Board Gender Diversity and Environmental, Social &

Governance Performance of US Banks: Moderating role of

Environmental Social and Corporate Controversies
SHAKIL, Mohammad Hassan, TASNIA, Mashiyat and MOSTAFIZ, Md Imtiaz
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SHAKIL, Mohammad Hassan, TASNIA, Mashiyat and MOSTAFIZ, Md Imtiaz (2020).
Board Gender Diversity and Environmental, Social & Governance Performance of
US Banks: Moderating role of Environmental Social and Corporate Controversies.
International Journal of Bank Marketing.

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Board Gender Diversity and Environmental, Social & Governance Performance of US

Banks: Moderating role of ESG Controversies

Abstract

Purpose: Gender diversity in corporate boards is broadly studied in existing corporate

governance literature. However, the role of board gender diversity on environmental, social,
and governance (ESG) performance of the banks is still unaccounted for. Drawing on resource
dependence and legitimacy theory, this study addresses this pressing research issue. Moreover,
investigation of ESG controversies as moderator paves the existing corporate governance
research to the new avenues.

Design/methodology/approach: Data sourced from Refinitiv database on 37 US banks from

the period of 2013 to 2017. This study employs static and dynamic panel regression models
that include random effects, fixed effects and dynamic generalised method of moments (GMM)
to test the hypotheses. Furthermore, system GMM is used to reduce the issue of e ndogeneity,
measurement error, omitted variables bias and bank-specific heterogeneity.

Findings: We identify a significant positive relationship between board gender diversity and
the ESG performance of US banks. However, the result propounds non -significant moderating
effect of ESG controversies on the board gender diversity – ESG performance nexus.

Originality/value: Literature on board gender diversity and ESG separately and

predominantly explains firm/bank’s financial performance. This study is one of the pioneering
attempts to explain the role of board gender diversity on ESG performance. Although
incremental, however, this study also contributes to the literature on ESG in the US context.

Keywords: ESG performance, board gender diversity, ESG controversies, banks, developed
market, system GMM.

Paper type Research paper

1. Introduction

Gender diversity in corporate boards is a pressing issue in corporate governance (Ahmed et al.,

2017). In recent years, women are redefining the workplace by relocating themselves in the

board-room of giant corporate firms such as General Motors, Best Buy and Anthem (Banahan

and Hasson, 2018; Catalyst, 2020a). Regulators and standard-setting bodies are emphasising

on the gender diversity of the board. Gender equality is one of the major agendas of United

Nations Development Programme (UNDP) “2030 Agenda for Sustainable Development

Goals” to promote women empowerment (United Nations Development Programme, 2015).

Several countries are urging firms to increase female participation on the corporate boards,

which include both emerging and developed countries, for instance, Brazil, Malaysia, Norway,

UK, Spain, Sweden, and others (The Economist, 2014). Norway is the pionee r among countries

to mandate gender quota in 2008 (Mateos de Cabo et al., 2019; The Economist, 2018). The

country enforces a quota of 40 per cent for female members on corporate boards in the listed

firms (The Economist, 2018). Later, France, Italy and Belgium comply with the sanction (The

Economist, 2018). However, the case of North America is divergent than the developed

economies in Europe. The percentage of women participation on the corporate board in the US

is only 20 per cent in 2019 in the listed firms by the Russell 3000 index. Its exhibits a surge of

2 per cent compared to the year 2018 (2020 Women on Boards, 2020). It takes effect after the

enforcement of the law in California to include at least one female member on the firm’s board

in 2019 (Gupta, 2019). The weak representation of women participation in the US firms’ board

and imposing new legislation to include at least one female member on corporate board raise

the question of the legitimacy of the women executive’s role in firm’s board. Whether women

participation in the bank’s board create any significant influence on the bank’s future strategy?

Hence, an investigation of ESG performance in the context of US banks can merit profound

insights into the above-asked question.

 To overcome the caveats pertaining to the female participation to complement

corporate boards, developed countries embrace favourable regulations to appoint a certain

percentage of female members on firms’ board. However, Owen and Temesvary (2018) proffer

that the presence of women participation in the leadership roles in a financial service

organisation is comparatively low. The presence of women on the board -room of large US

banks are only 12.55 per cent (Owen and Temesvary, 2018). One of the reasons for such less

participation of female on a corporate board is the pay-gap and the job role (Owen and

