The impact of board gender diversity on financial performance of non-financial companies of the UAE: the moderating role of environmental, social, and governance (ESG) disclosure Open Access

Board gender diversity (BGD) and environmental, social and governance (ESG) disclosure have been vital in the current era of sustainability (Yarram and Adapa, 2021). BGD is a corporate governance mechanism that is widely discussed in the management literature, particularly with regard to the social, economic and environmental issues faced by firms (Nguyen et al., 2021). It is an effective governance-monitoring tool and is one of the main determinants of sustainable growth.

In the UAE, a developing country in terms of its evolving regulatory and institutional frameworks related to corporate governance and CSR/sustainability, many CSR initiatives promote ESG disclosure (Ellili, 2022a, 2022b). For example, CSR activities are supported by recent CSR reforms in the country, such as a new resolution (the CSR Law) issued by The UAE Council of Ministers (CSR UAE, 2018). This law imposes requirements on contributions to CSR activities as well as financial contributions, applicable to listed companies in the UAE. The Securities and Commodities Authority’s Code of Corporate Governance enacted new rules concerning the sophistication of corporate governance and the promotion of CSR to foster sustainable development projects (KPMG, 2021). Moreover, in 2019, financial regulators in the UAE, such as the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM), introduced an ESG reporting guide to their listed companies to incorporate ESG disclosures into their reporting processes (Dubai Financial Market, 2019). Hence, these CSR initiatives in the UAE highlight the importance of empirically investigating the quality of listed companies’ ESG disclosures following CSR initiatives initiated by UAE companies.

Although the advantages of appointing women to boards are not universally recognized in the literature, studies argue that women on the board have positive impacts on firm outcomes, increasing directors’ ethical behavior and improving ESG and finance performance (FP) (Chatterjee and Nag, 2023; Pucheta‐Martínez, et al., 2016; Zheng and Kouwenberg, 2019), improving firm competitive advantages (Mohammad, et al., 2023), improving firms’ environmental and social performance (Ginglinger and Raskopf, 2023) and enhancing corporate and green innovation (Lakhal et al., 2024). However, Chatterjee and Nag (2023) found the presence of women on board as a significant portion of the boards and their roles in the governance of firms positively contribute to FP and economic value creation. Their study showed that larger boards do not necessarily improve FP. Nevertheless, some studies argue that BGD has no significant impact on firm-related outcomes, such as ESG disclosures (Ahern and Dittmar, 2012; Matsa and Miller, 2013).

Moreover, although a large amount of research on BGD in developed countries exists, little is known as to the role of BGD in corporate social responsibility (CSR) and (FP in developing and emerging countries (Al‐Yahyaee et al., 2017; Issa and Fang, 2019). Nevertheless, owing to the different institutional contexts between countries in the perspective of the nature of their corporate governance regulations and cultural aspects (Abdullah et al., 2016; Post and Byron, 2015), the effects of BGD on the level of ESG disclosure and FP may vary depending on the country and contexts. This demonstrates the necessity of shedding light on the systemic investigation of BGD or female representation of ESG disclosure and FP.

To the best of our knowledge, no single study has examined the associations between FP, BGD and ESG in developing countries such as the UAE. In particular, little is known about how other variables affect the BGD–FP relationship. We contend that ESG can moderate the BGD–FP relationship, and this study aims to answer the following questions:

The paper is organized as follows: In the literature review, the theoretical foundation and hypothesis development concerning FP, BGD and ESG are provided. Subsequently, the data and methodology are discussed. The sample included 60 nonfinancial companies listed on the ADX and the DFM from 2012 to 2021. The impact of BGD and ESG on FP was examined by applying dynamic panel data regressions. The empirical results suggest that BGD significantly affects the FP of listed nonfinancial companies. This impact is moderated by ESG, varying the strength of the relationship during mandatory ESG disclosure. Subsequently, the empirical results are provided, followed by a discussion of the results and implications.

