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Citation

Al-Shaer H, Kuzey C, Uyar A, Karaman A & Hasnaoui A (2025) Risky firms, ESG, and firm value: do women undertake a particular role?. Journal of Accounting Literature. https://doi.org/10.1108/JAL-04-2024-0065

Abstract
Purpose This study draws on financial slack, agency, and critical mass theories to investigate risky firms’ ESG engagement, board gender diversity’s moderating role between firm risk and ESG engagement, market reaction to risky firms’ ESG engagement, and board gender diversity’s role in moderating market reaction to risky firms’ ESG engagement. Design The study uses a sample of 44,129 firm-year observations between 2005 and 2019 across nine industries and 61 countries. We adopt Refinitiv’s (LSEG Workspace database) scheme in assessing firm ESG performance. Findings We find that firm risk is significantly and negatively associated with ESG performance. Board gender diversity (1) negatively moderates between firm risk and the environmental pillar (2) negatively moderates between firm risk and the social pillar, (3) negatively moderates between firm risk and CSR strategy metric of governance pillar but positively moderates between firm risk and management metric of the governance pillar. We show that as the number of female directors increases, their moderating effect between firms’ risk and ESG performance becomes stronger. The existence of a critical mass female directors on the board alleviates the market’s negative reaction to ESG engagements. Originality Although plenty of prior studies focused on board gender diversity’s role in driving firm outcomes, its role in risky firms’ ESG engagement is yet to be explored. It is imperative to investigate risky firms’ engagement in ESG because these firms face more financial distress and are more concerned about their short-term survival whilst investing in ESG is specifically sensitive to the accessibility of slack resources. Consequently, risky firms may have less flexibility to initiate ESG activities or cease them.

• Risky firms, ESG, and firm value: Do women undertake a particular role?