Board diversity and financial performance: empirical evidence from the United Kingdom

• Published in: Accounting research journal 2022-06, Vol.35 (4), p.561-580
• Main Authors: Hosny, Khaled, Elgharbawy, Adel
• Format: Article
• Language: English
• Subjects: Boards of directors; Chief executive officers; Communication; Dependency theory; Economic crisis; Executives; Females; Gender; Hypotheses; International finance; Literature reviews; Skills; Tenure; Workplace diversity
• ISSN: 1030-9616; 1839-5465
• DOI: 10.1108/ARJ-02-2020-0037

Purpose This study aims to investigate the relationship between board diversity and financial performance from a wide perspective, including multiple dimensions of board diversity. Design/methodology/approach The cross-sectional design of the FTSE 350 companies in the period of 2013–2019 was adopted in this study. Data were collected using the Thomson Reuters Eikon and BoardEx databases and analyzed via ordinary least Squares (OLS) regression. Findings Both gender and skill diversity positively affect financial performance. However, other dimensions of diversity, including board tenure, education and network, have no significant influence on financial performance. On the other hand, nationality diversity negatively affects financial performance, and the gender diversity of executive directors negatively affects market-based performance. The results remain unchanged after considering endogeneity concerns and using alternative measures of financial performance. Practical implications This study provides useful insights into the importance of board diversity and its implications for firm performance, which can help in the development of future regulations and policies, such as female representation on the board. The findings can also guide companies toward the best way of diversifying their boardrooms in different aspects. Originality/value This study extensively investigates board diversity, including gender, tenure, skill and education, network and nationality, using the lens of the resource dependency theory. It also extends the scope of the study to examine some characteristics of executive directors, including gender and age. The evidence is provided from one of the leading countries in regulating corporate governance (CG), i.e. the UK.