Breaking Barriers: Gender Diversity, ESG, and Corporate Misconduct in the GCC Region

Abstract

Our study explores how ESG performance affects corporate misconduct (CM) in Gulf Cooperation Council (GCC) firms and whether having more women on corporate boards influences this relationship. Using logistic regression and using data collected from GCC firms, we analyse the moderating effect of board gender diversity (BGD) on the relationship between ESG and CM. Our findings show that strong ESG performance reduces CM, and greater BGD further decreases misconduct. Moreover, gender-diverse boards strengthen the link between ESG and lower CM rates. This study contributes to the literature by examining how BGD influences the ESG-CM relationship in the GCC region. The current findings are valuable for investors, businesses, and policymakers. Investors should prioritize companies with strong ESG practices and diverse boards to minimize the risks they might face. Businesses should integrate female directors on boards to enhance ethical practices. Policymakers can promote corporate responsibility by incentivizing gender diversity and ESG adoption, which is crucial for a more transparent and accountable business environment.

1. Introduction

Corporate misconduct (CM) practices, such as business corruption, bribery, and fraud, can pose significant risks for firms, stakeholders, and society (Szymura 2022). They can have a considerable detrimental influence on corporate performance and sustainable development (Aidt 2010). Hence, firms should apply various governance mechanisms to restrict such practices (Wu 2005). In particular, corporate environmental, social, and governance (ESG) performance and board gender diversity (BGD) are emerging as critical mechanisms to mitigate these risks. ESG performance and whether and how it might affect corporate misconduct practices has recently received much attention from scholars and regulators due to its potential significance concerning corporate performance, reputation, and legitimacy in society (Baldini et al. 2018; Gerged et al. 2023; Almaqtari et al. 2024). Thus, it is crucial to discern the factors affecting the relationship between ESG and corporate misconduct (Previtali and Cerchiello 2023; Githaiga 2024; Elsheikh et al. 2024).

Board characteristics are one of the potential factors that can play a significant part in setting and applying the principal strategies influencing corporate performance and activities (Farag and Mallin 2017; Graham et al. 2017). One main characteristic of the board that needs more attention, particularly in the context of Gulf Cooperation Council (GCC) countries, is board gender diversity, i.e., the representation of female directors on corporate boards. This issue is especially pressing in GCC, where socio-cultural and institutional norms have traditionally restricted women’s presence in corporate leadership (Jamali and Karam 2018; Aladwey and Alsudays 2023). Despite recent progress in women’s educational attainment and growing policy interest in gender inclusion, the proportion of women on boards across the GCC remains significantly lower than global averages. For instance, a 2021 report by the Organisation for Economic Co-operation and Development (OECD) found that women held less than 5% of board seats in many GCC countries, with minimal improvements during the past decade (OECD 2021). Structural barriers such as male-dominated networks, limited access to executive roles, and weak enforcement of diversity policies continue to impede women’s advancement to board-level positions. Nonetheless, there is increasing recognition among policymakers and business leaders in the region that improving female representation on boards is not only a matter of social equity but also a contributor to better governance and corporate performance.

Empowering female directors is vital because they can bring different knowledge and experience to corporate boards compared to male directors (Zalata and Abdelfattah 2021). Further, female directors have unique psychological characteristics that could affect corporate social performance and disclosure. For instance, female members might have communal attributes that induce them to care more about the welfare of other parties or stakeholders (Adams et al. 2011). Further, female directors are more cautious, risk-averse, and conservative concerning financial reporting issues (Francis et al. 2015). They show higher compliance with ethical standards and regulations compared to their male counterparts, which induces them to require detailed discussions concerning controversial corporate issues (Ingley and Van Der Walt 2005; Francis et al. 2015; Adhikari et al. 2019; Zalata and Abdelfattah 2021). From this perspective, it is anticipated that female directors are less likely to engage in misconduct practices (Adhikari et al. 2019; Jaggi et al. 2021; Ghazwani et al. 2024). Hence, these unique characteristics might affect various corporate practices, including corporate transparency (Larkin et al. 2013), financial reporting quality (Pucheta-Martínez et al. 2016), environmental performance (Larkin et al. 2013), CSR performance, governance (Lavin and Montecinos-Pearce 2021), and anti-corruption disclosure (Jaggi et al. 2021).

However, while ESG adoption is steadily increasing across global markets, the relationship between board gender diversity and ESG performance in mitigating CM remains relatively underexplored, especially in emerging markets such as GCC. There is growing evidence suggesting that gender-diverse boards may enhance ethical oversight and stakeholder accountability, potentially reducing the incidence of corporate misconduct (Terjesen et al. 2016). Therefore, this study examines the association between ESG performance and CM among GCC firms. Furthermore, it explores whether and how board gender diversity moderates this relationship, thereby shedding light on the governance role of female directors in reinforcing ESG-driven ethical conduct.

Examining corporate misconduct in the Gulf region (Saudi Arabia, United Arab Emirates, Bahrain, Kuwait, Oman, and Qatar) is particularly salient due to the region’s unique characteristics. These countries are characterized by rapidly evolving regulatory regimes that combine traditional Islamic values with modern governance frameworks. This creates a complex environment where formal legal structures may be undermined by informal networks and tribal affiliations (Jamali and Karam 2018; Musa et al. 2020; Elhabib 2024; Aladwey and Alsudays 2023). In other words, cultural, religious, regulatory, and institutional factors collectively influence various aspects of corporate misconduct. In particular, cultural values rooted in Islamic principles significantly shape business conduct and promote integrity, fairness, and anti-corruption behaviour (Musa et al. 2020). For instance, this region is characterized by high levels of power asymmetry, where “loyalty to family”, “tribe”, or closely-knit groups can supersede adherence to formal rules, leading to “favoritism” and preferential treatment. The regulatory environment in the GCC blends Islamic Sharia with modern legal frameworks, often resulting in confusion and inconsistent enforcement (Elhabib 2024). Therefore, traditional cultural values—such as high-power distance, collectivism, and male-dominated leadership structures—continue to influence corporate norms, including attitudes toward gender diversity and ethical decision-making (Jamali and Karam 2018; Aladwey and Alsudays 2023; Hofstede Insights 2021).