In recent years, ESG disclosures have played an important role in satisfying stakeholders’ growing demand for nonfinancial information (Ellili, 2022b). Through the better integration of ESG standards, firms may be able to harness growth and value creation. In management literature, theories have been developed to explain the inspiration behind a firm’s adoption of CSR and ESG disclosures, BGD and FP. This study uses two theories to support the link between ESG scores and FP: agency theory and upper echelons theory.

Drawing on agency theory, companies make ESG disclosures to reduce information asymmetry between shareholders and managers (Adel et al., 2019). There is a divergence of interests between shareholders and managers in corporations, which may decrease firm value because management makes decisions in the pursuit of their self-interest rather than maximizing firm value. Thus, ESG disclosures can be considered a principal-agent problem because managers may overinvest in CSR activities to enhance a firm’s reputation as good social citizens. Hence, the board primarily monitors management to minimize agency costs. This is more effective with BGD (Chijoke-Mgbame et al., 2020). This is because BGD increases board independence and quality (Adams and Ferreira, 2009) and stimulates a variety of perspectives to assess the alternatives available to solve a firm’s problems and agency conflict, leading to enhanced FP and ESG disclosures.

The upper echelons theory suggests that the strategic decisions made by boards are, in part, affected by or result from background characteristics of directors, for example, gender (Roberson and Park, 2007). Directors are responsible for making vital organizational and strategic decisions. This implies that productivity outcomes are improved when the quality of the decisions made by the board is enhanced (Dezsö and Ross, 2012). As most of the current issues and problems faced by top management are typically nonroutine, BGD can provide resources, including enhanced creativity, innovation, ethical decision-making and problem-solving (Hunt et al., 2015), thereby resulting in ESG disclosures and FP.

Female representation on board, known as BGD, has recently attracted considerable interests amongst CSR practitioners (Conyon and He, 2017; Fernando et al., 2020; Thams et al., 2018), as it affects firms’ FP and ESG disclosure levels. This is partially owing to the relatively low representation of females on boards (Conyon and He, 2017). The agency theory stresses the relationship between BGD and firm performance. The reasons why BGD may affect FP have been examined, including the increased independence of female represented on boards. Based on Terjesen et al. (2015), the board’s independence can be improved by BGD. It also induces the board to meet the expectations of shareholders by reducing agency problems, thus improving the firm’s FP (Zhang et al., 2013). Moreover, the upper echelons theory suggests that the characteristics of directors, such as gender, provide the firms with enhanced creativity, innovation, ethical decision-making, problem-solving and changes in the atmosphere of the boardroom (Baker et al., 2020; Sánchez-Teba et al., 2021; Hunt et al., 2015). Hence, it is contended that a positive relationship between BGD and FP is expected.

However, the extent to which BGD impacts FP may vary as many countries have gradually increased quotas for women on boards. For instance, Norway has mandated a minimum of 40% representation of females on the boards. This was followed by Germany, Denmark, France, Belgium, The Netherlands, Spain, Iceland, Italy and Malaysia, whose mandatory quotas are between 30% and 40%, (Baker et al., 2020). Hence, the extent of BGD varies considerably according to country, reflecting that their likely impact on firms’ FP and ESG disclosure differs:

Empirical studies show that women are more driven toward philanthropic and generous activities than men, thereby affecting ESG disclosures and firm FP (Sánchez-Teba et al., 2021). Female directors are motivated to promote firms’ social practices due to their psychological characteristics (Oh et al., 2019). Women’s decisions are more socially oriented than those of men (Harjoto and Rossi, 2019) improving strategic decisions on environmental and social issues. Their mental approaches to making decisions and evaluating organizations’ legitimacy tend to avoid strategic actions harmful to communities and reduce environmental lawsuits (Díez-Martín et al., 2022). Therefore, the strong presence of women on board in relation to ESG/CSR policies and implementation may improve top leadership’s consideration to ESG issues and may enhance ESG practices. Studies conducted by Baker et al. (2020) and Sánchez-Teba et al. (2021) are consistent with this view. They revealed that the presence of female directors on boards positively affects ESG/CSR disclosures. Accordingly, this study argues that BGD impacts ESG disclosure scores.

