Effect of Board Diversity, Promoter’s Presence and Multiple Directorships on Firm Performance

Abstract

Purpose: This article analyses the effect of board diversity on the financial performance of non-financial firms listed in the Nifty Index. Specifically, it examines the mediation effect of the promoter’s presence and multiple directorships on the financial performance of the firm, that is, return on net worth (RONW), return on equity (ROE) and its sales growth. Methodology: The article uses the hierarchical regression model to analyse the effect of board diversity on financial performance. The presence of the promoters on the board and multiple directorships are taken as the control variables. Findings: Empirical results show the significant effect of the promoter’s presence on the board on the firm’s earnings and a significant positive effect of firm age, board size, age diversity and experience diversity on the financial performance. However, we do not find any statistically significant relationship between firm size and financial performance in any model. The results also show that the age and experience of the female directors are significantly less compared to the male directors. However, the age and experience of the non-executive directors and independent directors are found to be higher among the other positions held by the directors. We also find a negative relationship between multiple directorships in other firms and the financial performance of the firm. Value: The article proposes that there should be a greater number of independent directors in a firm that has its promoter on the board. One recommendation for the board is to reduce the number of directorships held in other boards to ensure more constructive contribution towards the firm’s financial performance. The article studies the effect of the promoter’s presence on the board and multiple directorships held by board members on the financial performance of the firm.

Impact of multi-industry directorship on firm performance: a study with reference to India

“…The present study contributes to the existing literature of MD and firm performance by incorporating the industry experience. This study reconciles the contradictory findings (Masulis and Mobbs, 2011; Rouyer, 2016; Reguera-Alvarado and Bravo, 2017; Limbasiya and Shukla, 2019) and suggests that a firm should appoint a similar industry experienced non-executive director on the board to enhance the performance. The findings of the study will help the regulatory bodies, such as SEBI and the Ministry of Corporate Affairs (MCA), in developing the policies considering the significance of industry experience of outside directors so that it will improve the firm performance.…”

“…It states that MD restrict a director to discharge the required responsibilities towards a particular firm due to their overcommitment and limited time (Ahn et al , 2010; Falato et al , 2014; Bennouri et al , 2018; James et al , 2018). Similarly, the directors’ busyness impedes them from effective monitoring (Field et al , 2013) and, as a result, adversely affects firm performance (Cashman et al , 2012; Aguilera and Crespi-Cladera, 2016; Limbasiya and Shukla, 2019).…”

Pessimistic Tone in Earnings Announcement and CSR Disclosure: Exploring the Interacting Role of CEO Busyness

“…In addition, this study also found that CSR disclosure is higher in firms that use a pessimistic tone in earnings announcements and have a busy CEO. Previous literature stated that busy CEOs would not be able to carry out their functions properly due to the limited energy and time they have [23,24], thereby reducing the firm performance [64][65][66]. As a result, firms use CSR disclosures with the aim of social legitimacy [33,34], gaining stakeholder trust and consensus [34] and enhancing the firm's reputation [70].…”

“…Previous literature stated that busy CEOs would not carry out their functions properly due to their limited energy and time [23,24]. Therefore, it reduces the firm's performance [64][65][66]. As a result, companies use CSR disclosures to distract users.…”

Investigating the Nexus between Corporate Governance and Firm Performance in India: Evidence from COVID-19

“…The rationale behind selecting the Nifty 200 index is that this index covers both Nifty 100 companies and Nifty 100 full mid-cap companies and represents approximately 86.7 percent of the free-float market capitalisation of NSE-listed equity stock as of 31 March 2019. During the scrutiny process, 47 financial companies were removed because these companies have different business practices and are bound by the additional regulation of the RBI Act of 1949 (Limbasiya and Shukla 2019). Moreover, two companies were removed due to the unavailability of required data.…”