The moderating effect of board gender diversity in the relationship between firm performance and CEO compensation—evidence from an emerging economy

This study examines the moderating role of female directorship in the corporate boardroom in the relationship between firm performance and Chief Executive Officer (CEO) compensation for Bangladeshi financial institutions from 2016–2022. Ordinary least squares regression models were employed to evaluate the relationship. We find a significant positive correlation between firm performance and CEO compensation, specifically in relation to accounting performance. Female directorship strengthens the CEO pay-performance link in both accounting and market-based measures of performance. These results are robust to a battery of tests, including alternative measures of female board presence and firm performance, and address endogeneity issues using a lagged model and entropy balancing technique. We also find that women are more effective in setting CEO pay-performance linkage in cases of concentrated ownership, and when their presence goes beyond tokenism. Investors and policymaker should prioritize the inclusion of women on corporate boards to improve the firm's financial performance. This study contributes to the expanding body of research on board gender diversity in developing economies by examining the impact of women directors on firm performance and CEO pay, and their influence on the effectiveness of board oversight.