MODERATING ROLE OF ESG DISCLOSURE IN THE RELATIONSHIP BETWEEN BOARD DIVERSITY AND FINANCIAL PERFORMANCE: EVIDENCE FROM THE FINANCIAL SERVICES SECTOR

Abstract

Despite increasing efforts to improve corporate governance in emerging markets, financial institutions in Nigeria continue to face inconsistent financial performance, largely due to underutilized board diversity and weak ESG disclosure practices. This study investigates the moderating effect of Environmental, Social, and Governance (ESG) disclosure on the relationship between board diversity and financial performance among Nigerian financial institutions. The objective is to determine whether ESG disclosure enhances the impact of board diversity on firm profitability, measured by Return on Assets (ROA). An ex post facto research design was employed, using panel data from 28 listed financial institutions on the Nigerian Exchange Group (NGX) between 2018 and 2023. A census sampling method with data filters was applied. Descriptive statistics, correlation analysis, diagnostic tests, and panel regression models (fixed effects) were utilized for analysis. Findings revealed that board diversity has a positive and significant effect on financial performance. ESG disclosure also showed a statistically significant positive effect on ROA. More importantly, the interaction term between board diversity and ESG disclosure was significant, indicating that ESG practices strengthen the positive impact of board heterogeneity on firm performance. The study concludes that diverse boards and transparent ESG reporting are both critical drivers of profitability in Nigeria’s financial sector. It recommends that regulators enforce board diversity mandates, standardize ESG disclosure frameworks, and encourage firms to integrate ESG strategies within board-level governance.