Female Directors and ESG Performance: Evidence from Listed Consumer Goods Firms in Nigeria

Female Directors and ESG Performance: Evidence from Listed Consumer Goods Firms in Nigeria

Abstract

An increasing body of research over time has focused on ESG performance due to its global significance. However, there is still scarcity of studies on sustainability performance and especially, the role of women in improving ESG performance. Furthermore, this relationship is rarely investigated using Nigerian data. This study takes advantage of the existing gap to explore the effect of female directorship on ESG performance by using data from 20 companies for the period 2015 to 2020. Using a quantitative approach, regression analysis was used to test the hypotheses. The results of the regression analysis indicate that both female directorship and female presence in the audit committee have a significant positive effect on ESG performance. This study contributes to enriching literature in this area in various ways. The Nigerian consumer goods companies may use the result of this study to advocate for the appointment of more women on the boards of companies so as to achieve superior environmental, social and governance performance. Thus, Nigerian companies are therefore encouraged to increase female representation in their boardroom and audit committee to at least thirty per cent.

1. Introduction

The issues of gender equality have been gaining considerable importance over the last few years, especially in #management studies (Arena et al., 2015). Several research paid attention to board composition and firm performance, particularly on the role that female directors played in value creation processes, whose positive effect on firm performance was confirmed by empirical evidence. Not surprisingly, UN Sustainable Development Goals (#SDGs ) have prompted many firms to adopt ethical and sustainable practices, ensuring the equal participation of women in firm organizations to achieve gender equality and female #empowerment . According to the #2030 #Agenda , gender inequalities hinder sustainable development, economic #growth , and the achievement of equal opportunities between genders, whereas full and effective women’s participation in decision-making processes at all levels plays a crucial role in firms’ value creation process.

Over recent years, there has been a growing interest in the effects of corporate governance on welfare-oriented practices adopted by companies. Several studies—conducted mainly in #developed markets (i.e., the United States)—showed that compliance with the most virtuous practices, in terms of CSR and ESG, has relevant positive effects on corporate performance, increasing firm reputation, improving #investors’ perception of risk and reducing the cost of capital. The legitimacy of the corporation in adopting virtuous practices (Mio, Venturelli, & Leopizzi, 2015). usually implies an increase in #business #profitability (Camilleri, 2018). Recent research has shown that the most effective incidence of ethical practices is particularly evident for those companies with higher levels of ESG scores with respect to industry averages (so-called “abnormal ESG performance”), which constitutes a #competitiveadvantage against their #competitors (Zhang, 2012).

A responsible attitude in terms of social, environmental and governance responsibility is usually considered an investment that increases firm performance (Issa, Zaid & Hanaysha 2021), as it represents the capability to create a successful balance between the pursuit of profit and the respect for social welfare (. Nevertheless, recent studies focused on specific issues and/or conducted in different markets (i.e., developing countries) led to counterintuitive results. In this regard, it is useful to highlight that the influence of governance #structure on corporate performance (also in terms of ESG responsibility) significantly depends on the observed context (national or transnational) (Camilleri, 2018)

While a large number of analyses examined the relationship between firm characteristics and financial performance, little attention has been devoted to verifying how board gender composition can affect sustainability performance. Accordingly, the main aim of the present study is to investigate the relationship between board gender diversity and ESG in the listed consumer goods firms in Nigeria. In particular, we ran multiple regression models on a sample of Italian non-financial companies to examine the relation between ESG (Environmental, Social and Governance) performance (Arena et al., 2015) computed by ESG score) and gender diversity on BoD (measured by Blau index). To put it simply, our work lies in the following research question: To what extent does gender diversity affect ESG performance? Our hypothesis, that gender diversity in the boardroom has a positive influence on ESG performance, was confirmed by empirical evidence.

The work is organized as follows: Section 2 provides both the literature background on BoD composition and ESG performance and the formulation of the research hypotheses; Section 3 describes the quantitative analysis with regard to (a) the sample selection, (b) the choice of the variables (i.e., dependents, independents and control), (c) the econometric models and the robustness tests; Section 4 sets out the findings; Section 5 provides the discussion of findings and conclusions.

