Board gender diversity and ESG performance: pathways to financial success in Malaysian emerging market

Purpose This study examines the relationship between board gender diversity (BGD) and financial performance (FP) in the Malaysian emerging market, focusing on the mediating role of Environmental, Social and Governance (ESG) performance. Design/methodology/approach Using a dataset of 976 observations from Malaysian publicly listed companies from 2016 to 2023, this study explores BGD as the independent variable with FP measured through both accounting and market metrics. ESG performance serves as a mediating variable. The analysis employs Structural Equation Modelling (SEM) to examine direct and mediating effects, supplemented by the Baron and Kenny approach and Two-Stage Least Squares (2SLS) regression for robustness. Findings The findings indicate that higher BGD positively and significantly impacts all three performance measures: Tobin's Q (TQ), Return on Assets (ROA) and Return on Equity (ROE). ESG performance positively influences these measures. The SEM analysis reveals a significant positive impact of BGD on ESG performance, which fully mediates the relationship between BGD and TQ/ROA and partially mediates the relationship between BGD and ROE. Practical implications The results have significant implications for policymakers, board members, scholars and investors, stressing the importance of gender diversity and ESG performance in improving FP. The findings suggest that enhancing board effectiveness through BGD can promote sustainable practices and align corporate strategies with broader sustainability goals, which eventually helps to improve companies’ FP. Originality/value This research contributes to the literature by highlighting the mediating role of ESG performance in the relationship between BGD and FP and emphasizing the importance of gender diversity in corporate sustainability. It addresses this gap by providing insights into how ESG performance enhances the impact of BGD on FP.