Does gender diversity in corporate leadership enhance sustainability and financial success?

Abstract

Recent concerns about sustainability have heightened scrutiny of business practices, prompting companies to enhance their corporate social reputation. Enhancing the presence of women in boardrooms and executive positions has emerged as a crucial approach to addressing environmental and social issues. This research examines how gender diversity within boards of directors and executive teams influence sustainability metrics and ultimately, through them, on measures of financial performance to determine the effectiveness of this strategy. To evaluate the influence of gender diversity and sustainability factors on business performance, measured as return on assets and return on equity, we analyze data from a sample of 2,655 large companies in the United States. We use Structural Equation Model estimated with Maximum Likelihood to examine both direct and indirect relationships among the variables. Companies with higher representation of women on their boards and executive teams tend to show better performance in environmental, social, and governance metrics. Our findings provide evidence that sustainability factors mediate in the relationship between gender diversity and financial/economic performance. This research makes a valuable contribution to the literature by demonstrating that environmental, social, and governance factors act as mediators in the link between gender diversity and financial performance. Although gender diversity may not lead directly to enhance financial outcomes, it can influence financial performance indirectly by fostering better sustainable practices.