The Impact of ESG Performance on Financial Distress: Evidence from ASEAN-5 Banking with Board Gender Diversity as a Moderating Factor
Keywords:
ESG Performance, Financial Distress, Board Gender Diversity, Banking Sector, Corporate Governance, Sustainable FinanceAbstract
Study’s aims: This study examines the effect of Environmental, Social, and Governance (ESG) performance on financial distress in the ASEAN-5 banking industry, with board gender diversity as a moderating variable. The study also investigates whether the relationship between ESG performance and financial distress differs across the periods before, during, and after the COVID-19 pandemic. Design/Methodology/Approach: This research employs a quantitative, panel-data regression approach. The sample consists of listed banks in ASEAN-5 countries during 2017–2024. Financial distress is measured using the Z-score, while ESG performance and board gender diversity are used as the main variables, along with several financial and macroeconomic control variables. Findings: ESG performance has a positive and significant effect on financial distress in the ASEAN-5 banking industry. This finding suggests that higher ESG performance is associated with higher financial distress risk, potentially due to the substantial costs of ESG implementation, the early stage of ESG adoption, and the lag effect of sustainability investments. The results also show that board gender diversity significantly moderates the relationship between ESG performance and financial distress by strengthening the effectiveness of ESG practices. However, additional analysis across the periods before, during, and after the COVID-19 pandemic reveals that ESG performance does not significantly influence financial distress within each period. Theoretical contribution/Originality: This study enriches the literature on sustainable finance by highlighting the role of board gender diversity in the ESG–financial distress relationship within emerging banking markets. Limitation/Implication: The study is limited to ASEAN-5 banking institutions and a specific observation period. Future studies should expand the sample, the time horizon, and the variables to yield more comprehensive results.
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