In recent years, there has been a growing emphasis on ESG integration in the Gulf region, which is driven by their national transformation strategies, such as Saudi Arabia’s Vision 2030, the UAE’s Vision 2031, and Qatar’s National Vision 2030. These government-led initiatives underscore the importance of sustainable development, responsible corporate governance, and ethical business conduct as fundamental components of long-term economic reforms and diversification efforts (Tan et al. 2014; Alharbi 2024). As a result, ESG considerations are increasingly embedded into the regulatory discourse and expected corporate behaviour in the GCC region, signalling a shift toward more accountable and transparent business environments. Along with such direction, there is a growing trend of fighting against corruption in GCC markets.

However, although ESG reporting and sustainability practices are gaining momentum in the region as driven by government initiatives and alignment with Vision 2030 strategies, governance mechanisms that ensure the effectiveness of these practices are still developing (OECD 2021). Despite the recent improvements in their governance systems, they still face some governance-related challenges such as concentrated ownership structures and limited board diversity (Abdallah and Ismail 2017). Hence, GCC markets still suffer from fragile control systems and less enforceable governance regulations (Okeahalam 2004; Mostafa 2017). Nonetheless, the ongoing reforms suggest a transitional phase where governance expectations are in flux—making the GCC a fertile ground for research exploring how global governance frameworks like ESG interact with local institutional constraints (Daoudi and Dunn 2016).

These institutional peculiarities require context-specific inquiry rather than if governance mechanisms such as ESG and gender diversity function uniformly across global markets. This is crucial because the existing socio-cultural context in GCC plays a vital role in shaping ESG priorities and governance practices. Hence, understanding these contextual factors is essential for assessing how ESG practices are adopted and enforced in the GCC setting (Elhabib 2024; Fadel et al. 2024). According to Otman (2019), weak regulatory systems in the region can reduce accountability and create conditions conducive to corporate misconduct by enabling the circumvention of laws and regulations.

We employed logistic regression to analyse the data collected from non-financial firms operating in the GCC region from 2020 to 2023. We found that ESG performance has a significant negative influence on CM. Further, BGD is negatively associated with CM. Moreover, we found that having gender-diverse boards amplifies the positive impact of ESG on reducing CM. Our study contributes to the literature in some respects. It enhances the dearth of research on the relationship between board characteristics and ESG performance, as well as the relationship between ESG and misconduct practices, especially in developing countries (Wan Mohammad et al. 2023; Joseph et al. 2016). While existing research has addressed the link between gender diversity and ESG performance (e.g., Brinette et al. 2023; García-Meca and Martinez-Ferrero 2025; Zhu and Chen 2025), there is limited research on the potential role of gender diversity concerning the link between ESG performance and corporate misconduct. Further, the existing research on the factors affecting misconduct practices mainly focuses on corruption at the country level (Elsheikh et al. 2024). Our study enhances the literature by focusing on factors affecting corporate misconduct at the firm level. By situating our analysis in the GCC context, our research captures the unique institutional dynamics that shape how ESG and gender diversity influence firm behaviour—thereby contributing a regionally grounded perspective to the global discourse on corporate governance and misconduct.

Furthermore, this study provides implications for investors, firms, and policymakers. Investors should focus on firms with notable ESG practices and gender-diverse boards. This is because these firms are more likely to have lower levels of misconduct practices. Firms should actively engage with ESG initiatives and integrate female directors into their boards to enhance their ethical practices and reduce misconduct. Finally, policymakers should encourage gender diversity and ESG adoption for a more transparent and accountable business environment.

The remainder of the paper is organized as follows. Section 2 presents a literature review and the development of hypotheses. Section 3 outlines the research design. Section 4 displays the study findings. Finally, Section 5 and Section 6 discuss the study findings and conclude the paper.

2. Literature and Hypotheses Development

2.1. Corporate Misconduct Defined

According to Anand et al. (2023), corporate misconduct implies the prevalence of irregularities in firms, especially corruption, bribery, and fraud. Addressing these issues is crucial because their existence undermines firms’ sustainability, threatening various stakeholders’ interests (Carr and Outhwaite 2011). In particular, business corruption is an illegal practice of committing actions against the existing laws and regulations promulgated by authorities (Posadas 1999). Business bribery can be defined as “offering to pay, paying, promising to pay, or authorizing the payment of money or anything valuable to a foreign official to affect the foreign official in his official capacity or to secure any other improper advantage to gain or retain business” (Stanley et al. 2014). Finally, business fraud is about employing deceptions to obtain an illegal advantage, such as fraudulent financial reporting and misappropriation of assets committed to deceive users about the reality of financial information (Krambia-Kapardis 2002).

The wide negative effects of such practices include lower productivity and business growth (Schomaker 2020), which necessitates the existence of effective governance systems, including board diversity, to enhance the monitoring of business activities (Ahmed and Anifowose 2024). In the context of GCC countries, the risk of corporate misconduct is exacerbated by relatively weak enforcement of anti-corruption regulations, opacity in public–private sector interactions, and high levels of state ownership in strategic sectors (OECD 2021). Transparency International (2023) reports that GCC countries, while making progress, still rank relatively low in corruption perception indices compared to global averages. This suggests the persistence of informal practices and regulatory arbitrage, making the study of corporate misconduct particularly critical in this region.

2.2. Theoretical Perspectives

Various theories can explain the association between ESG and misconduct practices, the most notable of which are the stakeholder theory and the gender socialization theory. From the stakeholder theory perspective, it is assumed that companies should enhance their ESG disclosure to meet various stakeholders’ expectations (Beelitz and Merkl-Davies 2012; Branco 2021). In particular, these companies are encouraged to enhance their governance systems and the external community’s expectation to gain more legitimacy in the surrounding society (Aguilera et al. 2006). One way of doing that is by supporting their corporate boards by including more female directors (Hillman et al. 2007), which is anticipated to enhance the monitoring of managerial activities, encourage more ethical practices, and meet various stakeholders’ interests (Ahmed and Anifowose 2024). This, in turn, is expected to positively improve external perceptions of the firm in a way that would increase its reputation (Boyd 1996). Such positive influences are anticipated to motivate firms to avoid misconduct practices and enhance their anti-corruption disclosure (Blanc et al. 2019).

