The moderating role of stakeholder engagement in the relationship between board diversity and corporate performance

Purpose This study examines the relationships between board diversity, stakeholder engagement and financial performance in the European healthcare sector from 2017 to 2021. It aims to explore how diversity at different levels of corporate governance influences key financial metrics, providing insights into corporate governance and sustainability practices. Design/methodology/approach The study employs Partial Least Squares Structural Equation Modelling (PLS-SEM), a robust statistical technique for analyzing complex relationships. Data is drawn from publicly traded healthcare companies listed on European stock exchanges to assess the impact of board diversity on financial performance indicators, specifically return on equity (ROE) and return on average total assets (RATA). Findings The analysis reveals a positive relationship between board gender diversity and ROE (supporting H2.1), as well as between executive members' gender diversity and RATA (supporting H3.2). Furthermore, stakeholder engagement is found to moderate the relationship between executive members' gender diversity and RATA (supporting H3.2a). These findings provide nuanced insights into the role of diversity in financial performance. Research limitations/implications This study's focus on the European healthcare sector limits the generalizability of its findings to other industries and regions. Additionally, reliance on short-term financial metrics (ROE and RATA) may not capture diversity's long-term impact. Future research should expand to other sectors, incorporate longitudinal data, explore mediating factors such as corporate culture and innovation, and conduct cross-country comparisons to assess regulatory and cultural influences. Addressing these areas would provide a more comprehensive understanding of how diversity affects financial performance and organizational resilience. Practical implications This research enhances the literature on corporate governance by demonstrating how board diversity and stakeholder engagement jointly shape financial performance in the European healthcare sector. The results provide a grounded contribution for policymakers, investors, and business leaders seeking to reinforce governance quality, promote diversity, and consolidate long-term sustainability in organizational strategies. Originality/value This study contributes to the literature on corporate governance, diversity, and financial performance by focusing on the European healthcare sector. The findings offer valuable implications for policy makers, investors and business leaders seeking to enhance organizational effectiveness, promote diversity and promote sustainable business practices.