Women Representation in Corporate Leadership and Firm Performance: Does ESG Disclosures Moderate the Relationship?

ABSTRACT Although the link between gender diversity and corporate sustainability has gained increasing attention, the nature of this relationship and the way in which female leadership influences environmental, social and governance (ESG) practices and firm performance are not well‐understood, especially in emerging and culturally different markets. This study is based on agency theory and resource dependence theory, and explores the relationship between female presence in senior executive positions and the performance of the Saudi Stock Exchange (Tadawul) listed companies and how the ESG disclosure in those companies moderates this relationship. The study uses an unbalanced panel data set of 131 listed companies from 2015 to 2021, and uses ordinary least squares (OLS) regression and two‐stage least squares (2SLS) estimation to address the issue of endogeneity posed by the possibility of reverse causation between gender diversity appointments and firm profitability. Empirical findings show that, while there is a statistically significant negative relationship between female representation in the top executive positions and firm profitability, there are statistically significant positive relationships between female representation on the board and performance outcomes. ESG engagement is shown to have a significant positive impact on firm profitability. The impact of female leadership on firm performance is partially moderated by ESG disclosure but this indirect effect is not statistically significant. The findings provide some new evidence into the current relatively small, but growing, literature on corporate governance in the Arab Gulf context and show that having a female at the executive or the non‐executive role has opposite performance implications, which is something nobody has yet observed. They also reveal the strategic importance of integrating ESG into the governance agenda for the effect it has on governance outcomes. The study has implications for Saudi policymakers, regulators, and corporate boards that aim to promote gender‐inclusive and sustainable governance in emerging economies like Saudi Arabia.