In the GCC region, stakeholder expectations are evolving in light of ambitious national transformation plans such as Saudi Vision 2030 and the UAE Vision 2021, which promote corporate transparency, ESG integration, and anti-corruption frameworks (Rayman-Bacchus and Walsh 2021). These socio-political changes make stakeholder theory particularly relevant for GCC firms as they balance traditional governance models with global investor demands for ethical conduct and sustainability.

From the perspective of the gender socialization theory, gender identity is established through the socialization process during childhood, which has shaped their way of socially solving existing problems, i.e., solving problems in a way that serves broad society needs, rather than serving a specific group in that society (Shawver and Clements 2015). According to this view, female directors are more ethical and risk-averse than their male counterparts (Boulouta 2013). Their unique characteristics are anticipated to reduce unethical business practices and irregularities, including corporate misconduct practices, i.e., corruption, bribery, and fraud (Zalata et al. 2022).

Despite the traditionally male-dominated corporate culture in the GCC, recent regulatory reforms have encouraged greater gender inclusion. For example, the Saudi Capital Market Authority (CMA) and the UAE Securities and Commodities Authority have mandated board gender diversity disclosure, where female quotas are increasingly considered to foster inclusion (OECD 2021). This evolving environment in GCC firms makes the gender socialization lens particularly valuable for examining female directors’ role in shaping ethical decision-making.

2.3. Empirical Review and Hypotheses Development

2.3.1. ESG and Corporate Misconduct

The prevalence of misconduct practices in a particular context is an indication of low institutional quality (Robertson 2022). These practices can prevent having efficient knowledge and technology spillovers, which is vital for sustainable development (Kutlu and Mao 2023). Thus, it is anticipated that the existence of misconduct activities may adversely affect ESG performance (Ghazwani et al. 2024; Gerged et al. 2024). In contrast, the prevalence of ESG activities may require the avoidance of corporate misconduct practices (Low 2022). Put differently, fighting against misconduct might require the existence of effective governance measures to enhance corporate sustainability performance, including ESG.

In this regard, Sinha et al. (2019) noted that misconduct practices such as corruption, bribery, and fraud reduce environmental quality. Khalid et al. (2022) found that these practices are negatively associated with voluntary ESG disclosure. Using UK data, Salem et al. (2023) found that higher transparency regarding these practices reduces irregular financial reporting practices. Using international evidence, Elsheikh et al. (2024) found that control of misconduct at the country level improves ESG performance. Using Chinese evidence, Wei et al. (2024) found that corporate corruption is negatively associated with ESG performance. In contrast, using international evidence, Ariff et al. (2024) showed that companies with higher tax avoidance (as an example of a misconduct practice) are associated with higher ESG performance. Focusing on the UK context, Gerged et al. (2024) found that transparency regarding misconduct practices is positively associated with sustainability performance. Using evidence from the USA, Zhang and So (2024) found that exposure to corruption negatively influences all ESG dimensions.

Although empirical studies in the GCC remain limited, emerging evidence suggests that ESG adoption and misconduct control are increasingly intertwined. For instance, Ghazwani et al. (2024) showed that transparency about corporate wrongdoing positively influences sustainability performance in Saudi-listed firms. Similarly, Sadriwala et al. (2024) found that ESG scores are improving across GCC companies, despite being hampered by weak governance mechanisms, which may leave space for misconduct. These insights justify the need to explore the ESG–misconduct nexus in a region striving to align corporate behaviour with international standards. Considering this discussion, we set H1 as follows:

H1: 

Firms with higher ESG performance are less likely to be involved in CM.

2.3.2. The Moderating Role of Female Directors

The existing literature on the possible link between female directors and ESG performance is mixed. On one hand, several studies supported the positive relationship between the representation of female directors on corporate boards and ESG performance (Boulouta 2013; Harjoto et al. 2015; Al-Shaer and Zaman 2016; Hoang 2018). This is because, along with the gender socialization theory, female directors tend to behave more ethically, care more about corporate reputation, and be more aware of stakeholders’ needs (Zalata and Abdelfattah 2021; Previtali and Cerchiello 2023). Further, female directors are more likely to better prepare for corporate boards’ meetings than their male counterparts, enhancing discussions and debates concerning controversial issues raised in these boards (Huse and Grethe Solberg 2006).

In this regard, focusing on Italy, Cucari et al. (2018) found a positive association between female directors’ representations and ESG. In the same context, Romano et al. (2020) noted that gender diversity enhances firms’ sustainability practices. Focusing on China, Lavin and Montecinos-Pearce (2021) found that gender diversity improves the level of ESG performance. Jaggi et al. (2021) show that female directors are more associated with enhanced transparency of ESG performance. Using international evidence, Eliwa et al. (2023) found that companies with higher levels of gender diversity are less likely to engage in ESG decoupling. Focusing on France, Brinette et al. (2023) found that gender diversity helps in reducing the adverse influences of ESG controversies on corporate value. Using European data, García-Meca and Martinez-Ferrero (2025) found that female directors are associated with less ESG misconduct in contexts with national equality policies. Focusing on China, Zhu and Chen (2025) found that gender diversity enhances ESG performance.

On the other hand, some studies presented different findings, i.e., an insignificant or negative relationship between ESG and board gender diversity. For example, Giannarakis (2014) found no significant association between female directors’ representation and CSR. Pucheta-Martínez and López-Zamora (2018) reported a non-linear relationship between board gender diversity and CSR. Using USA data, Manita et al. (2018) found no significant relationship between board gender diversity and ESG performance. Focusing on Malaysia, Ismail and Latiff (2019) found that female representation on boards negatively affects corporate sustainability practices. Wasiuzzaman and Subramaniam (2023) did not support the positive impact of gender diversity concerning energy companies’ ESG performance in developing countries, in contrast to developed countries.

Additionally, the literature indicated the potential relationship between female directors and misconduct practices, where mixed results are also found in this regard. On the positive side, it is suggested that board gender diversity could reduce firms’ propensity to engage in misconduct practices such as corruption, bribery, and fraud (Capezio and Mavisakalyan 2016; Wahid 2019; Ghazwani et al. 2024). This is based on the view that female directors have a higher sense of responsibility concerning social and environmental issues than their male counterparts (Jain and Zaman 2020; Nuber and Velte 2021). Further, they are more conservative and risk-averse, showing higher diligence in discussing corporate matters and imposing stricter monitoring over corporate activities (Adams and Ferreira 2009; Kao et al. 2020). This activity is anticipated to decrease management opportunistic behaviour (Khidmat et al. 2022), enhancing financial reporting quality and transparency (Ibrahim et al. 2023).