Temesvary, 2018). Reports show that 44.7 per cent of the workforce of S&P 500 companies

are women and among those, 36.9 per cent are first or mid-level managers and 5.8 per cent

women play the role of the CEO in the firms (Catalyst (2020b). Moreover, research also shows

that female CEOs have less propensity to take the risk (Faccio et al., 2016), which in turn

adversely affect the financial perf ormance of the firm (Adams and Ferreira, 2009). Recently,

research highlights the negative effects of having a female member on the corporate board to

the performance in the US firms (Adams and Ferreira, 2009). In contrary, the positive impact

of having a female member on the corporate board to complement bank performance have been

reported too (García-Meca et al., 2015; Pathan and Faff, 2013), as well as the positive response

is perceived in better capitalised US banks (Owen and Temesvary, 2018). Board gender

diversity is essential for a bank to have clarity and innovativeness in decision making (García-

Meca et al., 2015). A diversified and balanced board consists of members with diversified

experience, knowledge and expertise to complement the overall performance of the firm.

However, despite of the holistic performance, can we claim that the board gender diversity

positively influences the ESG performance of the Bank? Previous researches replete with the

relationship between board gender diversity and bank performance (García-Meca et al., 2015;

Owen and Temesvary, 2018; Pathan and Faff, 2013), and lack to justify the relationship
between the board gender diversity and ESG performance. This research addresses this

pressing research issue especially from banking institution context in a developed economy.

ESG is a set of codes for a firm’s operations that socially and environmentally sensible

investors use to screen future investments (Chen, 2020). ESG is defined as “the consideration

of environmental, social and governance factors alongside financial facto rs in the investment

decision-making process” (MSCI, 2019). It is the mix of environmental and social activities of

CSR along with the corporate governance indicators (Gerard, 2019). ESG is also regarded as

the fundamental strategy of corporate sustainability, and generally popular in banking

institutions (McDonald and Rundle-Thiele, 2008). Effective strategic decisions to inject

resources and capital to improve and achieve the commitments pertaining to ESG help banks

to achieve a sound financial position, and upsurge customer loyalty (Arli and Lasmono, 2010;

Buallay, 2019; Buallay et al., 2020; Shakil et al., 2019). Any negligence on ESG may harm

the goodwill of the bank and question long-term sustainability. Undoubtedly, banks must be

careful in investing in projects that are environmentally harmful and socially contradicting.

Given that, sometimes banks negate prioritising ESG obligations and engage themselves in

ESG controversies. It might contradict with the commitments to achieve collective

environmental and social goals. ESG controversies include negative news about a firm’s social

and environmental scandals, lawsuits and failure of corporate governance (Aouadi and Marsat,

2018; Refinitiv, 2020). ESG controversies may affect banks financial performance, adversely

impact the market reputation and may last longer (Flood, 2019). It may take more than one

year for a firm to surpass a trench afterwards an ESG controversy (Flood, 2019). Due to ESG

controversies in the large US banks, for instance, Wells Fargo, Citigroup and Goldman Sachs

paid USD 243 billion penalties after the financial distress (Flood, 2019). For example, the

controversy of Wells Fargo bank by creating fake accounts cost the bank to pay USD 575

thousand fines for breaching the customers’ trust (CNBC, 2018). Such an act affects the bank’s
reputation in the market, and the stock price of the bank experienced a sharp decline after the

scandal. Goldman Sachs has been imposed a charge of USD 45 million by the UK financial

watchdog for misreporting 220 million transactions (Wild, 2019). Besides, USD 57 million has

been paid by the Citigroup for false reporting to regulatory authorities regarding money-

lender’s deposit and liquidity (Brush et al., 2019).

Banks involvement in the controversies destroys the goodwill of banks (Li et al., 2019).

However, banks are opportunistic and have the norm to invest aggressively in ESG related

activities to regain the lost reputation in the market. ESG controversies play the role of a

stimulator for firms/banks to boost up the ESG performance (Li et al., 2019). The banks with

low ESG controversies and high ESG performance enjoys better financial performance

compared to the banks with high ESG controversies (Buallay, 2019; Buallay et al., 2020;

Shakil et al., 2019). Prior studies show inverse effects of ESG controversies on firm value

(Johnson, 2003; Orlitzky, 2013). Klassen and McLaughlin (1996) study the effect of

controversial ESG news on stock performance and find a significant adverse impact on stock

returns. However, Krüger (2015) finds that investors react weakly and negatively to positive

ESG news. Thus, ESG controversies of banks may leverage the ESG performance to regain

the investors’ and shareholders’ trust.