Though the extant literature on BGD and ESG disclosure in the UAE is still limited, a few studies have examined BGD and ESG in the Gulf Cooperation Council (GCC) region. For example, Arayssi et al. (2020) showed female board participation and higher board independence enable the transmission of a firm’s positive image by enhancing social responsibility in public listed companies of the GCC region. Jizi et al. (2022) revealed that BGD on the corporate boards is increasing in the Gulf region, yet on a slow path, supporting BGD, prompting corporate social agenda and improving sustainability reporting. However, a few studies have examined ESG in the UAE context (Ellili, 2022a; Ellili, 2022b). For example, Ellili (2022b) examined the nexus between ESG disclosure and dividend policy in the context of the UAE financial market and showed a positive relationship between ESG and dividend payouts. Ellili (2022b) also found a positive relationship between ESG disclosure, financial reporting quality (FRQ) and investment efficiency, implying its importance in the underinvestment and high FRQ sub-samples of the UAE-listed companies.

Nonetheless, studies in developed countries, such as Ahern and Dittmar (2012), Matsa and Miller (2013) and Kogut et al. (2014), conclude that BGD may not necessarily affect ESG disclosure, as the change does not occur swiftly. Other studies have also identified negative effects. For instance, Husted and de Sousa-Filho (2019) revealed that BGD negatively affects ESG disclosure. In contrast, Shakil (2021) found that weaker participation of female directors moderates the relationship between ESG and risk-taking, implying the higher the BGD, its influence on the total and systematic risk is lower. Hence, the association between BGD and the success of ESG disclosure remains unclear, as research on BGD and ESG disclosure is in its infancy and lacks direction.

The upper echelon’s theory can be used to explain the association between BGD and ESG disclosure. By leveraging the knowledge, abilities and proficiencies of the directors with diverse characteristics such as gender diversity, can influence strategic decision-making enhances the sustainability in business operations (Shahab et al., 2018). From the viewpoint of the upper echelon’s theory, Post and Byron (2015) contend that firms with a higher proportion of female directors on their boards demonstrate improved environmental performance due to the implementation of effective sustainability-focused strategies. As posited by Adams and Ferreira (2009), the inclusion of female directors in top-tier positions contributes to increased diversity within the board, encompassing both human capital and CSR involvement, and this, in turn, has the potential to positively impact overall ESG performance. Nonetheless, the question of whether having women in upper echelons enhances organizational performance remains a subject of ongoing academic discourse.

Also, in the agency theory, transparent disclosures are reflected as an effective mechanism for reducing agency problems (Lloyd et al., 1985). Furthermore, ESG disclosures are regarded as a tool to control managerial behavior and a signal to the market of the good behaviors of managers. Through high-quality ESG disclosures, managers provide relevant information as robust evidence of aligning their interests with shareholders (Healy and Palepu, 2001). Thus, firms can implement ESG disclosures to decrease information asymmetry and agency problems (Cui et al., 2018):

Many studies examine the association between ESG disclosure and FP (e.g. Alareeni and Hamdan, 2020; Al Amosh et al., 2022; Chouaibi et al., 2022; Groening and Kanuri, 2013; Gallego-Alvarez and Pucheta-Martínez, 2021; Su et al., 2020). However, ESG-related studies yielded mixed results. Some studies find that ESG disclosures affect FP (Alareeni and Hamdan, 2020; Al Amosh et al., 2022; Chouaibi et al., 2022; Gallego-Alvarez and Pucheta-Martínez, 2021; Yoo and Managi, 2022), implying that ESG investments may generate long-term benefits. A few researchers, however, have observed a negative impact of ESG scores on FP (Branco and Rodrigues, 2008; Brammer et al., 2006; Groening and Kanuri, 2013; Lee et al., 2009), while some authors found no association between ESG scores and FP (Galema et al., 2008; Horváthová, 2010; Su et al., 2020).