2. Literature Review

Interpretations of the relationship between women on the board and ESG performance are connected to the various features of the women themselves. For example, their educational and professional backgrounds could push them towards being more sensitive to sustainability initiatives than men (Birindelli, 2018). Additionally, some typically female psychological traits (i.e., helpfulness, sensitivity, or attention to the welfare of others) are found to result in socially oriented behaviours (Michelon & Parbonetti, 2012). Finally, women tend to adopt work styles involving participative communication, democratic decision-making, and process orientation, which facilitate identifying and meeting stakeholders’ needs and expectations (Bear, Rahman & Post, 2010). In sum, there are significant differences in values, beliefs, backgrounds, perceptions and work styles between women and men, so women seem to have greater empathy towards stakeholders’ issues and sustainability practices. Considering these considerations, having more women on the board can influence a firm’s sensitivity towards social and environmental issues. There seems to be a consensus in the literature regarding the positive impact of female directors on sustainability performance. More in detail, women on boards positively impact the firm’s charitable contributions (Williams, 2003), apprehension for climate change (Birindelli, 2018), Kinder, Lydenberg, Domini (KLD) strengths and reputation-based CSR measures (Issa et al., 2021). Similarly, many studies find that board gender diversity increases the extent of social and environmental reporting (Zhang, 2012) and decreases environmental lawsuits (Williams, 2003). However, there are also studies with different contradictory results such as a weak statistically significant positive impact (Manita et al., 2018), no significant association or a negative association between social and environmental practices and the presence of female directors.

Recent studies have paid attention to investigating how female directors on corporate boards influence ESG performance and disclosure. In this regard, Issa, Zaid and Hanaysha (2021) analyzed how female directors' human capital can influence the development of sustainability performance. The study classified the human capital of female directors into three categories including highly educated members, community influentials, and business experts to determine which types of these categories can foster sustainable performance. The estimation is based on a sample of 93 nonfinancial firms listed on the national stock exchanges of Bahrain, Egypt, Kuwait, Morocco, Oman, Saudi Arabia, Turkey, and UAE over the period from 2014 to 2018. The findings clearly revealed that not all female directors are equally influential in sustainability performance by considering their human capital profiles that significantly determine their decisions. Further, the study found that female directors with advanced education and social engagement background are positively associated with sustainability performance.

Yadav and Prashar (2022) explored the phenomena of board gender diversity and its consequences for sustainability performance, as measured by the environment, social and governance (ESG) disclosure score, in the Indian context. A total of 712 data points covering the companies of the National Stock Exchange (NSE) were included in the data set. The results showed that a relatively small, percentage of women directors has little impact on ESG performance, but when at least three women directors are in place, these relationships become more favourable. Arayssi, Jizi and Tabaja (2020) investigated the impact of board composition on environmental, social and governance (ESG) reporting in the Gulf countries. Thomson Reuters database was used to collect the ESG disclosure scores and governance information. The authors applied multiple panel data regressions and sensitivity testing to ensure the robustness of the results. Examining publicly listed companies for a 10-year period shows that higher board independence and female board participation facilitate the transmission of a firm’s positive image by improving social responsibility. Independent boards of directors and participation among women serve as catalysts to strike an effective balance between firms’ financial targets and social responsibilities. In contrast, boards chaired by chief executive officers are less supportive of executing a social agenda and consequently reporting their ESG activities.

Nekhili, Boucadhaba and Nagati (2020) examined the impact of two different types of employee board representation (i.e., labour board representation and employee-shareholder board representation) on environmental, social and corporate governance components of ESG performance and the moderating role of each type of employee board representation on the relationship between ESG performance and the firm’s market value. Using a propensity score matching approach on a sample of French firms listed in the SBF 120 index from 2007 to 2017, the findings reveal that labour board representatives act in the opposite direction to employee-shareholder board representatives, by focusing exclusively on improving social performance and reducing environmental and corporate governance performance. The way employees are represented on the board of directors also moderates the corporate ESG-financial performance relationship differently. Birindelli et al. (2018) tested the impact of a critical mass of female directors on ESG performance. Other board characteristics accounted for were independence, size, frequency of meetings and Corporate Social Responsibility (CSR) committee. The study use fixed effects panel regression models on a sample of 108 listed banks in Europe and the United States for the period 2011–2016. The empirical evidence shows that the relationship between women on the board of directors and a bank’s ESG performance is an inverted U-shape. Therefore, the critical mass theory for banks is not supported, confirming that only gender-balanced boards positively impact a bank’s performance for sustainability. There is a positive link between ESG performance and board size or the presence of a CSR committee, while it is negative with the share of independent directors.

