The Impacts of ESG Reporting, Stakeholder Engagement and Board Gender Diversity on Firm Performance: Exploring the Moderating Role of Board Independence

Abstract

This research aims to examine the moderating effect of board independence on the impacts of internal governance mechanisms (ESG reporting, stakeholder engagement, and board gender diversity on firm performance) on firm performance, taking into account the financial orientation of the country. As far as we are aware, it is the first study to conduct such an examination. The sample comprises European companies included in the Euronext Vigeo 120 Index for the years from 2012 to 2021 collected from the Thomson Reuters database. The results show that board independence moderates negatively the association between ESG reporting and firm performance. Furthermore, when we divide the full sample into two subsamples based on the structure of the financial orientation of the country, the association between ESG reporting and firm performance in market-oriented countries is negatively moderated by board independence. Additionally, the results also show that board independence positively moderates the impact of stakeholder engagement on firm performance in bank-oriented countries. Finally, policymakers as well as companies' managers are well advised to consider the division of the sample according to financial orientation when incorporating into corporate governance mechanisms devised to contribute both to firm performance and ESG issues.