Literature on ESG in developed countries, having a strong foundation for institutional factors in ESG practices, is saturated (Ioannou and Serafeim, 2010). Nevertheless, existing literature reveals that the growth of ESG-related studies in these countries is higher than that in developing countries (Behl et al., 2021). In addition, evidence from developing countries could differ significantly (Odell and Ali, 2016; Odera et al., 2016) owing to different regulatory frameworks, cultural differences, pollution, environmental hazards, standards on carbon dioxide emissions and various social issues (Behl et al., 2021; Odell and Ali, 2016).

A few studies supported the idea that ESG disclosure improves FP in the UAE and Gulf countries, focusing on all business or financial sectors. For instance, Masoud and Vij (2021) examined the factors (e.g. board size, FP, corporate ownership) affecting the mandatory disclosure of CSR among firms listed in the manufacturing and service sectors of emerging countries such as the UAE. They implied that such developing economies’ firms carry out ESG activities to enhance stakeholders’ perception of FP and the firm’s ability. In contrast, Ben Ali and Chouaibi (2024) showed the significant mediating effect of the ESG practice on the relationship between executive incentive compensation and FP of the Islamic and conventional banks operating in the Middle East and North Africa region.

The agency theory suggests that firms make ESG disclosures to reduce information asymmetry between shareholders and managers (Adel et al., 2019) by reducing agency problems. Thus, managers are expected to provide transparent and reliable ESG disclosures to improve the trust between them and the firm’s shareholders. Transparent ESG information proves that firms are enthusiastically taking ESG responsibility, thereby enhancing firm’s reputation with investors and consumers, accessing capital at a lower cost and improving their competitive advantage, thus improving FP (Chen and Xie, 2022). Accordingly, we propose the following hypotheses:

Since the ESG disclosure equally considers a firm’s performance in the aspects of environmental (E), social (S) and governance (G), it permits a company to engage in each of these elements separately (Behl et al., 2021). Some firms can implement initiatives in one of these three elements that contribute to the firm’s performance, whereas others can decrease FP (Duque-Grisales and Aguilera-Caracuel, 2021). For example, strong evidence supports that environmental management affects a firm’s competitiveness and performance advantage (Behl et al., 2021; Kim et al., 2021; Nguyen et al., 2021; Xie et al., 2022). Duque-Grisales and Aguilera-Caracuel (2021) argue that firms engaging in environmental and social activities can reduce the adverse effects of future regulatory costs on future cash flows. The social dimension of ESG appears to affect firms’ future financial distress. The literature concludes that the governance disclosure aspect of ESG may not provide any additional advantage, firm value, or performance (Behl et al., 2021). Failure to abide by governance disclosures may bring additional costs and affect resource capabilities, though it may assist in reducing agency costs and encourage sustainable corporate transparency (Giannarakis et al., 2020).

In view of the above, we proposed the following three hypotheses:

Given the extant literature, a positive association between FP and BGD, as well as between BGD and ESG is expected (Sánchez-Teba et al., 2021), while ESG tend to enhance FP (Chouaibi et al., 2022; Groening and Kanuri, 2013; Gallego-Alvarez and Pucheta-Martínez, 2021). With a high ESG score, female presence on the board could further be motivated to enhance their contribution to the FP of the firm. In firms with transparent and reliable ESG disclosures, the women on the board tend to be more motivated as they are inclined to philanthropic and generous activities than men (Baker et al., 2020), thus improving their decision-making and problem-solving skills. These firms may have varying impacts of BGD on FP, suggesting a moderating effect of ESG disclosure.