The literature has also investigated different facets of the ESG disclosure issue. For instance, Cho and Patten (2007) examined the determinants of social and environmental strategy and disclosure. They show that environmental disclosure is used as a corporate tool for legitimacy. The literature (e.g., Patten, 2002) has also examined the relationship between environmental performance and environmental disclosure. In general, these studies fail to find any significant relationship. Finally, other studies (e.g., Michelon and Parbonetti, 2012) have examined the effect of corporate governance mechanisms on sustainability disclosure. These studies show that corporate governance plays a role in the sustainability disclosure of US and European companies. Manita et al. (2018) investigated the effect of board gender diversity on environmental, social and governance (ESG) disclosure. Specifically, it examines whether and how female directors affect ESG disclosure by drawing on stakeholder theory. Two main results arise from this study. First, no significant relationship is found between board gender diversity and ESG disclosure. Second, the evidence also partially confirms critical mass theory, as below three female directors the relationship between board gender diversity and ESG disclosure is not statistically significant. However, beyond that, no significant relationship was found.

Theoretical Framework

According to agency theory by Jensen and Meckling (1976), the rationale behind this evidence of agency problems resides in the concentration of power, in charge of the CEO, which limits the control function of other directors and shareholders; firm decisions are therefore not always geared towards the growth of business value and respect for stakeholders’ wealth. Moreover, the presence of gender diversity also implies positive effects on ESG performance (Romano et al., 2020). In this perspective, according to agency theory, it can be argued that gender diversity increases the attitude of board members to control executive directors, with a positive impact on corporate outcomes (Ntim, 2015). Starting from a different perspective, this research, based on the Resource Dependence Theory, postulates that the presence of women in BoD provides critical resources for the company, improving its competitive profile and performance (Arnegger et al., 2015). With specific reference to ESG compliance, it can be assumed that the presence of women on BoD also involves an increase in CSR performance based on the following reasons (Shaukat et al., 2015). First, the positive influence of gender diversity stems from the different perceptions that women have about their leadership role within companies (Wood & Eagley, 2009; while men are generally focused on the preeminent needs of shareholders, women seem more willing to pay their attention to stakeholders’ interests (Adams et al., 2011).

3. Methodology

The study adopts a correlational research design given that the paradigm is positivism. The design is useful in this study because it allows for testing of expected relationships between the variables and making predictions concerning their relationships. The data were collected through content analysis using the ESG framework. The sample consists of twenty (20) listed consumer goods firms which have the full data required to test the hypotheses for six (6) years, from 2015 to 2020, giving one hundred and twenty (120) firm-year observations of balanced panel data.

The following regression equations reflect the analysis models proposed by this study. In line with Gerwanski, Kordsachia and Velte (2019), this study expresses integrated reporting as a function of women in the boardroom: In line with prior studies, foreign directors, independent directors, board expertise and board meetings are included as exogenous determinants of ESG performance:

INTREP = F(FEMDIR, FEMAC, FORDIR, INDDIR, BEXP, BMEET)……………………….(i)

The data employed are secondary due to the quantitative nature of the study. The variables are measured as given in the table below:

We proxy ESG through content analysis in line with the ESG framework. Female directors are measured as the ratio of female directors to board size. Female representation in the audit committee is proxied by the number of females in the audit committee divided by the total number of the audit committee members. Foreign directorship is measured as the number of foreign directors divided by the total number of directors on the board. Independent directors are measured as the number of independent directors divided by the total number of directors on the board. Firm size is proxied by the natural logarithm of total assets

4. Results and Discussion

The preliminary data analysis using descriptive statistics and a correlation matrix are presented in this section. This is followed by presentation, interpretation, analysis and discussion of results. The robustness tests were also examined and analysed.

Descriptive Analysis

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Table 1 presents descriptive information for our sample of firms. ESG performance has a mean value of 0.8130 indicating an impressive performance over the last five years. The minimum value of 0.547 implies most firms report above 50% of ESG performance. Female directorship varies widely across the sample with a minimum of zero and a maximum of 66.67%. This is the same as that of a female presence on the audit committee. The minimum value of zero (0) for female directorship and female presence on the audit committee implies that some firms have had no female directors on their boards for some years. The maximum value of 0.6667 implies that no firm had more than 66.67% of their board members as females. However, female directorship and female presence in audit committees have different mean values. The mean value for female directorship and female presence in the audit committee are 0.2433 and 0.3452 respectively. Female directorship means the value of 24.33% implies females sitting on the board is still below the critical mass of 30% for African firms. On the contrary, we have a female presence in the audit committee above the critical mass of 30% (34.52%). The reason could be that members of the audit committee are also chosen from shareholders. The females sitting on audit committees could be female members from the shareholders.

Despite being very low, all the firms under consideration have foreigners on their boards given a minimum value of 0.0833. However, the maximum value is very high with a figure of 0.90. On average, firms under study, have 48.56% of their board members as foreigners. Independent directorship has a minimum value of 0.1429 and a maximum value of 0.9091. This shows that, at least, no firm has less than 10% of its board members as independent directors. On average, the companies have total assets of 8.102, which is not significantly different across the industry as indicated by the low standard deviation.

