This paper examines explanatory mechanisms of differences, in both positive and negative aspects of children's adjustment, between ethnic minority (i.e., Former Soviet Union—FSU origin) and ethnic majority (i.e., Israeli) children living in Israel. Seventy Israeli children (40 girls) and 75 FSU origin children (38 girls) and their parents constituted the study sample. Both mothers and fathers reported on the children's prosocial and externalizing behaviours and provided accounts of their use of corporal punishment. Analyses showed that FSU origin children displayed lower levels of prosocial behaviour as well as higher levels of externalizing problems and that their parents used more corporal punishment than their Israeli counterparts. In addition, a mediation model was determined in which both maternal and paternal use of corporal punishment mediated the link between ethnicity and the child's prosocial behaviour. Furthermore, according to the best fitting structural equation model, ethnicity did not have a direct effect on children's prosocial behaviour. This link was fully mediated by maternal and paternal corporal punishment. No mediation was revealed for the links between ethnicity and externalizing problems. The process of risk is discussed. Copyright © 2011 John Wiley & Sons, Ltd.