Does executive gender diversity moderate the ESG–market valuation relationship? Evidence from European firms
Saqer Al-Tahat, Zaid Jaradat, Sakhr Bani-KhaledPurpose
This study examines whether environmental, social and governance (ESG) performance is incorporated into market valuation in European listed firms and whether this association is conditioned by executive gender diversity.
Design/methodology/approach
Using an unbalanced panel of 430 firms from a major European benchmark over 2010–2023, we estimate firm- and year-fixed effects models with Driscoll–Kraay standard errors. Tobin's Q is the primary valuation proxy, with market-to-book (MTB) ratios used for robustness. ESG was analysed at the composite and pillar levels, and moderation was tested via interaction specifications with executive gender diversity, complemented by sector-split estimations.
Findings
The findings of this study reveal that ESG performance is not priced uniformly; it is positively associated with Tobin's Q with a lag but discounted under MTB. This suggests delayed market incorporation and greater scepticism under equity book valuation anchors. The findings further reveal that executive gender diversity (averaging approximately 15% female executives) weakens the marginal ESG–valuation association, especially for environmental and governance dimensions.
Practical implications
Managers should treat ESG and executive composition as a bundled signal set and clearly communicate how ESG initiatives translate into observable operating and governance outcomes. Investors and regulators should interpret ESG “premia” as timing- and metric-contingent, rather than automatic.
Originality/value
By distinguishing between executive and board gender diversity, this study advances a leadership-conditioned account of ESG pricing consistent with signalling and agency mechanisms, clarifying when overlapping governance-related signals dilute the incremental valuation of ESG.