Diverse boards and firm performance: The role of environmental, social and governance disclosure

Abstract The present study examines the relationship between the diverse board of directors and firm performance using a panel data sample of the top 73 EU nonfinancial sustainable firms across 13 countries from 2016 to 2020 based on the Dow Jones Sustainability Index (DJSI). We specifically examine the impact of structural (board independence) and demographical (age, gender, education, tenure and industry experience) board diversity on firm performance. Drawing on the agency and resource base perspective, the results indicate that firms with a diverse board of directors (structural and demographic) perform significantly better with firm performance. Additionally, when viewed through the lens of stakeholder theory, the findings indicate that environmental, social and governance disclosure (ESG) moderates and partially mediates the relationship between the diverse board of directors and firm performance. We also performed robust checks to validate our results. Diversity contributes to a firm's understanding of its market and, as a result, its overall performance. The current study demonstrates a considerable gap between the theoretical and empirical support for various board indicators (structural and demographic), their relationship to performance, and how ESG acts as an intervening element in increasing firm financial performance.