Abstract

Banks play a vital role in the global economy but face a challenge of complying with regulations regarding board gender diversity and environmental, social, and governance (ESG) practices while maintaining cost efficiency. Applying a two-stage modified Data Envelopment Analysis (DEA) cost efficiency model with Simar-Wilson bootstrap-based truncated regression procedure and the instrumental variable (IV) Tobit robustness checks, this study analyzes the associations among board gender diversity, ESG performance scores, and bank efficiency across 94 Asian banks from 2010 to 2020. The empirical results show that female directors are positively associated with bank efficiency while exhibiting an inverted U-shaped diminishing marginal return. Environmental performance is positively associated with efficiency, whereas social performance is negatively related, and governance performance exhibits an insignificant relationship. Furthermore, the interaction between gender diversity and each ESG performance pillar exhibits a positive relationship with bank efficiency. The findings suggest an optimal threashold of 10%-13% for female board representation. Banks may consider gender diversity as a strategy to implementing ESG initiatives, and ultimately correspond with a positive association with higher cost efficiency.