nationality diversity on ES score

Table 4 :
GMM: the effect of Board nationality diversity on E score

Table 5 :
GMM, the effect of Board nationality diversity on S score

Table 6 :
GMM: the effect of the Blau index as an alternative measurement of the independent variable on the ES score