Three Essays in Financial Accounting

Abstract

The global business landscape is undergoing a paradigm shift. As stakeholders increasingly prioritize not only financial returns but also social and environmental impact, the concept of Environmental, Social, and Governance (ESG) has gained significant prominence (Henisz, 2023). Firms today are evaluated not merely on their profit margins but on their commitment to sustainability, ethical practices, and governance structures (Christensen et al., 2021; Albuquerque et al., 2019). A central aspect of this transformation is the recognition of reputation risk related to ESG practices, and diversity – both at the board level and throughout the organizational hierarchy. Reputation, long considered an intangible asset, has quantifiable implications on a firm's financial performance. In the context of ESG, reputation risks arise when firms fail to meet stakeholder expectations concerning environmental stewardship, social responsibility, or ethical governance. One such area under the spotlight is diversity, with an increasing body of evidence suggesting that firms with diverse leadership and workforce exhibit better financial performance. Board gender diversity has emerged as a critical factor. While progress has been made, women remain underrepresented in many boardrooms globally. This underrepresentation not only raises ethical concerns but also deprives firms of diverse perspectives that could enrich decision-making processes. Similarly, diversity among employees, encompassing education, race, ethnicity, and other parameters, offers a mosaic of perspectives that can foster innovation and improve risk management. Yet, the question remains: How do these elements – ESG reputation risk, board gender diversity, and broader employee diversity – influence a firm's financial performance and behavior? The purpose of this dissertation is to investigate the relationship between firms' financial performance and behavior, ESG reputation risk, board gender diversity, or employee diversity.