According to the agency theory, we also contend that for firms with transparent and quality ESG disclosures, the trust between the firm’s managers and shareholders can be strengthened by increasing the board’s independence through BGD (Terjesen et al., 2015). This improves the firm’s reputation with consumers and investors and boosts its competitive advantages (Chen and Xie, 2022), finally leading to strong FP. Also, prior literature (Harjoto and Rossi, 2019) has shown that women directors tend to make more socially oriented decisions, hence when stakeholders, particularly investors who are also inclined toward sustainability, observe more women directors on boards (higher BGD), then firm value increases (Tobin’s Q) in anticipation of more sustainability friendly decisions by the company. This association between BGD and FP is further enhanced with an increase in transparency of ESG. This is because by having more ESG disclosures, these investors’ expectations seem to be realized as the company moves toward sustainability, i.e. ESG performance, as reflected in their ESG disclosure. Hence, the presence of female directors on the boards of companies with high ESG scores could encourage the improvement of FP. Fatemi et al. (2018) also suggest a possible moderating impact of ESG disclosure on performance–firm value relations.

Accordingly, we hypothesized the following:

Figure 1 depicts the conceptual framework of the study.

Data used in this study was retrieved from the ADX and the DFM during the period 2012–2021. ESG scores and other accounting data related to financial performance, assets and liabilities were gathered from a Bloomberg Terminal. The sample companies are nonfinancial companies listed on both the ADX and DFM from 2012 to 2021. The final sample comprises 60 nonfinancial companies. From 2009 onwards, the UAE financial regulators have required all companies listed on ADX and DFM to disclose their corporate governance reports; in 2019, and thus they introduced the ESG reporting guide. Until 2020, ESG information was disclosed on a voluntary basis. However, the Security and Commodities Authority (SCA) requires all companies listed on ADX and DFM to publish their sustainability reports from 2020 onwards. Hence, this case was recognized as the mandatory ESG reporting period. Accordingly, this study considers three cases: the Entire period, Voluntary and Mandatory. Table 1 lists the details of these cases.

There are four variables studied in this paper.

FP is measured using Tobin’s Q (TQ) ratio. It is calculated by dividing the market value of a company by its total assets. This ratio has also been used in other studies to measure FP (Marinova et al., 2016; Reguera-Alvarado et al., 2017; Su et al., 2020).

This is measured by taking the proportion of female directors, calculated as the total number of female directors on the board divided by its total number of directors. The same measure has been employed in other studies, such as Al-Shaer and Zaman (2016) and Marinova et al. (2016).

All ESG scores range 0–100 and are calculated by the Bloomberg Terminals from different sources, including websites, annual reports, corporate governance, sustainability and CSR reports. The definitions of the ESG scores are presented in Table 2.

Three control variables, specifically company age, leverage and size, were used (Table 3).

This study investigated the potential impacts of BGD and ESG on FP using a dynamic panel data regression. The model is as follows:

Table 4 presents descriptive statistics for TQ, BGD, ESG scores and the control variables. The statistics indicate that, on average, the TQ of the companies in the same reports has a high rate (1.21) during the study’s period (2012–2021). Governance score was the highest (43.63) of the sample as of 2009, the year in which financial regulators in the UAE required that all listed companies disclose their corporate governance reports (Ellili, 2022a). Furthermore, statistics show that the nonfinancial companies in the sample, on average, have a high level of total assets (8.32), and relatively high leverage (1.11). Table 5 shows that the average BGD value has been gradually increasing during the year 2012–2021.

Table 6 reports the Pearson correlation coefficients between the variables of the study: TQ, BGD, ESG score, environment score (ENV), social score (SOC), governance score (GOV), age, leverage (TLTA) and size (LTA). ESG score and its constituents, such as ENV, SOC and GOV, are positively and significantly correlated with TQ. BGD positively and significantly correlated with AGE. TLTA is positively and significantly correlated with LTA. The correlation coefficients amongst the independent variables are below 0.80, which confirms the absence of multicollinearity in the regression. The variance inflation factor test also confirms the absence of multicollinearity of the panel data as its value for each variable is less than 10 (James et al., 2021).

