Prague Economic Papers 2025, 34(4):470-494 | DOI: 10.18267/j.pep.902

ESG Resilience Amid Financial Distress: the Role of Board Gender Diversity in EU Firms

Süreyya Yilmaz Ozekenci, Cansu Unver Erbas, Suzan Dsouza
Süreyya Yilmaz Ozekenci (Corresponding Author), Çağ University, Banking and Insurance, Çağ University Yaşar Bayboğan Campus Adana-Mersin, Highway 33800 Yenice/MERSIN-TURKEY
Cansu Unver Erbas, Çağ University, Finance and Banking, Çağ University Yaşar Bayboğan Campus Adana-Mersin, Highway 33800 Yenice/MERSIN-TURKEY
Suzan Dsouza, College of Business Administration, American University of the Middle East, Kuwait

Investors often view financial distress, defined as a company’s inability to pay its debts on time, as a sign of declining creditworthiness. However, they also consider non-financial data, such as the environmental, social, and governance (ESG) activities of firms, when making decisions. This study investigates the impact of financial distress on ESG scores among European Union (EU) firms, using firm fixed effects (FE) and random effects (RE) models, along with Pooled Ordinary Least Squares (OLS), Common Correlated Effects Mean Group (CCEMG), and Augmented Mean Group (AMG) estimators. The panel data covers the years from 2013 to 2023. To examine the relationship between financial distress and ESG scores, the study employs the board gender diversity variable, which reflects the ratio of female to male representation on a firm’s board of directors, as a moderating factor. The Altman Z-score is used as an indicator of financial distress. The findings indicate that firms experiencing higher financial distress tend to have higher ESG scores. However, a higher percentage of women on the board of directors during periods of financial distress appears to mitigate this relationship in ESG scores overall, as well as for individual components. To the best of the authors’ knowledge, a high percentage of women on the managerial boards of firms during financial distress has a negative impact on ESG scores across the sampled EU firms. This research adds valuable insights into how financial distress and board gender diversity interact, contributing to the existing literature on the subject.

Keywords: ESG score, Gender Diversity, Financial Distress, EU firms
JEL classification: C58, G30, G32

Received: June 3, 2025; Revised: November 15, 2025; Accepted: December 7, 2025; Prepublished online: December 19, 2025; Published: December 22, 2025  Show citation

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Yilmaz Ozekenci, S., Unver Erbas, C., & Dsouza, S. (2025). ESG Resilience Amid Financial Distress: the Role of Board Gender Diversity in EU Firms. Prague Economic Papers, 34(4), 470-494. doi: 10.18267/j.pep.902
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