Focusing on the GCC context, there is increasing evidence that gender diversity can serve as a governance mechanism to reduce misconduct. For example, Ghazwani et al. (2024) found that gender-diverse boards in Saudi Arabia are more likely to promote transparency in reporting irregularities. This complements findings by Kimeli (2022), who noted that greater female representation in East African and GCC companies improved financial reporting quality. Given the patriarchal nature of business governance in the GCC, the presence of female directors may act as a signal of ethical commitment, enhancing firms’ ESG credibility.

Despite the abovementioned relevant studies on the influence of female directors on ESG performance and CM, there is scant literature on the nexus between the three variables examined in this study, i.e., BGD, ESG performance, and CM. An exception is Elsheikh et al. (2024), who, using international evidence, found that corruption control at the county level and BGD can enhance ESG scores. Considering the above discussion concerning the potential effects of board gender diversity on both ESG performance and corporate misconduct practices, we set H2 as follows:

H2: 

BGD moderates the relationship between ESG performance and CM.

3. Research Design and Methodology

3.1. Sample and Data Collection

Our sample comprises 567 non-financial companies in the GCC region during the period from 2020 to 2023. The GCC region presents a valuable context for studying how gender diversity on corporate boards influences the relationship between sustainability performance and misconduct for several reasons. Firstly, GCC countries have increasingly prioritized sustainability in their economic agendas. For instance, the Agenda for Sustainable Development is central to Saudi Arabia’s Vision 2030. Also, the UAE’s green initiatives emphasize integrating sustainability into their economies. These efforts highlight the region’s focus on promoting sustainable practices, including ESG practices. Secondly, promoting gender diversity has become an integral part of corporate strategies in the GCC region for more accountable governance practices (Filho et al. 2022; Aladwey and Alsudays 2023). Finally, despite their economic growth, GCC countries’ regulatory frameworks have lagged, leaving companies vulnerable to risks like fraud, corruption, and money laundering (Mullins et al. 2022). These gaps have exposed weaknesses in corporate governance, underscoring the need for mechanisms, such as gender-diverse boards, to strengthen accountability and mitigate misconduct.

The sample for this study consists of 567 non-financial companies, resulting in a total of 2,268 firm-year observations spanning four years (2020–2023). This period was chosen based on data availability, as it represents the most recent and comprehensive dataset accessible for analysis.

Table 1. Sample selection process.

Description	No. of Companies	No. of Obs.
The whole dataset	664	2656
minus, financial companies and related observations	92	368
minus, missing or duplicated observations	5	20
The sample dataset	567	2268

outlines the sample selection process after applying specific exclusions. The initial dataset included 664 companies and 2656 observations. However, 92 financial firms, accounting for 368 observations, were excluded due to their unique regulatory frameworks and reporting standards (Aladwey 2021). Furthermore, 5 companies with 20 missing or duplicate observations were removed to enhance the accuracy and reliability of the analysis. The data for this study were sourced from the Refinitiv Eikon database. According to Elgharbawy and Aladwey (2025), all variables were winsorized at the 1st percentile to mitigate the potential impact of outliers.

3.2. Variables’ Definition

Our study incorporates three primary variables: corporate misconduct (CM) as the outcome variable, sustainable performance (ESG) as the independent variable, and board gender diversity (BGD) as the moderating variable. As shown in

Table 2. Measurement of variables.

Outcome variable
Corporate misconduct (CM)	It is a binary variable assigned a value of 1 if a company is reported in the media for corporate misconduct, as documented in the Refinitiv Eikon database, and zero otherwise.	Wang et al. (2020); Sarhan and Al-Najjar (2023) Sarhan and Cowton (2024); Aladwey and Diab (2025)
Independent variables
Sustainable performance (ESG)	It represents the overall performance aggregated across three dimensions: environmental, social, and governance, as reported by Refinitiv Eikon database.	Elgharbawy and Aladwey (2025)
Moderator variable
Board gender diversity (BGD)	The proportion of female directors on the corporate board.	Aladwey and Diab (2023)
Control Variables
Board size (BS)	It refers to the total count of directors serving on the corporate board.	Al-Musali et al. (2019)
Board independence (BI)	The proportion of independent directors to the total number of board members.	Elgharbawy and Aladwey (2025)
Firm size (FS)	The logarithm of the total number of employees at the year-end.	Elgharbawy and Aladwey (2025)
Firms’ profitability (FP)	Profit before tax and interest, scaled by total assets at the year-end.	Al-Musali et al. (2019)
Firms’ leverage (LEV)	The total liability, scaled by total assets at year end.	Aladwey and Alsudays (2023)
Country indicator (COUNTRY)	It is captured using dichotomous dummy variables, where each country is assigned a value of 1 if it is the country of interest, and 0 otherwise. For instance, Bahrain is coded as 1, while the UAE, Saudi Arabia, Qatar, and Oman are coded as 0. This approach is consistently applied for all countries.	Al-Musali et al. (2019); Hamdan (2020)
Industry specification (INDUSTRY)	They are dummy variables representing the Standard Industrial Classification (SIC) codes, to account for industry-specific differences among GCC companies.	Aladwey (2021)

, following Wang et al. (2020), CM is defined as a binary variable, assigned a value of 1 if a company is involved in corporate misconduct activities, and 0 otherwise. Consistent with the definitions provided by Sarhan and Al-Najjar (2023), Sarhan and Cowton (2024), and Aladwey and Diab (2025), CM includes indicators of controversies related to bribery, corruption, and fraud. These indicators, sourced from the Refinitiv Eikon database, capture issues reported in the media, such as bribery, corruption, political contributions, improper lobbying, money laundering, parallel imports, and tax fraud. In line with Elgharbawy and Aladwey (2025), the ESG score is employed as a proxy for a company’s sustainable performance. According to the Refinitiv Eikon database, the ESG combined score reflects the combined performance across three dimensions—environmental, social, and governance—and ranges from 0 to 100. BGD, the moderator variable, is measured as the percentage of female directors in the corporate board (Aladwey and Diab 2023).

