The Value of Board Diversity in the Relationship of Corporate Governance and Investment Decisions of Pakistani Firms

Abstract

Inspired by the studies on the impact of diversity among decision-making groups, this study was carried out to examine whether the diversity of the members of the board of directors, encompassing gender, nationality, education, and experience, moderates the relationship between the corporate governance and investment decisions of listed companies of the Pakistan Stock Exchange. Furthermore, the determinants of investment decisions in the context of Pakistani firms’ are also explored. Panel data analysis techniques are used to gauge the cause and effect relationship among the variables. We find short-term liquidity and profitability are the determinants of Pakistani firms’ investment decisions, both having adverse relationships. Moreover, we explore board independence, and chief executive officer (CEO) duality has a significant positive impact on investment decisions. We further find that experience diversity strongly moderates the relationship between board independence and board size with investment decisions in the opposite direction. Education diversity moderates the relation of board size and investment decisions in the same direction. Foreign directors’ presence on the board also significantly moderates the relationship between board independence and investment decisions. The results of this empirical study confirm that board diversity moderates the relationship between corporate governance and investment decisions.

Gender Diversity in Boards of Directors: A Bibliometric Mapping

“…Management capabilities have a greater influence on both product and open innovation process when the management team is more balanced in the number of men and women [78]. The reduced representation of women in boards of directors may seem incoherent, considering the major positive impact they have on numerous areas within a company [79]. However, one must not ignore the various barriers and obstacles women have to deal with in order to reach upper level positions in a company, such as social stereotypes, work-life balance and different leadership styles.…”

The Role of Women on Boards as A Mechanism to Improve Carbon Emission Disclosure and Firm Value

“…The result of the observation contradicted the research of Orazalin & Baydauletov (2020) which stated that the women on boards has a significant effect on firm value. women on boards propels a more varied ideas and innovation on a larger scope for a better decision making process, individually or collectively (Mirza et al, 2020). The result of the observation also differed from the one of Orazalin & Baydauletov (2020) which supports the varied gender increase the company's competitive advantage which will affect the firm value.…”

“…This research is a development of one that was conducted by Hollindale et al (2019) by placing the carbon emission disclosure as the intervening variable which mediating the influence of women on boards upon the firm value. The presence of women in the board of directors tends to generate a broader variety of ideas and innovation (Mirza et al, 2020) that leads to a better decision making quality both individual and organizational. It also helps and promotes the mechanism of carbon emission disclosure, affects to the effectivity of the communications between the directors and the investors, brings a tighter control by serving a more transparent ecological disclosure (Olthuis & Oever, 2020).…”

“…Directors' board is the most affecting party on determining strategies, targets, and decisions of the firm. Women on board tends to generate a varied ideas and innovation in a broader scope that result on a good quality of decisions made both individually and groups (Mirza et al, 2020). Thus the hypothesis: H3: Women on boards has a significant effect to the firm value Carbon emission disclosure is a factor that may affect the value of a company.…”

Corporate Governance and Culture: A Systematic Review

“…Therefore there are more chances of innovation and creativity which will have a positive effect on firm performance. Mirza et al (2020) board diversity attract more investment opportunities. Wang et al (2020) explain that individual board members process-specific unique characteristics because of past belongings that cannot be easily changed, affecting FP.…”