Dynamic panel regression was used to examine the relationships among BGD, ESG and TQ. It was used because it can tolerate the dynamic effects to be incorporated into the models as well as feedback from past and current shocks (Gocer et al., 2014). The results of the impact of BGD and ESG on TQ are shown in Table 7. Model (A) is estimated to scrutinize BGD and ESG scores on TQ, while Model (B) is estimated to further scrutinize the separate effects of the different elements of ESG scores, such as ENV, SOC and GOV on TQ, considering three cases (different timeframes reflecting different ESG reporting requirements): for the entire (2012–2021), voluntary 2012–2019) and mandatory (2020–2021) periods (Table 1).

The results of Model (A) show that the impact of BGD on TQ is not statistically significant for the entire period (0.042; p > 0.05), the voluntary period (β = 0.033; p > 0.05) and the mandatory period (β = 0.018; p > 0.05) at a confidence level of 5%. Hence, H1 was rejected. This finding suggests that the BGD does not affect FP during all three reporting periods. While this finding is consistent with the previous studies (Ahern and Dittmar, 2012; Matsa and Miller, 2013) that found no significant effect of BGD on outcomes, including FP. However, it contradicts with other previous studies (Pucheta‐Martínez et al., 2016; Sánchez-Teba et al., 2021; Zheng and Kouwenberg, 2019). According to Table 5, the average value of BGD have increased from 2.54% in 2012 to 7.63% in 2021, and thus, the low presence of women on board may be the reason for such insignificant association found by the current study. Furthermore, the women on the board in the UAE do not still have enough powers and freedom to make effective decisions in the board as the country recently introduced the quota for women on board, which is 20% female representation on boards (PWC, 2022).

On the other hand, ESG was not found to be statistically significant with TQ during the entire period, the Voluntary period and Mandatory period at the confidence level of 5%. The results of Model (B) indicate that the impact of the SOC on TQ is insignificant during all three periods at confidence levels of 5%. However, only ENV and GOV had positive and significant effects on TQ at a confidence level of 5% (β = 0.038; p < 0.05) during the mandatory period and (β = 0.005; p < 0.05). Hence, H3a and H3c were accepted during the mandatory period, whereas H3 and H3b were rejected. Also, all the control variables are insignificant at the 5% confidence level in Models (A) and (B) for the three cases.

Our findings reveal that ESG does not affect FP. This is consistent with the findings of Galema et al. (2008), Horváthová (2010) and Su et al. (2020), who found an insignificant association between ESG and FP. However, this finding is inconsistent with the findings of Alareeni and Hamdan (2020), Al Amosh et al. (2022), Gallego-Alvarez and Pucheta-Martínez (2021) and Yoo and Managi (2022). Despite the insignificant impact of ESG, the environmental and governance scores are significantly and positively related to FP during the Mandatory ESG disclosure period. Our findings indicate that nonfinancial companies listed in the UAE tend to show improved financial performance from environment and governance disclosures whereas social disclosure and overall ESG do not have much effect on FP, particularly during 2020 onwards when the SCA of the UAE mandates listed companies in the UAE to publish sustainability reports. Also, the UAE Government’s prominent focus on improving ecological performance in the country also supports the impact of ENV on FP during recent years.

Using dynamic panel regressions, the effects of the BGD on ESG for the three cases are presented in Table 8. Concerning the Entire period, the association between BGD and ESG is not significant at the confidence level of 5% (β = −0.224; p > 0.05), while all control variables show insignificant impact on ESG at the confidence level of 5%. Thus, H2 was rejected. On the other hand, the association between BGD and ESG is negative and significant at the confidence level of 5% (β = −0.448; p < 0.05) for the Mandatory period, whereas its significance relating to the Entire period and Voluntary period is not presented at the same confidence level. Therefore, H2 was rejected.

The findings suggest that the BGD did not enhance ESG scores during the period when ESG or sustainability reports are voluntarily published by listed nonfinancial companies in the UAE. However, BGD tended to reduce the ESG scores of companies related to the period in which mandatory ESG reporting is required. According to previous evidence in the extant literature, BGD is expected to improve ESG (Baker et al., 2020; Díez-Martín et al., 2022; Harjoto and Rossi, 2019; Sánchez-Teba et al., 2021). Women’s decisions are more socially oriented than those of men (Harjoto and Rossi, 2019); therefore, it is expected to enhance strategic decisions on environmental and social issues, and thereby increase ESG scores. However, our study concludes that the mandatory ESG publication requirement weakens the association between BGD and ESG in nonfinancial companies in the UAE.

