Corporate Social Responsibility and Stock Illiquidity: The Moderating Role of Board Independence

This study examines the association between Corporate Social Responsibility (CSR), board independence, and stock illiquidity using an unbalanced panel of 168 non-financial firms listed on the Australian Securities Exchange over the period 2011–2023. Stock illiquidity is measured using the Amihud illiquidity ratio, while CSR is captured through firms’ environmental and social performance. Using fixed-effect model, the study examines both the direct association of CSR with stock illiquidity and the moderating role of board independence. The results indicate that stronger CSR performance is significantly associated with lower stock illiquidity. Board independence is also negatively associated with stock illiquidity, while the interaction between CSR and board independence is negative and statistically significant, suggesting that stronger governance is complementary to CSR in improving stock-market liquidity conditions. These findings remain broadly consistent across alternative liquidity measures and CSR specifications. A pooled heterogeneity analysis with formal interaction and Wald tests further indicates that the CSR–illiquidity association varies significantly across firms with different levels of size, leverage, CSR intensity, and profitability. A formally tested COVID-19 analysis shows that the CSR–illiquidity association changed significantly during 2020–2021, while the three-way interaction provides evidence on whether the moderating role of board independence also changed during the pandemic. Additional instrumental-variable and system-GMM analyses yield qualitatively consistent results, although these are interpreted as robustness evidence rather than definitive causal identification. Overall, the findings highlight the importance of CSR and corporate governance in understanding stock-market illiquidity and provide evidence that their relevance varies across firm characteristics and periods of heightened market uncertainty.