We included two categories of control variables. The first category covers corporate governance measures, specifically board size (BS) and board independence (BI). BS is calculated as the natural logarithm of the total number of board members (Al-Musali et al. 2019; Aladwey and Diab 2023). Larger boards tend to enhance anti-corruption disclosure efforts (Previtali and Cerchiello 2023). Similarly, following Elgharbawy and Aladwey (2025), BI is measured as the proportion of independent directors on the board. Empirical evidence from Neville et al. (2019) suggests that independent boards are more likely to reduce corporate misconduct. The second category includes firm-specific attributes, such as firm size (FS), profitability (FP), leverage (LEV), and country indicator (COUNTRY). FS is calculated as the natural logarithm of total assets (Elgharbawy and Aladwey 2025). FP is determined by dividing annual pre-tax net profit by the average total assets (Al-Musali et al. 2019). LEV is computed as total liabilities divided by total assets at the year-end (Aladwey and Alsudays 2023). COUNTRY is represented as a dummy variable ranging from 1 to 5, with Bahrain assigned a value of 1, and the UAE, KSA, Qatar, and Oman assigned a value of 0 (Al-Musali et al. 2019; Hamdan 2020). Lastly, in order to account for industry-specific differences among GCC, we included INDUSTRY dummies.

3.3. Logitistic Regression Model

Much of the existing research on interaction effects focuses on linear models designed for continuous outcomes (e.g., Riguen et al. 2020). However, our study addresses the complexities of binary outcomes, such as the occurrence or absence of misconduct, by using logistic regression. This approach allows us to explore how ESG performance and board gender diversity (BGD) interact to influence the likelihood of corporate misconduct. As highlighted by Romero (2014), and Hayes and Rockwood (2017), linear moderation models interpret interaction effects as “departures from additivity”. In contrast, logistic regression interprets the interaction term as a “departure from multiplicativity”, where the combined effect of ESG and BGD differs from the product of their individual effects. By employing this methodological approach, we not only align with the binary nature of our variables but also provide valuable insights into the role of governance mechanisms, such as BGD, in reducing unethical practices and fostering corporate accountability. Consequently, following Riguen et al. (2020), we constructed the following two models, with the definitions of the variables used in these regression models summarized in Table 2.

The direct effect of ESG on the binary variable of CM

Logit(P(CM_it = 1))=β₀ + β₁ ESG_it + β₂ BS_it + β₃ BI_it + β₄ FS_it + β₅ FP_it + β₆ LEV_it + β₇COUNTRY + β₈ INDUSTRY + FIRM and YEAR Fixed effect + ε_it

(Model A)

The inclusion of the moderating variable, BGD

Logit(P(CM_it = 1)) = β₀ + β₁ ESG_it + β₂ BGD_it + β₃BGD_it * ESG_it + β₄ BS_it +β₅ BI_it + β₆ FS_it + β₇ FP_it + β₈ LEV_it + β₉ COUNTRY + β₁₀ INDUSTRY + FIRM and YEAR Fixed effect + ε_it

(Model B)

where i represents the firm index; t represents the year index; CM represents a binary variable taking the value of 1 if a company is reported for corporate misconduct in Refinitiv Eikon, and 0 otherwise; ESG is an aggregated score across environmental, social, and governance dimensions; BGD is proportion of female directors on the board; BS denotes total number of directors on the board; BI is the proportion of independent directors to total board members; FS represent the logarithm of total employees at year-end; FP is profit before tax and interest, scaled by total assets; LEV is total liabilities scaled by total assets; COUNTRY is dummy variable: 1 for the country of interest, 0 otherwise (e.g., Bahrain = 1, others = 0); and INDUSTRY dummies to account for specific industry effect.

4. Findings

4.1. Descriptive Statistics

Table 3. Descriptive statistics.

Variables	Obs	Mean	Std. Dev.	Min	Max
ESG	2268	5.35	13.36	0.021	65
Environmental pillar	2268	3.34	11	0	65
Social pillar	2268	4.56	10.6	0	63.6
Governance pillar	2268	8.44	8.06	0	60
BGD	2268	0.62	2.7	0	17
BS	2268	8	0.74	5	11
BI	2268	26	15	16.7	80
FS	2268	9.16	0.83	7.3	11.13
FP	2268	0.038	0.098	−0.327	0.379
LEV	2268	0.467	0.246	0.016	1.5

provides an overview of the descriptive statistics for the variables used in the analysis. The independent variable, ESG, has an average score of 5.34, with a relatively high standard deviation of 13.36, reflecting considerable variation in sustainability performance among GCC firms. While some companies show a minimum ESG score of 0.021, others achieve a maximum score of 65, demonstrating significant efforts to embrace sustainable practices compared to their peers. As emphasized by Alahdal et al. (2024), even GCC firms with low ESG scores may disclose environmental and social responsibility information to signal alignment with sustainability practices and to enhance their legitimacy in the eyes of investors and policymakers. In addition, the aggregated ESG score is deconstructed into three distinct pillars: environmental, social, and governance. The governance pillar has the highest average score of 8.44, suggesting that GCC companies are steadily evolving their governance structures. In contrast, the environmental pillar shows the greatest variability, with a standard deviation of 11.00, followed closely by the social pillar at 10.60. These results indicate that environmental and social initiatives vary significantly across GCC firms.

For the moderating variable, BGD, the average score is 0.62, with a standard deviation of 2.7, indicating a relatively low level of gender diversity on GCC boards. This suggests that, on average, there is minimal representation of women on boards, with little variation across the sample.

The characteristics of GCC companies, as reflected by the control variables, reveal several key trends. The average BS is eight members, with a standard deviation of 0.74, suggesting that board sizes are relatively consistent across the sample. BI ranges from 16.7% to a maximum of 80%, highlighting noticeable variations in the proportion of independent directors on GCC boards. FS also shows a moderate spread, with values ranging from 7.3 to 11.13, reflecting differences in the scale of operations among the firms. Similarly, FP exhibits moderate variability, with an average value of 0.038 and a standard deviation of 0.098, indicating that some firms experience losses while others achieve positive returns. The lowest LEV is 0.016, while the highest is 1.5, suggesting a wide range of debt usage among GCC companies.

Table 4. Distribution of corporate misconduct (CM) among GCC countries and SIC industries.