This may indicate that the mandatory requirement to publish sustainability reports by law might have discouraged the potential positive impact of BGD on ESG. A possible reason for this could be the fact that the UAE’s listed companies are still in the developing phase as to ESG disclosures and BGD initiatives. The UAE stock markets are still inefficient despite a trend of new development toward the weak-form of market efficiency (Al-Shboul and Alsharari, 2019). Thus, the recent mandatory requirements to publish sustainability reports by law in 2020 might not have been effective yet to potentially benefit from BGD. This finding may also indicate that listed nonfinancial companies could focus on meeting the mandatory requirement of sustainability reporting enacted by the country’s law rather than considering gender diversity on the board, as the quota for the later have been limited to 20% of women on board.

Since BGD was not significant for TQ in Models (A) and (B) (see Table 6), ESG was tested as a moderator in the relationship between BGD and TQ. In Table 9, TQ, as a dependent variable, is regressed on independent variables such as board gender diversity, moderator (ESGBGD), and control variables such as AGE, TLTA and LTA. ESGBGD was introduced as a moderator by multiplying the ESG and BGD. The results are summarized in Table 8.

The results show that the model representing the mandatory case was significant (Prob > chi² = 0.000). Accordingly, the impact of BGD on TQ is positive and significant at the confidence level of 5% (β = 0.3155; p < 0.05) when ESG was introduced as a moderator. Therefore, H1 could be accepted when ESG was introduced as a moderator. The impact of the moderator (ESGBGD) is negative and significant at the confidence level of 5% (β = −0.0064; p < 0.05). This suggests that ESG negatively moderates the association between BGD and TQ. Therefore, H4 was rejected.

These results show that ESG negatively moderates the relationship between TQ and BGD for the mandatory period during which mandatory disclosure was enforced in 2020 (Al Tamimi, 2021). This suggests that the BGD increases TQ, implying an increase in the market value of the stock of nonfinancial companies listed in the UAE; however, when the ESG score is high, the resulting relationship between the BGD and FP becomes low. With a high ESG score, the impact of increasing the BGD will not be effective, as statistical evidence suggests that such an increase in the ESG score reduces the strength of the significant BGD–FP relationship of listed nonfinancial companies in the UAE. This may also imply that nonfinancial companies tend to believe that increasing BGD on the board is better than increasing the ESG score during the mandatory disclosure period.

Furthermore, by looking into the negative impact of BGD on ESG and the negative moderating effect of ESG on BGD–FP association, it is inevitable that the listed nonfinancial company in the UAE may either use an increased BGD or high ESG disclosure interchangeably. If BGD is high in such companies, they are unlikely to be involved in disclosing high ESG scores.

This study examines the impact of BGD and ESG disclosures on the FP of nonfinancial companies listed in the UAE. Furthermore, we investigated the role of ESG in the BGD–FP association. The results suggest that the impacts of ENV and GOV on FP were significant during the voluntary ESG reporting period, whereas the total ESG score was not. BGD improves the FP of listed nonfinance companies when ESG disclosures are mandatory. However, this relationship was negatively moderated by ESG during adherence to mandatory ESG disclosure requirements. This study contributes to BGD-related research in developing countries because little is known about the role of BGD in FP and ESG in emerging countries (Al‐Yahyaee et al., 2017; Issa and Fang, 2019).

Concerning theoretical implications, although the relationship between BGD and ESG, between BGD and FP, and between ESG and FP has been separately examined in different studies (Al Amosh et al., 2022; Chouaibi et al., 2022; Díez-Martín et al., 2022; Sánchez-Teba et al., 2021 Zheng and Kouwenberg,2019), no study has examined these associations in a single study. Moreover, little is known about how other variables can intervene in the BGD–FP relationship. Hence, this study examines all these relationships in a single study, while scrutinizing ESG as a moderator of BGD-FP. This is the first study to find a moderating role of ESG in the relationship between BGD and FP, particularly during mandatory ESG reporting requirements.