The moderating role of ESG controversies between gender diversity and ESG

performance is limited in the literature. Previous studies mainly focus on the impact of board

gender diversity on financial performance and risk of firms or banks (Dwyer et al., 2003;

García-Meca et al., 2015; Sila et al., 2016). Moreover, some studies investigate the effect of

board gender diversity on CSR or ESG performance of firms and find significant ‘positive’

(Arayssi et al., 2020; Boulouta, 2013; Kyaw et al., 2017; Velte, 2016); ‘negative’ (Harjoto et

al., 2015; Husted and Sousa-Filho, 2019), ‘inconclusive and non-significant’ results (Manita et
al., 2018). Is there a need for interactions between the relationship of board diversity and ESG

performance to contribute to this regime? Do ESG controversies as a moderator fulfil this

research gap? Prior research scants to acknowledge this conjunction. Hence, this study

addresses whether ESG controversies of the US banks moderate the board gender diversity-

ESG performance nexus?

Thus, this study contributes to the literature of corporate governance an d corporate

sustainability, more precisely gender diversity and ESG by investigating the effects of board

gender diversity on ESG performance of 37 US banks from 2013 to 2017. In addition, this

study examines the moderating effects of ESG controversies on the relationship between board

gender diversity and ESG performance. This study finds a significant and positive association

between board gender diversity and the ESG performance of US banks. However, the

moderating role of ESG controversies on the relationship between board gender diversity and

ESG performance is not evident. This study contributes to the literature of gender diversity

(Birindelli et al., 2019; Manita et al., 2018) and ESG by postulating empirical evidence

(Arayssi et al., 2020; Cucari et al., 2018) that the participation of female members on the board

considerably affects the ESG performance of banks. The positive association between gender

diversity and ESG performance support the resource dependence theory by exhibiting women’s

background, psychological characteristics and experience as critical resources for banks (Kyaw

et al., 2017); and these intellectual and interpersonal attributes of women directors assist them

to achieve the legitimate performance in ESG (Jizi, 2017). It conveys the legitimate actions of

women on board, and support the legitimacy theory due to women directors’ sensitivity to

environmental and social activities of banks (Aouadi and Marsat, 2018).

2. Literature review and hypothesis development

2.1 The effects of board gender diversity on ESG performance

The composition of the management board is an essential factor of corporate governance in

influencing the ESG performance (Velte, 2016). Female board members’ background,

psychological characteristics and experience influence them to involve in the strategic decision

that affects banks ESG and their stakeholders (Manita et al., 2018). Board gender diversity and

ESG performance can explain by the resource dependence theory. Resource dependence theory

explains that firm performance depends on the critical resources that board members hold such

as background, psychological characteristics and experience (Kyaw et al., 2017; Manita et al.,

2018). Corporate board is a significant source of critical resources of the firm (Hillman and

Dalziel, 2003). It helps a firm to take strategic decision and navigate pressures from

stakeholders with the help of collective expertise and experience of the board members

(Hillman and Dalziel, 2003; Post et al., 2015). Female board members have different

perspective and opinions compare to male board members (Burgess and Tharenou, 2002). The

perspective and opinions of female board members facilitate firms or banks to make a

compassion driven strategic decision like ESG, which increases the ESG performa nce (Kyaw

et al., 2017). Moreover, better ESG decision helps firms or banks to increase financial

performance (Adams and Ferreira, 2009; Husted and Sousa-Filho, 2019). Previous studies on

board gender diversity and bank performance support the notion that female participation in

board-room positively affects the firm financial performance (García-Meca et al., 2015; Owen

and Temesvary, 2018). However, Pathan and Faff (2013) identify inverse relationship between

board gender diversity and bank performance in the post-Sarbanes-Oxley Act and the crisis

period. Besides, some researchers examine the effects of board gender diversity on ESG

performance of firms and find a positive and negative impact of board gender diversity on ESG
performance (Arayssi et al., 2020; Cucari et al., 2018; Husted and Sousa-Filho, 2019). The

literature on board gender diversity and ESG performance in the context of banks is limited.

The effect of board gender diversity may have a positive (negative) influence on ESG

performance due to banks gender-mix on the board-room. This study, therefore hypothesises

in a non-directional prediction that board gender diversity significantly af fects the ESG

performance of banks.

H1: Board gender diversity has a significant effect on environmental social and governance

performance of banks.