Panel A: Sample distribution according to GCC countries
CM	GCC
	Bahrain		Kuwait		Oman		Qatar		KSA		UAE		Total
	No.	%	No.,	%	No.,	%	No.,	%	No.,	%	No.,	%	No.,	%
0	63	79	334	88	262	79	105	80	662	63	218	74	1644	72
1	17	21	46	12	70	21	27	20	386	37	78	26	624	28
Total observation	80	100	380	100	332	100	132	100	1048	100	296	100	2268	100
Panel B: Sample distribution according to SIC industries
SIC industries			CM observation
			0			1			Total			%
Construction			152			69			221			10
Consumer Goods			188			67			255			11
Distribution			38			11			49			2
Energy			140			28			168			7
Healthcare			76			40			116			5
Hospitality			106			22			128			6
Manufacturing			262			90			352			16
Media			18			10			28			1
Mining			49			31			80			4
Real Estate			248			156			404			18
Retail			44			15			59			3
Services			125			39			164			7
Telecommunication			66			14			80			4
Transportation			83			25			108			5
Utilities			49			7			56			2
			1644			624			2268			100

presents the distribution of corporate misconduct (CM) across GCC countries and SIC industries. As presented in Panel A, Table 4, 72% of the firms in the sample are categorized as having no misconduct activities, while 28% are classified as exhibiting misconduct. There are notable variations in the incidence of misconduct across the GCC countries, with Kuwait showing the lowest proportion of misconduct cases at 12%, and KSA exhibiting the highest at 37%. These differences could be attributed to varying corporate governance practices, regulatory frameworks, and levels of transparency across the GCC region.

Panel B of Table 4 presents the distribution of the sample according to SIC industries, detailing the number of CM observations and their corresponding percentages across industrial sectors. The highest proportions of CM are found in the real estate (18%) and manufacturing (16%) industries, while the lowest are in media (1%) and utilities (2%). This distribution indicates the different influences of CM across different industries in the GCC.

4.2. Correlation Matrix

Table 5. Pearson correlation and multicollinearity statistics.

Panel A: Pairwise Correlations								Panel B: VIF Analysis
Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	VIF	1/VIF
(1) ESG	1.000							1.491	0.671
(2) BGD	0.523	1.000						1.385	0.722
	(0.000)
(3) BS	0.238	0.080	1.000					1.077	0.929
	(0.000)	(0.000)
(4) BI	0.117	0.064	0.133	1.000				1.092	0.916
	(0.000)	(0.002)	(0.000)
(5) FS	0.215	0.148	0.095	0.262	1.000			1.17	0.855
	(0.000)	(0.000)	(0.000)	(0.000)
(6) FP	0.042	0.032	0.004	−0.003	0.117	1.000		1.069	0.936
	(0.047)	(0.133)	(0.863)	(0.873)	(0.000)
(7) LEV	0.001	0.026	0.021	0.011	0.146	−0.201	1.000	1.078	0.928
	(0.981)	(0.217)	(0.311)	(0.593)	(0.000)	(0.000)
								1.195

displays the Pearson correlation coefficients for the variables along with the Variance Inflation Factor (VIF) values. As argued by Schober et al. (2018), the correlations related to independent variables are all under 0.6, suggesting that multicollinearity is not a significant concern. Moreover, consistent with Bager et al. (2017), VIF values reported in Table 5, Panel B, are all below 10, indicating no evidence of multicollinearity in our analysis. While Senaviratna and Cooray (2019) suggest that VIF values above 2.5 could be an issue in weaker models like logistic regression, our results remained sound within acceptable limits, and no such an issue was observed in our study.

4.3. Logistic Regression Analysis

Table 6. Results of logistic regression model.

Variables	Model A: Direct Effect of ESG on CM		Model B: The Inclusion of the Moderating Variable, BGD
	Coef.	p-Value	Coef.	p-Value
ESG	−0.008 **	0.027	−0.003 **	0.044
BGD			−0.088 **	0.036
INTERACTION: ESG × BGD			−0.003 **	0.016
BS	0.082 **	0.021	0.077 *	0.055
BI	−0.004 *	0.100	−0.004 *	0.100
FS	0.014 *	0.100	0.011 *	0.080
FP	−1.15 **	0.021	−0.871 ***	0.000
LEV	-0.882 ***	0.000	−0.312 ***	0.000
COUNTRY	0.309 ***	0.000	0.31 ***	0.000
INDUSTRY	0.008	0.482	0.010	0.375
Constant	−2.546 ***	0.000	−2.52 ***	0.000
Firm and Year effect	Controlled		Controlled

*** p < 0.01, ** p < 0.05, * p < 0.1.

presents the logistic regression results. According to Model A, ESG performance has a significant negative influence on CM with a coefficient = 0.008, (p < 0.05), i.e., a one-unit increase in ESG performance reduces misconduct by 0.8%. This result supports our first hypothesis. Hence, higher ESG performance significantly reduces corporate misconduct, which highlights the effectiveness of ESG strategies in fostering ethical business practices. This finding aligns with the stakeholder theory, where firms become motivated to enhance their ESG disclosure to meet stakeholders’ expectations (Beelitz and Merkl-Davies 2012). This result is consistent with previous research such as Khalid et al. (2022) and Elsheikh et al. (2024), who supported the positive impact of ESG in deterring corruption practices. However, it is different from Ariff et al. (2024), who reported a positive association between tax avoidance (as an example of a corporate misconduct practice) and ESG.

Regarding the influence of control variables, Table 6 shows that board size is positively associated with CM at the significance level of 5%, reflecting difficulties in coordination in larger boards (Potharla and Amirishetty 2021). The findings also show a marginal but significant negative relationship between board independence and CM, indicating that independent directors play a role in reducing misconduct through better oversight (Githaiga et al. 2022). Regarding the influence of firm characteristics, the results reveal that larger firms are slightly more prone to misconduct, likely due to the complexity of their operations and the challenges they face in ensuring compliance with regulations across their various departments (Githaiga et al. 2022). However, it is revealed that more profitable firms exhibit less misconduct, possibly because financial stability reduces the incentive to engage in unethical practices (Asare et al. 2021). Similarly, firms with higher debt levels are less likely to engage in misconduct, likely due to the strict monitoring imposed by creditors (Liu et al. 2021). Likewise, country-specific governance environments are significantly and negatively associated with corporate misconduct (Lu et al. 2021). The industry variable is found to be insignificant, suggesting that, within the GCC context, industry-specific factors do not play a substantial role in explaining variations in CM. Finally, the findings revealed a low baseline level of CM when all other factors are controlled (Coefficient = −2.522; p < 0.000).

