The Relationship between Board Diversity, ESG, and Financial Performance: A Nordic Study

Abstract

This thesis examines the relationship between diversity on the board of directors and firm performance, as measured by ESG performance and financial performance (ROA and Tobin’s Q). Using four different measures of board diversity across 223 publicly listed firms in the Nordic region from 2018-2021. We find that board diversity, measured by gender, cultural background, and independence, is positively associated with ESG performance, while age diversity is negatively related. The percentage of independent directors is found to be negatively associated with both financial performance measures. While we find a significant positive relationship between financial performance, as measured by Tobin’s Q, and board cultural diversity, we also discover a negative association between board gender diversity and Tobin’s Q. Finally, we find that ESG performance is positively associated with financial performance when measured by Tobin’s Q. Our results remain robust when we modify our models and apply sub-samples.