The impact of board diversity on firm performance – The case of Germany

Abstract

Numerous mergers and acquisitions, and the rise of MNCs with global customer bases have exposed the German board of directors to a variety of cultures. Despite the obvious relevance for corporate governance, the effect that cultural diversity of boards exerts on firm performance, Germany has been a blank spot in this literature. Using a sample of 101 German publicly listed companies, this empirical study answers if the level of cultural variety and cultural distance in boards of directors have an influence on firm performance. The results of this study indicate that cultural variety in boards of directors has a linear, negative influence on operational firm performance (as measured by ROI and ROE). This reinforces the fundamental assertion that executives’ cultural values shape their mindsets and orientations, and thus influence their decision-making. The results of this study, therefore, indicate that cultural diversity is an important diversity dimension that further on should be given careful consideration in research. Based on the findings, we argue against the blindfold implementation of (political) regulations in the area of board diversity.

Toward an alternative measure of board diversity: an exploratory study on board polarization in German stock exchange-listed companies

“…We use return on investment (ROI) as a performance indicator for our exploratory study. ROI is a financial indicator that measures the profitability of an investment (Braendle et al, 2020;Hinterhuber and Liozu, 2015). It is calculated by dividing the net profit of an investment by the cost of the investment.…”

“…, 2011). However, the demographic characteristics of age and gender along with ethnic background are the dimensions most often incorporated in research, at least for practical reasons (Gardiner, 2022; Braendle et al. , 2020; Reddy and Jadhav, 2019; Kirsch, 2018).…”

“…, 2016). Whether greater cultural board diversity leads to better corporate performance is therefore also a matter of controversy (Dodd and Zheng, 2022; Hosny and Elgharbawy, 2022; Braendle et al. , 2020).…”

“…Board composition is a fundamental topic in the field of management research (Gardiner, 2022;Ren and Zeng, 2022;Porcena et al, 2021;Tyrowicz et al, 2020;Li and Huang, 2019). In particular, the question of how board diversity can be increased is becoming a growing priority in the ongoing political and academic debate (Dodd and Zheng, 2022;An et al, 2021;Brahma et al, 2020;Braendle et al, 2020;Aggarwal et al, 2019). On the one hand, this is related to the increasing social awareness of diversity and equality issues (Fleischer, 2022;Kirsch et al, 2022;Huang et al, 2020).…”

Board Diversity and Corporate Sustainability Performance: Do CEO Power and Firm Environmental Sensitivity Matter?

“…Aligned with social identity theory, it may also create 'in-groups and out-groups', 'us vs. them', which can impede board functioning [62,65]. Braendle et al [85] thus call for more attention to BCD and its influence on board activities.…”