Model B of Table 6 shows the moderating effect of BGD on the relationship between ESG performance and corporate misconduct. The results show that higher gender diversity on the board significantly reduces CM (Coefficient = −0.088; p < 0.05). This finding emphasizes the role of diverse boards in improving governance and ethical practices (Capezio and Mavisakalyan 2016; Wahid 2019). This result aligns with gender socialisation and stakeholder theories, ensuring that female directors tend to behave ethically and are more aware of stakeholders’ needs (Zalata and Abdelfattah 2021; Previtali and Cerchiello 2023).

Moreover, these findings revealed that ESG performance continues to reduce misconduct, but the effect is smaller when BGD is included (Coefficient = −0.003; p < 0.05). The ESG × BGD interaction was included to assess whether BGD moderates the effect of ESG performance on CM. However, using the interaction term (ESG × BGD), we found that gender-diverse boards amplify the positive impact of ESG on reducing misconduct (Coefficient = −0.003; p < 0.05). This finding indicates that female directors’ representation on corporate boards enhances the effectiveness of ESG initiatives in reducing CM, supporting our second hypothesis. This finding confirms the significant role female directors can play regarding both improving ESG performance (Cucari et al. 2018; Romano et al. 2020; Eliwa et al. 2023) and fighting against misconduct practices (Lanis et al. 2017; Bhuiyan et al. 2020; Jaggi et al. 2021). This result, in turn, highlights to businesses the importance of embracing ESG initiatives and integrating gender diversity into corporate boards to enhance ethical behaviour and governance systems, which is crucial to reducing misconduct practices and improving firm reputation and long-term sustainability. In other words, policymakers should promote corporate responsibility by incentivizing gender diversity and ESG adoption, which can result in a more transparent, sustainable, and accountable business environment.

The control variables remained largely consistent with the findings reported in Model A, showing similar relationships with corporate misconduct. Further, like Model A’s findings, Model B’s findings suggest a low baseline level of corporate misconduct after controlling for other factors (Coefficient = −2.495; p < 0.000).

4.4. Robustness Checks

Following Bagh et al. (2024), we re-estimate our main analysis using an alternative measure for the moderating variable, BGD. Consistent with Elgharbawy and Aladwey (2025), we compute the moderating variable using the BLAU_INDEX of female gender diversity (BLAU_INDEX), which is defined as follows:

$$BLAU\_INDEX=1-{\sum }_{r=1}^n{P}_r^2,$$

where P_r represents the proportion of female directors on board r, and n is the number of categories in gender (male and female).

Since only the moderating variable and its interaction term are adjusted, Model A in Table 6 remains unchanged. As demonstrated in

Table 7. Alternative measure for the moderating variable.

Variables	Model A: Direct Effect of ESG on CM		Model C: The Inclusion of the Moderating Variable, BLAU-INDEX
	Coef.	p-Value	Coef.	p-Value
ESG	−0.008 **	0.027	−0.008 **	0.041
BLAU-INDEX			−1.23 ***	0.009
INTERACTION ESG × BLAU-INDEX			−0.006 *	0.088
BS	0.082 **	0.021	0.081 *	0.095
BI	−0.004 *	0.100	−0.006 *	0.061
FS	0.014 *	0.100	0.007 *	0.080
FP	−1.15 **	0.021	−1.01 **	0.021
LEV	−0.882 ***	0.000	−0.883 ***	0.000
COUNTRY	0.309 ***	0.000	0.311 ***	0.000
INDUSTRY	0.008	0.482	0.007	0.531
Constant	−2.546 ***	0.000	−2.46 ***	0.001
Firm and Year effect	Controlled		Controlled

*** p < 0.01, ** p < 0.05, * p < 0.1.

, the regression results for Model B in Table 6 align closely with those of Model C in Table 7, confirming the robustness of our main findings. This consistency reinforces the validity of our conclusions and highlights the stability of our results across different measures of gender diversity at the corporate level.

As illustrated in Table 4, Saudi Arabia almost represents 45% of the total observations. To address the risk of bias arising from this disproportionate representation, we performed robustness analysis using the weighted logistic regression approach. We applied analytic weights according to the distribution of the relative country, thereby minimizing the influence of countries with excessive sample shares (see Morgan and Winship 2014). The results presented in

Table 8. Results of weighted logistic regression.

Variables	Model A: Direct Effect of ESG on CM		Model B: The Inclusion of the Moderating Variable, BGD
	Coef.	p-Value	Coef.	p-Value
ESG	−0.011 **	0.032	−0.003 *	0.099
BGD			0.087 **	0.039
INTERACTION: ESG×BGD			−0.003 **	0.017
BS	−0.024	0.792	0.076	0.251
BI	0.002	0.619	−0.004	0.191
FS	−0.065	0.433	0.017	0.778
FP	−0.631	0.404	−1.076 **	0.031
LEV	−0.426	0.134	−0.865 ***	0.000
COUNTRY	0.191 ***	0.000	0.310 ***	0.000
Constant	−0.903	0.344	−2.496 ***	0.001
Firm and Year effect	Controlled		Controlled

*** p < 0.01, ** p < 0.05, * p < 0.1.

indicate that although the significance of some control variables shifts slightly, the ESG × BGD interaction effect remains negative and statistically significant (p = 0.050). This supports our primary conclusion that BGD strengthens the negative relationship between ESG and CM.

4.5. Endogeneity Test Using GMM Logistic Regression

To more effectively handle the potential endogeneity—especially the interdependent relationships between BGD, ESG, and BCF—we employed a logistic GMM approach tailored for binary panel data. This technique accommodates temporal dynamics of the predictors, possible feedback effects within a panel structure (Lalonde et al. 2014; Irimata and Wilson 2017), and the feedback effects inherent in the relationships between CM, BDG, and ESG. Accordingly, we used the two-step system GMM procedure, where lagged variables (L.BCF) served as instruments for CM, which effectively captures past firm misconduct as a predictor of future misconduct. To reduce the risk of overfitting, we applied instrument collapsing in the estimation process.

