Board diversity impact on corporate profitability and environmental, social, and governance performance: A study of corporate governance

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Abstract

With the growing interest in understanding how environmental, social, and governance (ESG) factors interact and influence one another, as evidenced by increased attention from decision-makers, policymakers, stakeholders, investors, and corporate managers, this research aims to advance the existing literature on the subject (Ahmad et al., 2021; Al-Jaifi et al., 2023). This research aims to address a gap in the literature by examining the influence of board diversity (BD) in terms of board independence (BI) and gender diversity (GD) (i.e., female directors) on corporate ESG performance (ESGP), specifically considering the moderating effect of these two variables on the relationship between corporate profitability (CP) and ESGP. The analysis is based on a dataset encompassing 126 firm-year observations from 30 Saudi non-financial public listed companies spanning the period from 2013 to 2022. The results of the direct models show that CP has an insignificant negative impact, while BD, particularly in terms of independent directors and female directors, enhances ESGP. Moreover, the results from the moderation models indicate that while BI does not show a statistically significant positive impact on the relationship, GD demonstrates an insignificant negative effect on ESGP.

Keywords: ESG Performance, Corporate Profitability, Board Diversity, Board Independence, Board Gender Diversity, Female Directors, Saudi Arabia

Authors’ individual contribution: Conceptualization — K.O.A. and S.A.A.A.-D.; Methodology — K.O.A. and S.A.A.A.-D.; Investigation — S.A.A.A.-D.; Resources — K.O.A. and S.A.A.A.-D.; Writing — Original Draft — S.A.A.A.-D.; Writing — Review & Editing — K.O.A. and S.A.A.A.-D.; Project Administration — K.O.A.; Funding Acquisition — K.O.A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G10, G28, G34, M14

Received: 03.02.2024
Accepted: 19.07.2024
Published online: 23.07.2024

How to cite this paper: Alotaibi, K. O., & Al-Dubai, S. A. A. (2024). Board diversity impact on corporate profitability and environmental, social, and governance performance: A study of corporate governance. Corporate Law & Governance Review, 6(2), 93–106. https://doi.org/10.22495/clgrv6i2p9