Board gender diversity and ESG performance: the moderating role of earnings volatility in Australian publicly listed firms

Purpose - This study aims to investigate whether board gender diversity has improved and influence environment, social and governance (ESG) performance. It also explores whether firm earning volatility moderates the relationship between board gender diversity and ESG performance. Design/methodology/approach - This study uses 907 final firm-year observations of public firms listed on the Australian Securities Exchange from 2010 to 2023. Findings - The findings show that women’s representation on board has improved following the Australian Stock Exchange (ASX) amendment and is significantly associated with higher ESG performance; however, firm earning volatility weakens the positive influence of women directors on ESG performance. The results remained the same even after addressing potential endogeneity concerns and are robust across (1) alternative proxies, (2) dynamic, (3) two-step system generalized methods of moments and (4) difference-in-differences model. Practical implications - In addition, the findings of this study offer important practical implications for investors to focus on companies with higher female representation on their boards and demonstrating strong financial stability. It also has important practical implications for policymakers in understanding the importance of considering the time required to achieve meaningful board diversity and sufficient financial resources to meet the expectations of ASX recommendations and principles. Originality/value - This study contributes to the academic literature by providing empirical evidence of how firm earning volatility affects the relationship between board gender diversity and ESG performance. Notably, the author identifies the previously unexplored moderating role of firm earnings volatility in this relationship. The result underscores the importance of stable financial conditions for maintaining the positive influence of board gender diversity on corporate sustainable practices.