As shown in

Table 9. GMM logistic estimates for CM.

Variable	Coefficient	Std. Error	z-Value	p-Value
L.BCF	1.139 ***	0.148	7.70	0.000
ESG	−0.001 *	0.008	−0.17	0.068
BGD	−0.067 **	0.066	−1.01	0.013
INTERACTIONESG × BGD	−0.0017 **	0.0017	−0.97	0.031
BS	0.007	0.026	0.28	0.777
BI	−0.0007	0.0015	−0.49	0.624
FS	0.019	0.038	0.50	0.615
FP	−0.053	0.225	−0.23	0.814
LEV	0.046	0.141	0.33	0.744
COUNTRY	−0.351 ***	0.116	−3.03	0.002
INDUSTRY	0.120 *	0.0261	2.35	0.081
Constant	1.122 *	0.594	1.89	0.059
Sargan test of overid. restrictions       Prob > chi2 = 0.214
Arellano–Bond test for AR(1) in first differences      Pr > z = 0.000

*** p < 0.01, ** p < 0.05, * p < 0.1.

, diagnostic checks were conducted to ensure the robustness and validity of the model. The Sargan test showed no evidence of overidentification (p = 0.214), and the Arellano–Bond AR(1) test confirmed the expected first-order serial correlation (p < 0.001). Due to the short panel length (T = 3), we did not report the AR(2) test. The results of the GMM logistics model, presented in Table 9, confirm the findings of the original logistic model shown in Table 6. In addition, the lagged dependent variable (L.BCF) was highly significant (p < 0.001), indicating persistence in firm misconduct overtime.

5. Discussion

This study is concerned with addressing the potential link between ESG performance and corporate misconduct and whether the representation of female directors on corporate boards moderates such a relationship. By analysing the data collected from GCC firms, our findings, in compliance with the stakeholder theory, suggest that high ESG performance is associated with reduced corporate misconduct and more responsible practices, as companies strive to meet stakeholders’ demands. Hence, firms that are accountable to a broader range of stakeholders—including society and the environment—are less likely to engage in unethical or harmful behaviour (Harrison et al. 2015; Wang 2024). The current results also underscore the expectations that stakeholders place on firms regarding corporate social responsibility. This is particularly relevant in the context of voluntary ESG disclosures, where certain reporting requirements can enhance governance and reduce misconduct (Su et al. 2024).

The moderating effect of board gender diversity further reinforces both stakeholder and gender socialization theories. Gender-diverse boards are seen as more capable of addressing societal expectations and upholding ethical standards. Along with the gender socialization theory, it is evident that female managers contribute to more ethical awareness and relational decision-making, thereby strengthening ethical governance (Chen et al. 2016). In turn, this highlights how board gender diversity enhances the role of ESG in mitigating corporate misconduct.

Furthermore, our findings bring about important implications for investors, businesses, and regulatory authorities, as follows. Firstly, for investors, backing companies with strong ESG practices and diverse boards can lead to improved financial performance and reduced risk. Firms that prioritize ethical governance and social responsibility are often better positioned for long-term success. Secondly, for businesses, integrating ESG metrics into corporate strategies and governance systems is a critical step in aligning with ethical standards and societal expectations. By focusing on these areas, companies can not only mitigate the risk of misconduct but also strengthen their reputation, attract more investors, and ensure sustainability over time. Thirdly, policymakers can play a key role in shaping corporate behaviour by advocating for or mandating greater gender diversity on boards and the adoption of strong ESG frameworks. By encouraging these initiatives, policymakers can reduce corporate misconduct and foster a more transparent, accountable, and ethical business environment.

6. Conclusions

In this study, we sought to examine the relationship between ESG performance and corporate misconduct in GCC firms and whether the representation of female directors on corporate boards moderates such a relationship. By analysing the data collected from non-financial companies in the GCC region during the period from 2021 to 2023, we found that ESG performance has a significant negative influence on CM. Further, gender diversity on corporate boards is negatively associated with CM. Moreover, we found that having gender-diverse boards amplifies the negative association between ESG and CM. Overall, our findings stress the significant impact of female directors’ representations on corporate boards. Such a representation can result in better ESG performance (Romano et al. 2020; Eliwa et al. 2023) and reduced misconduct practices such as corruption, bribery, and fraud (Bhuiyan et al. 2020; Jaggi et al. 2021).

The current findings underscore the significance of eliminating corporate misconduct and supporting female representation on corporate boards in enhancing corporate sustainability worldwide. They emphasize that firms should improve their ESG performance by prioritizing anti-misconduct efforts and promoting board diversity. This study contributes valuable insights into the relationship between ESG, corporate board composition, and corporate misconduct across diverse contexts. It highlights the importance of tailoring ESG policies and practices based on regional and developmental nuances.

Our study is subject to some limitations, as follows. Regarding data availability, we only have access to firm-year observations from 2020 to 2023, preventing a pre- and post-COVID-19 comparison. While a Difference-in-Differences (DiD) analysis would be valuable, implementing it requires a well-defined pre-crisis period with available data. Future research with access to pre-2020 data could explore if/how ESG performance mitigates financial constraints over a longer period. This will be beneficial in capturing the impact of the COVID-19 pandemic, which is crucial given its significant impact on firm performance and profitability (Zhang et al. 2022).

Furthermore, considering the focus of this study on the GCC context, future research could investigate the long-term impacts of board gender diversity and ESG practices on corporate performance in other contexts, such as the Middle East and North Africa, to identify any regional differences. In addition, considering the concentration of our study on board gender diversity, examining how ESG interacts with other internal governance mechanisms, like executive compensation and audit committee effectiveness, could offer valuable insights into their combined influence on corporate misconduct. Future research can also explore the role of external governance mechanisms, such as external auditors and independent directors, in promoting firms’ adherence to ethical standards and sustainability goals. Finally, considering the concentration of our study on studying the moderating role of BGD on the ESG-CM relationship, we suggest that future studies may extend our research by examining how institutional and cultural factors at the country level influence the relationship between ESG performance and corporate misconduct. Although our analysis centres on firm-level variables, we recognize that differences in ESG regulatory enforcement and cultural contexts across GCC nations could significantly impact this association. Due to constraints on the availability of relevant macro-level data, we were unable to integrate these elements into our empirical models.