Board Diversity and ESG Performance: Gender, Independence and Tenure effects on ESG scores and Market Reaction

Details

Supervisors

Shrestha, Prabal

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion, à finalité spécialisée

Abstract

enThis thesis examines the effect of multidimensional board diversity, combining gender, board independence and average tenure, on both ESG performance and market reaction around ESG report publication dates. Using a sample of 416 S&P 500 firms over the 2007 to 2020 period, representing 1,667 firm-year observations, the study employs two-way fixed effects panel regressions for the ESG performance hypotheses and cross-sectional OLS regressions for the market reaction hypotheses. The study uses cumulative abnormal returns (CAR) computed using the Fama-French three-factor model across four event windows. The results indicate that none of the three dimensions of board diversity have a significant effect on ESG performance or cumulative abnormal returns in the main specifications. One exception stands out: over the 60-day window, greater female representation on the board is associated with less pronounced market reactions around ESG report publication dates, suggesting that these firms communicate in a more readable and predictable way for investors. These findings are interpreted in light of the fact that board diversity changes slowly over time and is largely absorbed by firm fixed effects, which means its effect on ESG outcomes shows up more clearly when comparing firms with different governance profiles than when tracking changes within the same firm. This study adds to the existing literature by looking at board diversity through multiple dimensions at once and by connecting governance characteristics to both ESG performance and investor reaction.