2.2 Moderating effects of ESG controversies on the relationship between board gender

diversity and ESG performance

ESG controversies derive from the negative news by ESG activities of the banks that destroy

the overall reputation (Aouadi and Marsat, 2018). ESG controversies question the legitimacy

of the actions by the banks and its board members. Legitimacy theory explains the effects of

ESG controversies on banks ESG performance, and how gender-diversified board reacts to

ESG controversies. Suchman (1995) describes “legitimacy as a generalised perception or

assumption that the actions of an entity are desirable, proper, or appropriate within some

socially constructed system of norms, values, beliefs, and definitions’’ (p. 574). ESG

controversies of a bank are not desirable, as it costs the good will and harms profitability. Banks

with more controversies try to legitimate their actions by disclosing more information in ESG

activities and invest in ESG related projects aggressively to attain stakeholders trust. However,

ESG controversies cause significant harm to banks profitability, and due to weak financial

position, banks are unable to invest in ESG activities. ESG performance of banks may

significantly reduce due to ESG controversies. In general, board members take the strategic

decision like ESG. Female board members are concerned than their male counterparts
regarding ESG welfare (Arayssi et al., 2020), and they consider ESG controversies seriously.

Board gender diversity helps banks to act on ESG and monitor the ESG controversies closely

to improve the reputational damage. This study, therefore, hypothesises in a non-directional

prediction that ESG controversy of banks may significantly moderate the relationship between

board gender diversity and ESG performance.

H2: ESG controversies significantly moderate the relationship between board gender

diversity and the ESG performance of banks.

3. Sample, data and methodology

The sample includes 37 US banks between 2013 and 2017. Board gender diversity, the ESG

and ESG controversies data are gathered from Refinitiv. Refinitiv is the reliable source of board

gender diversity, ESG performance, ESG controversies and financial data . Many notable

studies use the Refinitiv for ESG and ESG controversies data, based on previous literature this

study also uses ESG and ESG controversies score by Refinitiv (Aouadi and Marsat, 2018;

Arayssi et al., 2020; Ioannou and Serafeim, 2012). The financial data is also gathered from

Refinitiv. Other bank-specific control variables are also included in this study due to their

significant influence on ESG performance of banks based on previous studies (Albitar et al.,

2020; Arayssi et al., 2016; Arayssi et al., 2020; Husted and Sousa-Filho, 2019; Shakil et al.,

2019; Velte, 2016).

3.1 Measurement

Dependent variable

We use ESG score by Refinitiv as a proxy for the ESG performance of banks. Refinitiv uses

68 environmental, 62 social and 56 corporate governance key performance indicators to

measure the ESG score of firms/banks and provides a score in percentage between 0 and 100

(Refinitiv, 2020).

Independent variable

Percentage of women on the corporate board of banks is used as a proxy for board gender

diversity. The proxy is used based on studies by Cordeiro et al. (2020), Husted and Sousa-Filho

(2019), Cucari et al. (2018) and Galbreath (2018).

Moderating variable

Refinitiv measures ESG controversy score based on 23 controversy topics 1. By following the

study of Aouadi and Marsat (2018) and Arribas et al. (2019), this study has taken ESG

controversy score by Refinitiv as a measure of ESG controversy of the banks.

Control variables

We capture the effect of bank-specific variables on the ESG performance of banks. We include

bank leverage (Brammer and Millington, 2008; Harjoto et al., 2015; Velte, 2016), bank market

to book value (Chollet and Sandwidi, 2018; Sila et al., 2016), bank size (Arayssi et al., 2020;

Boulouta, 2013), dividend yield (Chollet and Sandwidi, 2018; Oikonomou et al., 2012) and

bank profitability (Cordeiro et al., 2020; Harjoto et al., 2015) as control variables based on the

literature of ESG. The description of the control variables is presented in Table A1.

3.2 Model specifications

This study uses both static and dynamic panel regression models such as random effects, fixed

effects and system generalised method of moments (GMM) to test the hypotheses based on

1 https://www.refinitiv.com/content/dam/marketing/en_us/documents/methodology/esg-scores-methodology.pdf
previous literature (Ahmed et al., 2017; Arayssi et al., 2020; Manita et al., 2018). Mainly,

system GMM model is applied in this study to reduce the issue of endogeneity, measurement

error, omitted variables bias and bank-specific heterogeneity (Wintoki et al., 2012). Wintoki

et al. (2012) further reason that current year corporate governance is affected by last year

performance. This conjecture of Wintoki et al. (2012) establishes the superiority of GMM over

random effects and fixed effects models (Ahmed et al., 2017).

