The Effect of Diversity in Board of Directors to Financial Performance: Evidence in Indonesia

Abstract

This paper aims to examine whether diversity in gender, nationality, and age in the board of directors of banks in Indonesia could affect the financial performance of those banks. We used conventional banks’ data in Indonesia in the year of 2014 to 2018 as a sample of this research. Based on the empirical result using fixed effect approach and the Generalized Methods of Moment (GMM) analysis, we find that diversity in gender in the board of directors does not affect the performance of banks in Indonesia. This could be the result of the little amount of female representative in the board of directors. In contrast diversity in age and diversity in nationality in the board of directors has an effect to the financial performance of banks in Indonesia. We used two measurement to represent financial performance in this study, which are measured by Tobin’s Q that represent measurement based on market and Return on Asset (ROA) that represent measurement based on accounting.

Board diversity on firm performance from resource-based view perspective: new evidence from Pakistan

“…Extended studies examined the relationship between board diversity and firm performance in developed countries (Fidanoski et al, 2014;Hillman and Dalziel, 2003), while this study offered empirical evidence from the context of developing countries. Most notably, the existing studies are mainly focused on resource dependency theory, agency theory, stakeholders' theory, legitimacy theory, stewardship theory, etc (Putri and Danarsari, 2020;Hassan et al, 2020;Mohd Idris, 2021;Molla et al, 2021), while we contributed to the theoretical literature by refining board diversity and firms' performance relationships from the perspective of RBV theory.…”

“…The impact of board diversity on firms' performance is explained from the theoretical perspective of RBV theory (Barney, 1991; Galbreath, 2016; Yu and Choi, 2016). Previous studies used different theoretical perspectives (Fidanoski et al ., 2014; Shukla et al ., 2021), including resource dependency theory and slack resource theory (Putri and Danarsari, 2020; Ntim, 2015), stakeholder theory and agency theory (Hussain et al ., 2018), neo-institutional theory (Ntim and Soobaroyen, 2013) and stewardship theory (Sajjad and Rashid, 2015) for investigating the relationship between board members' characteristics and firms' performance (Nguyen et al ., 2020). Recently, strategic management researchers focused on why some firms are regularly profitable than others (Barney and Clark, 2007).…”

“…Recently, board members' diversity has received considerable attention as one of the essential issues in ensuring good corporate governance (Fidanoski et al ., 2014; Ali et al ., 2021). In response to corporate scandals such as Enron, WorldCom in the United States, HIH in Australia and Parmalat in Italy, practitioners and policy-makers have called for a diversity of board members (Arnaboldi et al ., 2020; Putri and Danarsari, 2020). A homogeneous board, on the other hand, with more similar viewpoint(s) and opinion, tends to intensify group conformity (Miller and Triana, 2009; Li and He, 2023) which result in corporate failure and weaken the overall governance mechanisms (Siciliano, 1996).…”

“…Second, we applied the maximum attributes of the board diversity in terms of determining the firms' performance to overcome the overlooked area in existing studies which focused on limited board diversity attributes (see Huang and Hilary, 2018; Arnaboldi et al ., 2020; Vo and Phan, 2013; Amin et al ., 2021). Moreover, existing studies used one or other performance measure (Sajjad and Rashid, 2015; Ullah et al ., 2019; Fidanoski et al ., 2014; Putri and Danarsari, 2020; Molla et al ., 2021) while, we provide evidence using both accounting-based performance (return on assets (ROA) and return on equity (ROE)) and market-based performance (Tobin's Q and excess return (ER)) measures of firm performance. Third, we make an important contribution to the theoretical literature on corporate governance by analyzing board diversity and firms' performance from RBV theory in the context of Pakistan.…”

Relationship between Women on Board Directors and Economic Value Added: Evidence from Latin American Companies

“…The lack of consensus between theory and empirical conclusions has led to broadening the field of study to determine whether the impacts of gender diversity on managerial tasks positively or negatively affect the financial or non-financial variables of companies, with the most concentrated analyses in the United States and Europe. In terms of profitability, market or accounting metrics have been used, finding an increase in financial outcomes [18,19], but mixed relationships have also been detected [20][21][22][23][24][25][26], with some not finding significant results [27][28][29].…”