The interplay of board gender diversity, debt financing, and sustainable investment: evidence from Europe

In this study, we examine the moderating effect of debt financing on the relationship between board gender diversity (BGD) and sustainable investment. Using a quantitative approach with a sample of 10, 840 firm-year observations from publicly listed European firms during 2012–2022, we employ ordinary least squares and instrumental variable regressions to test our hypotheses and assess the moderating effect of debt financing. Our results, based on a theoretical framework that draws insights from stakeholder theory and agency theory, show that BGD has a positive and significant impact on sustainable investment, while debt financing has a negative and significant effect. Additionally, we find that debt financing negatively and significantly moderates the relationship between BGD and sustainable investment, attenuating the positive impact of BGD on sustainable investment. Our findings suggest that firms need to focus not only on the importance of BGD but also on the optimal use of debt financing to ensure effective investment in sustainable development. Our results are robust to alternative variable specifications and endogeneity concerns and offer important implications for practitioners and policymakers.