Model 1 tests the direct relationship between gender diversity of the board and ESG

performance of US banks. Model 1 is shown as follows:

ESGit = α0 + α1 GEDit + α2 LEVEit + α3 MVBit + α4 SIZEit + α5 DIYit + α6 ROAit + 𝜇 it +

eit (Model 1)

Note: legends: ESG = environment, social and governance performance; GED = board gender diversity; LEVE = leverage ratio; MVB =
market to book value; SIZE = log of total asset; DIY = dividend yield; ROA = return on assets; 𝜇it = unobserved effects of bank i in year t;
eit= the error term

Model 2 tests the moderating role of ESG controversies on the relationship between board

gender diversity and the ESG performance of US banks. Model 2 is presented as follows:

ESGit = α0 + α1 GEDit + α2 LEVEit + α3 MVBit + α4 SIZEit + α5 DIYit + α6 ROAit +

α7 ESGCONit + α8 ESGCON ∗ GEDit + 𝜇 it + eit (Model 2)

Note: legends: ESG = environment, social and governance performance; GED = board gender diversity; LEVE = leverage ratio; MVB =
market to book value; SIZE = log of total asset; DIY = dividend yield; ROA = return on assets; ESGCON = ESG controversies score;
ESGCON ∗ GED = the interaction variable; 𝜇it = unobserved effects of bank i in year t; eit= the error term

3.2 Descriptive statistics

Descriptive statistics and variance inflation factor (VIF) of variables are presented in Table 1.

Mean ESG score is 52.13 per cent, which shows an above-average ESG performance of US

banks. Although the US banks maintain a better environmental, social and governance

performance, banks also have a high level of ESG controversies as the average ESG

controversy score is 41.74 per cent. In addition, the average percentage of female members on
the bank’s board is 20.28 per cent, which shows a low representation of female members on

the bank’s board. However, ESG controversies, ESG performance and board gender diversity

show relatively high standard deviation due to substantial variation of ESG controversies, ESG

performance and board gender diversity among the US banks. Other bank-specific control

variables are also presented in Table 1 that includes bank leverage, market to book value, size,

dividend yield, and return on assets. Mean leverage of bank is 7.94 per cent, which shows US

banks tend to use less long-term debt. Market to book value is 1.25, that shows banks are

overvalued in the market. Bank size, dividend yield and return on assets are 7.86, 2.19 and

1.11, respectively. This study also tested for multicollinearity among continuous variables. It

carried out the Pearson correlation coefficients and VIF tests to check for multicollinearity

(Hair et al., 2006). Correlation among variables is presented in Table 2. The results show the

highest correlation between ESG performance and bank size, while the lowest correlation is

between ESG performance and dividend yield. Besides, board gender diversity shows a

positive correlation with ESG performance (p < 0.05); however, ESG controversy shows

negative correlational with ESG performance (p < 0.05). Market to book value shows a

negative correlation with ESG performance. The correlation coefficients of variables are lower

than the threshold level 0.90 and VIF values of explanatory variables are less than the threshold

value 10, which shows insignificant multicollinearity among variables (Hair et al., 2006).

[Insert Table 1 about here]

[Insert Table 2 about here]

4. Discussion, contribution and implication

4.1 Observed relationships

Table 3 shows the estimation results of random effects, fixed effects and system GMM models

of h1 and h2. H1 investigates whether board gender diversity significantly influences the ESG
performance of banks and finds significant and positive effects of boa rd gender diversity on

ESG performance of US banks in random effects, fixed effects and system GMM models. The

findings of this study support the resource dependence theory (Kyaw et al., 2017; Manita et

al., 2018) by signifying women director’s intellectual and interpersonal traits as a critical

resource for banks to attain the legitimate performance in ESG. Our findings also support the

legitimacy theory (Arayssi et al., 2020) due to women director’s compassion for environmental

and social activities. The findings imply that despite the limited participation of female

members on the board-room of US banks, their presence positively influences the ESG

performance of the banks. Female board members’ unconditional commitment to an ethical

standard and climate change helps them to address the environmental and social issues more

sensibly (Ben‐Amar and McIlkenny, 2015; Ciocirlan and Pettersson, 2012). Consequently, the

participation of women directors of banks board-room is growing for US banks, although the

percentage of women on banks board is relatively low for the US banks (Owen and Temesvary,

2018). Engaging more women in banks board is not merely to tick the box of gender

requirements but also benefits banks to improve the board functions (Arayssi et al., 2016).

Previous studies also find significant positive effects of board gender diversity on ESG

performance of firms in the context of Gulf Cooperation Council (GCC) countries (Arayssi et

al., 2020), German-Austrian settings (Velte, 2016), Europe (Kyaw et al., 2017) and in an

international context (Boulouta, 2013). In the context of emerging economy countries, the

effect of board gender diversity on the ESG performance shows significant positive impact

(Khan et al., 2019; Wasiuzzaman and Wan Mohammad, 2020). Wasiuzzaman and Wan

Mohammad (2020) studies the impact of board gender diversity and ESG performance of

Malaysian firms and reports a positive association. Khan et al. (2019) also find similar results

while studying the effect of gender on CSR practices of Pakistani firms. The literature on board

gender diversity and ESG performance is limited. To the best of our knowledge, one study
analyses the effect of women leaders on the environmental performance of European, Middle

Eastern and African (EMEA) banks and finds the significant non-linear association of women

leaders on the environmental performance of EMEA banks, more importantly, female chief

executive officers, play a crucial role to foster the relationship (Birindelli et al., 2019).