Correlation Analysis

The correlation analysis is used to explain the relationship among the variables used in the study. Table 3 presents the result of the analysis.

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The study employs the correlation matrix to check for multicollinearity and to explore the relationship between each explanatory variable and the dependent variable. The correlation analysis shows that there exists a positive relationship between our independent variables (female directorship and female presence in the audit committee) and integrated reporting. Although correlation analysis is not a cause-and-effect tool, this provides a signal for our expected regression result. In relation to the control variables, both foreign directorship and board meetings have a negative correlation while independent directorship and board expertise have a positive correlation with integrated reporting. The result shows no excessive correlation among the variables which may suggest the presence of multicollinearity as the highest correlation value is 0.5963. Gujarati (2004) suggested the existence of multicollinearity where correlation values exceed 0.80. We further explored the use of tolerance value and variance inflation factor to test for multicollinearity. The table is shown below In addition, the Variance inflation factor (VIF) of the the multicollinearity test, the VIF is less than 10, indicating the absence of a harmful multicollinearity (Gujarati, 2004).??

Table 4 presents the regression results of our models of the study. The pooled regression, fixed effect and random effect models were run in tandem with balances panel data analysis. Below is the result of the random effect regression.

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The pooled OLS was run which did not suffer from heteroskedasticity problems. The hypothesis for the existence of constant variance could not be rejected given a chi2 value of 0.50 and Prob > ch2 of 0.4787 which is insignificant at all levels. The fixed effect regression model was run alongside the random effect regression model. Similar to the heteroskedasticity test, the results of the hausman specification test showed a chi2 value of 2.22 and Prob > ch2 of 08982 which is insignificant at all levels. The hypothesis for differences in coefficients not systematic could not be rejected. Therefore, the random effect regression was taken instead of the fixed effect regression result. Furthermore, the Breusch and Pagan Lagrangian multiplier test for random effect was carried out. The results showed a chi2 value of 162.55 and Prob > ch2 of 0.000 which is significant at less than 1%. The hypothesis proposing fixed effect regression was rejected in favour of random effect regression results for analysis.

Discussion of Findings

The coefficient for female directorship is 0.1591 which is significant at 1% (0.000). This indicates that female directors favour integrated reporting. This is in line with our prior expectations. Hypothesis one, which states that female directorship, does not have a significant effect on the ESG performance of companies in Africa is hereby rejected. Our result corroborates the postulations of resource dependency theory that diverse boards provide more valuable resources and; hence, impact corporate outcomes.

The coefficient for female presence in the audit committee is 0.0868 which is significant at 1% (0.002). This indicates that female presence in audit committees improves firms' ESG performance. This is also in line with our prior expectations. Hypothesis two, which states that female presence in the audit committee does not have a significant effect on the ESG performance of listed consumer goods companies in Nigeria is hereby rejected. Similar to the first hypothesis, the evidence provided corroborates the postulations of resource dependency theory.

Evidence provided on hypotheses one and two is consistent with that of Arena et al (2015), Arnegger et al. (2015), Arayssi et al. (2020), Issa et al. (2021). However, our results are contrary to that of Manita et al. (2018) and Birindelli et al. (2018) who provided a positive but insignificant effect of gender diversity on corporate ESG performance.

Conclusions and Recommendations

Drawing from resource dependency theory, this paper examined the effect of females in the boardroom on firms' ESG performance. Using a sample of 120 firm-year observations of ESG reports of firms in the listed consumer goods industry from 2015 to 2020, the analysis provided evidence supporting our hypotheses that the extent of ESG by firms is affected by female directorship and female presence in audit committees. Overall, the results from this study provide coherent evidence supporting the claim that diversity in the boardroom is crucial in achieving ESG performance. In addition, the results support the call of the United Nations that females' participation in all positions of leadership should be improved in order to achieve sustainable development. The Nigerian consumer goods companies may use the result of this study to advocate for the appointment of more women on the boards of companies so as to achieve superior environmental, social and governance performance. Thus, Nigerian companies are therefore encouraged to increase female representation in their boardroom and audit committee to at least thirty per cent.

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Itohan Egbedion

Multiple-Award Winning Quality, Health, Safety, and Environmental Sustainability Expert | Global ESG Leader | Social Development Researcher I Sustainable Development Goals (SDGs) Champion | Climate Change Advocate

1 年

Thank you for the back to back share!?? Makes really good Sunday reading.

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