How does board gender diversity drive the ESG performance-cash holdings relationship? Evidence from China

Abstract

This study investigates the influence of board gender diversity on the relationship between environmental, social, and governance (ESG) performance and corporate cash holdings in Chinese A-share listed companies from 2015 to 2022. Our research shows that ESG performance is positively associated with cash holdings. Drawing on critical mass theory, the study finds a moderating effect of board gender diversity in the relationship between ESG performance and the cash-holding relationship. Specifically, the study finds a negative relation between ESG performance and cash holdings with the presence of a single female board member. However, this relationship shifts to a highly positive association when three or more female directors are on the board, underscoring the significant impact of gender diversity. Further heterogeneity analysis reveals that firms with a younger age profile and a strong commitment to green innovation exhibit a negative relationship between ESG performance and cash holdings. These findings highlight the complex and dynamic nature of the ESG performance-cash holdings relationship, which varies according to specific firm characteristics. Overall, this study offers valuable insights into the multifaceted dynamics of ESG factors, enhancing our understanding of their impact on corporate financial strategies.