However, Husted and Sousa-Filho (2019) find adverse effects of board gender diversity on

ESG disclosure in the context of Latin American firms. Manita et al. (2018) find non-

significant impacts of board gender diversity on ESG disclosure of US firms. Our study

contributes to the gender diversity and ESG literature of financial institutions by showing a

significant positive effect of board gender diversity on ESG performance of US banks. The

findings of the study imply that a balanced gender diversified board increase s the ESG

performance of banks. The findings will motive banks to embark on board gender diversity as

by encouraging more female participation on the banks’ board.

In addition, this study tests hypothesis 2 by investigating the moderating role of ESG

controversies on the association between board gender diversity and ESG performance. Our

results show non-significant moderating effects of ESG controversies on the asso ciation

between board gender diversity and ESG performance of US banks. The findings of this study

do not support hypothesis 2. Thereby, ESG controversies do not influence the relationship

between board gender diversity and ESG performance. It may happen due to women director’s

legitimate actions to improve the ESG performance, which may result in the subsequent

reduction of ESG controversies of banks (Arayssi et al., 2020; Kyaw et al., 2017). Moreover,

women directors concern towards environmental and social issues enhance banks/firms ESG

performance radically (Kyaw et al., 2017). Hence, the ESG controversies can generate a trivial

effect on gender diversity-ESG link due to women directors’ concern toward ESG.
 Finally, Table 3 illustrates the results of the control variables. Banks leverage shows a

significant negative effect on ESG performance, while bank size shows significant positive

effects on ESG performance in random effects and fixed effects regression models,

respectively. The results are consistent with previous literature (Arayssi et al., 2020; Manita et

al., 2018; Velte, 2016). The bank with high leverage has fewer resources to invest in

environmental and social activities. Thus, banks having high leverage have low ESG

performance compared with the bank with a low leverage ratio. However, large banks have

affluent resources and workforce. By using resources and workforce, large banks can generate

more profit and profitability to assist banks to invest in ESG activities that result in better ESG

performance. Other bank-specific control variables such as market to book value, dividend

yield and return on assets show a non-significant effect on ESG performance.

[Insert Table 3 about here]

[Insert Table 4 about here]

4. 2 Research contribution

The fundamental objective of this study is to investigate the role of board gender diversity in

complementing ESG performance along with the contingency effects of ESG controversies

between the relationship as mentioned above in the US bank context. To answer, we bring

together the resource dependency theory (Kyaw et al., 2017; Manita et al., 2018), and the

legitimacy theory (Arayssi et al., 2020). We argue that the relationship between board gender

diversity and ESG performance is resource-dependent and gender-specific. It implies that the

relationship between board gender diversity and ESG performance is pertinent to how well

women director’s intellectual and interpersonal traits are aligned with – and encompasses with

compassions to undertake ESG activities in the US banks. Our study sheds light into corporate

governance and corporate sustainability literature by postulating that an effort to take on

responsibilities to increase bank’s propensity to embrace more ESG activities largely hinge

upon critical intangible resources such as director’s background, psychological characteristics

and prior experiences (Kyaw et al., 2017; Manita et al., 2018). Moreover, we advance CSR

literature by probing that intellectual capital, and interpersonal attributes of the directors play

a pivotal role in shaping bank’s ESG performance (Arayssi et al., 2020; Husted and Sousa-

Filho, 2019). Besides, women directors are more prone to initiate legitimate actions, which in

turn increase environmental and social activities of the banks. Banks with gender diversified

board are more cautious when dealing with ESG activities and make sure of that the banks

perform legitimate ESG activities. This is in line with the bank’s corporate sustainability goal.

The moderating role of ESG controversies in the case of US banks shows inconclusive

evidence on board gender diversity-ESG performance nexus due to US banks’ aggressive

strategy to attain ESG goals, better market reputation and female board members active

involvement in corporate strategy to ensure legitimate ESG performance (Aouadi and Marsat,

2018; Kyaw et al., 2017). In addition, due to better monitoring of ESG actions by gender

diversified board members, firms engage in fewer controversies and avoid greenwashing in

ESG reporting.

