ESG performance, executive gender diversity and analyst forecast biases: disentangling optimistic versus pessimistic predictions

PurposeThis study examines the relationship between firms' ESG performance and analyst forecast errors, and the moderating role of executive gender diversity, within European financial institutions. The analysis distinguishes between optimistic and pessimistic analyst forecast biases.Design/methodology/approachUsing a Feasible Generalised Least Squares (FGLS) estimator, we analyse a panel of 200 European financial institutions over 2015–2024. We address endogeneity concerns through one-period lagged specifications and an instrumental-variable (2SLS) approach, using the country-year Global Gender Gap Index as an instrument for executive gender diversity.FindingsESG performance increases analyst forecast errors, consistent with a cognitive bias interpretation. Executive gender diversity significantly moderates this relationship. The effect is concentrated among optimistic forecasts, where gender-diverse leadership curbs ESG-driven over-optimism. Pessimistic forecasts remain largely unresponsive to ESG signals. Disaggregating ESG into its pillars extends this moderation to pessimistic forecasts as well. Results are robust to lagged and instrumental-variable specifications, to a two-year horizon, and to the inclusion of country fixed effects.Practical implicationsThe findings offer guidance for regulators, directors and shareholders by highlighting executive gender diversity as a governance mechanism that enhances the credibility of ESG information for financial markets, with implications for forecast accuracy, analyst relations and investment decision-making.Originality/valueThis research contributes to the literature by examining the moderating role of executive gender diversity in the ESG–analyst forecast accuracy relationship, drawing on diversity theory and the resource-based view. It further reveals that this moderation operates asymmetrically across optimistic and pessimistic analyst biases within the underexplored context of European financial institutions.