Integrating the three dimensions of ESG provides a more comprehensive understanding of their collective impact on FP. In addition, this integration is aligned with ESG practices and their incorporation into corporate strategies and with sustainable investment, where investors and regulators perceive ESG performance as a measure of a company’s sustainability. However, this integration has a limitation as it may cover potential synergies or trade-offs between individual ESG dimensions and their impacts on FP.

Regarding the practical implications of this study, it is recommended that nonfinancial companies listed in the UAE practice a more favorable mechanism to enhance BGD when their ESG scores become weaker. Consequently, such companies can improve FP in terms of an increased market value of shares (TQ) when their ESG scores decrease. However, improving BGD practices for nonfinance companies with strong or increasing ESG scores will not be effective because it may reduce the strength of the existing association between BGD and FP.

This also shows the firm’s lack of awareness of the importance of ESG on FP because the mandatory ESG disclosures in the UAE are still at the beginning stage. Until 2020, ESG information was disclosed on a voluntary basis. The average ESG score of 560 firm-years was 27.81% during 2012–2021 (Table 5), still reflecting the lower average ESG rating of the listed nonfinancial companies of the UAE. However, SCA required all companies listed on ADX and DFM to publish their sustainability reports mandatorily from 2020 onwards (Al Tamimi, 2021). Hence, further investigations will be required in the future, considering more firm years adapting to mandatory ESG requirements in the UAE.

Accordingly, the financial market authorities of the UAE are recommended to persuade the listed nonfinancial companies to improve the presence of women on board and their decision-making powers and strengthen and promote their engagement in ESG activities as the former and latter are still in the beginning stage.

There were some limitations to this study. First, the sample was limited to nonfinancial companies listed in the UAE. Second, the time span of the study was limited to 2012–2021. Hence, future studies that extend the time span by including listed finance companies in the UAE are recommended. Third, this study only investigates companies listed on UAE stock markets; thus, considering companies listed on financial markets in other GCC countries may yield interesting results. Because such emerging countries have rapid growth in their financial markets, a comparative analysis of the model in this study will be of interest. Fourth, a slight overlap between the governance score and BGD existed in the collected data as GOV score provided by the Bloomberg Terminal also included little information relating to BGD. Fifth, this study considered only ESG as a moderator, however, it is recommended that future researchers should examine other corporate governance factors in FP–BGD associations, such as board independence, ownership structure and board size.

The authors thank the editor and anonymous referees for their comments and feedback. The authors would also like to thank the editorial assistants and production team for their support throughout the editorial process from manuscript to publication. The authors would also like to thank Editage for extensive support in editing the manuscript.

This research work was supported by Abu Dhabi National Oil Company (ADNOC), Emirates NBD, Sharjah Electricity Water & Gas Authority (SEWA), Technology Innovation Institute (TII) and GSK as the sponsors of the 4th Forum for Women in Research (QUWA): Sustaining Women’s Empowerment in Research & Innovation at University of Sharjah.

Funding: This research did not receive any specific grants from funding agencies in the public, commercial or not-for-profit sectors.

Declaration of interest: The authors declare that this study was conducted without any commercial or financial relationships that could be construed as potential conflicts of interest.

Author contributions: All authors have contributed equally; N.H.I.A.: conceptualization, data curation, formal analysis, funding acquisition, investigation, methodology, resources, software, supervision, validation, visualization, roles/writing - original draft, writing – review and editing. H.N.: conceptualization, data curation, formal analysis, funding acquisition, investigation, methodology, project administration, resources, software, supervision, validation, visualization, writing, review and editing. N.O.D.E.: conceptualization, data curation, formal analysis, funding acquisition, investigation, methodology, project administration, resources, software, supervision, validation, visualization, writing, review and editing.