4.3 Research implications

This study contributes to the existing ESG literature by providing empirical evidence that the

presence of female members on board significantly affects the ESG performance of banks. The

findings of this study are significant for regulators, users of the b anks’ annual reports and

international researchers. The result provides valuable insight to stakeholders, particularly to

the shareholders regarding the bank’s ESG performance, and to understand how board diversity

impact on ESG performance. The findings benefit regulators to tighten the policy on corporate

governance, which improves the accountability of banks to increase the participation of female

members on banks board. Also, it enforces banks to follow good governance practices. For the
securities commission, the findings will assist them to set an appropriate regulation for ESG.

The regulation will be the reference point for the listed banks; and breach the constitution of

the regulation will lead to specific penalty for banks.

5. Additional analysis

This study also uses further tests to check whether the results are consistent with other tests.

This study further tests the hypotheses by using pooled ordinary least squares (OLS) regression

and finds significant positive effects of board gender diversity on ESG performance of US

banks at 1 per cent significance level. However, this study finds the non -significant moderating

effect of ESG controversy on the relationship between board gender diversity and ESG

performance. The findings of pooled OLS are consistent with the findings of the main tests.

Besides, the findings show a significant negative effect of the market to book value on ESG

performance and significant positive effect of bank size on ESG performance.

6. Conclusion, limitation and future research avenues

This study examines the influences of board gender diversity on ESG performance in the

context of US banks between 2013 and 2017. This study finds significant positive impacts of

board gender diversity on ESG performance. However, this study reports non-significant

moderating effects of ESG controversies on the relationship between board gender diversity

and ESG performance of the US banks. Hence, this study is not free from limitations.

This study mainly focuses only single attribute of board characteristics that is gender

diversity and considers the case of banks in a developed economy. Future study may consider

the impact of other board characteristics such as board size, board independ ence, chief

executive officer’s duality and gender on ESG performance in the context of an emerging

country. Moreover, future studies may explore the effect of a threshold level of board gender
diversity on the ESG performance of banks. As this study is based on a single country and the

sample size is relatively small due to the lack of ESG data for other banks. Thus, future studies

can investigate the effect of board attributes on the ESG performance by extending the sample

in the context of emerging and developed countries’ banks. In addition, this study investigates

the moderating effect of ESG controversies on board gender diversity-ESG performance nexus.

Future studies may explore whether board gender diversity has any effect on ESG controversies

of banks by considering an international sample.

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Table 1: Descriptive Statistics
Variable Observation Mean Standard deviation Minimum Maximum VIF
ESG 184 52.1315 18.9332 12.9600 89.1500
GED 179 20.2755 9.1565 0.0000 43.7500 1.3890
ESGCON 184 41.7404 24.6990 0.1100 63.4000 2.0950
LEVE 185 0.0794 0.0654 0.0001 0.4054 1.3350
MVB 180 1.2514 0.4493 0.5800 3.1600 1.3310
SIZE 185 7.8634 0.6511 6.9631 9.4105 2.6720
DIY 185 2.1860 1.2059 0.0000 7.4700 1.2840
ROA 159 1.1119 0.3487 -0.1400 2.8500 1.1400
ESG = environmental social and governance performance, GED = board gender diversity, ESGCON = ESG controversies score, LEVE = leverage ratio, MVB = market to
book value, SIZE = log of total asset, DIY = dividend yield, ROA = return on assets

