Board diversity and firm performance: impact of ESG activities in China

The investigation of association between board diversity and the firm performance is the subject of many studies. However, the empirical results presented in the extant literature are inconclusive at best. The inconclusive empirical results could be due to several factors and one of them could be that the relationship is contingent on some key factors. Given the rising trend of Environmental, Social and Governance (ESG) activities, in this paper the relationship between board diversity and the firm performance is tested in the context of ESG activities. The subject of examination in this study is the listed Chinese firms. The sample period spans for 6 years and is collected from 2014 to 2019. This work uses a dynamic approach to modelling relationships. The generalised method of moments (GMM) is used in a two-step system. An endogeneity-free estimate may be achieved by using this strategy. We can learn a great deal from these hypotheses. There is a positive and substantial correlation between board diversity and the firm's success, which suggests that diverse boards are beneficial to businesses. Both ESG activities and a positive coefficient on company performance are significant. This shows investors appreciate companies that are involved in ESG activities because they see this as an investment that pays off. Last but not least, the report shows that board diversity has a negative and considerable impact on ESG efforts. According to the results, board diversity and ESG efforts are not necessary for a company's success. According to the data, board diversity is not particularly beneficial in the context of significant ESG initiatives. Board diversity really hurts a company's success when it engages in high ESG activities. The study also discusses the work's policy ramifications. Finally, the work lays out a clear path for further study.