Table 2: Pearson correlations

Variables (1) (2) (3) (4) (5) (6) (7) (8)
(1) ESG 1.0000
(2) GED 0.5690** 1.0000
(3) ESGCON -0.4660** -0.1730** 1.0000
(4) LEVE 0.0250 0.1960** -0.0760 1.0000
(5) MVB -0.2610** -0.0700 0.3160** -0.2100** 1.0000
(6) SIZE 0.7670** 0.3730** -0.6850** 0.0920 -0.3350** 1.0000
(7) DIY -0.1780** -0.1140 0.1690** 0.1500** 0.1290 -0.1410 1.0000
(8) ROA 0.0770 0.1450 0.0010 0.1860** 0.2200** 0.0660 0.2100** 1.0000
** shows significance at the .05 level
ESG = environmental social and governance performance, GED = board gender diversity, ESGCON = ESG controversies score, LEVE = leverage ratio, MVB = market to
book value, SIZE = log of total asset, DIY = dividend yield, ROA = return on assets
Table 3: Regression results
(1) (2) (3) (4) (5) (6)
DV=ESG DV=ESG DV=ESG DV=ESG DV=ESG DV=ESG
Lagged dependent 0.797*** 0.676***
(0.187) (0.192)
Independent variable
GED 69.192*** 55.797*** 56.312*** 53.287*** 23.979* 36.102***
(14.894) (17.417) (13.868) (16.515) (13.926) (10.942)
Control variables
LEVE -47.607*** -52.386*** -48.343** -51.300** 1.446 1.414
(15.793) (14.538) (20.768) (19.527) (7.616) (8.590)
MVB 2.623 1.613 2.151 1.742 -0.106 -0.320
(2.477) (2.537) (3.471) (3.540) (1.591) (1.812)
SIZE 22.838*** 24.414*** 72.636*** 71.497*** 2.981 3.832
(2.947) (3.008) (11.249) (11.510) (2.960) (3.523)
DIY -1.145 -1.079 -0.733 -0.753 0.324 0.093
(0.926) (0.933) (1.409) (1.433) (0.447) (0.456)
ROA -0.721 -0.801 -0.333 -0.400 -0.251 0.177
(1.456) (1.404) (1.254) (1.239) (0.959) (1.013)
Moderating effect
ESGCON 0.004 0.011 -0.016
(0.056) (0.058) (0.046)
ESGCON*GED 0.287 0.062 -0.084
(0.271) (0.265) (0.238)
Constant -137.082*** -147.732*** -528.710*** -519.214*** -559.202 -1498.068
(24.284) (23.847) (89.971) (91.846) (1319.784) (1377.602)
Observation 149 149 149 149 118 118
R-squared 45.34% 46.76% 57.85% 58.12%
Wald chi2 test (p-value) 0.000 0.000
Time dummies Yes Yes
Number of instruments 13 15
AR (1) test (p-value) 0.030 0.037
AR (2) test (p-value) 0.760 0.855
Hansen test (p-value) 0.724 0.297
Estimator Random effects Random effects Fixed effects Fixed effects System GMM System GMM
Notes: The table reports the static and dynamic estimates of the moderating role of ESG controversies on the relationship between board gender diversity and ESG performance.
AR (1) and AR (2) are tests for first and second-order serial correlation in the first-differenced residuals, under the null hypothesis of no serial correlation. The Hansen test of
over-identification is under the null hypothesis that the instrument set is valid. We used the “collapse” option to prevent instrument proliferation.
Standard errors are in parenthesis. *** p<0.01, ** p<0.05, * p<0.1
DV= dependent variable, ESG = environmental social and governance performance, GED = board gender diversity, LEVE = leverage ratio, MVB = market to book value,
SIZE = log of total asset, DIY = dividend yield, ROA = return on assets, ESGCON = ESG controversies score, ESGCON*GED = inter action variable

Table 4: Summary of tested hypothesis

No. Hypothesis Remark
H1 Board gender diversity has a significant effect on environmental Supported
social and governance performance of banks.

H2 ESG controversies significantly moderate the relationship between Rejected

board gender diversity and the ESG performance of banks.
Appendix A

Table A1: Variable measurements

Name of the variable Description

Dependent variable
ESG Environmental, social and governance score of Refinitiv.

Independent variables
Board gender diversity Percentage of women directors on bank board.
(GED)
Control variables
Leverage (LEVE) Long term debt/Total assets
Market to book value The market value of the common equity/The book value of the
(MVB) common equity
Size (SIZE) Log of total assets
Dividend yield (DIY) Dividend per share/Price per share
ROA Net income/Total assets
Moderating variable
ESGCON ESG controversies score of Refinitiv.
ESGCON*GED Interaction of ESG controversies and board gender diversity of
banks.

Table A2: Gender diversity and ESG performance

(3) (4)
DV=ESG DV=ESG
Independent variable
GED 94.188*** 80.933***
(10.433) (16.129)
Control variables
LEVE -17.574 -16.530
(12.611) (13.217)
MVB -5.067** -5.113**
(2.274) (2.343)
SIZE 15.055*** 15.581***
(1.545) (1.993)
DIY -1.021 -0.983
(0.660) (0.661)
ROA 1.357 1.161
(2.543) (2.597)
Moderating effect
ESGCON -0.052
(0.079)
ESGCON*GED 0.310
(0.344)
Constant -75.674*** -77.326***
(13.245) (16.620)
Observation 149 149
R-squared 72.50% 72.60%
Estimator Pooled OLS Pooled OLS
Notes: This table reports pooled OLS estimates of the moderating role of ESG controversies on the relationship between board gender diversity and ESG performance.
Standard errors are in parenthesis. *** p<0.01, ** p<0.05, * p<0.1
DV= dependent variable, ESG = environmental social and governance performance, GED = board gender diversity, LEVE = leverage ratio, MVB = market to book value,
SIZE = log of total asset, DIY = dividend yield, ROA = return on assets, ESGCON = ESG controversies score, ESGCON*GED = interaction variable