Main Article Content
Abstract
Purpose of the study: The study is focused to investigate the impact of board diversity on firm performance through board meetings based on listed manufacturing companies listed at the Colombo Stock Exchange in Sri Lanka.
Methodology: Bio-demographic diversity of Board measured by gender, age and race, and job-related diversity measured on functional, education and organizational tenure. Firm performance measured through Tobin Q and Return on Sales. The number of board meetings conducted per year was taken as a mediating variable. Listed manufacturing companies at Colombo Stock Exchange from 1985 to 2019 were the population from which twenty-eight firms that have been operating from 2013 to 2017 were filtered as the sample. Required data was collected by annual reports, published financial documents, and on which gender index, age index, race index, functional index, education index, and organization tenure index were calculated separately. Multiple regression analysis was used to measure the direct and indirect impact of board diversities on firm performance.
Main findings: The regression result indicated a significant positive impact of gender diversity on firm performance; however age and race diversities had an insignificant impact. Further, the impacts of functional, education and organizational tenure diversities to firm performance were negative. Finally, the study found a significant indirect impact of bio-demographic and job-related diversities on firm performance through board meetings confirming the mediating effect of the board meeting.
Implications: Policymakers and authorizes listed manufacturing firms should identify the escalating trend of women participation, educational improvement in the director board and ought to take necessary actions to maintain appropriate diversity levels in terms of bio demographic and job-related to enhance the firm performance.
The novelty of the study: There is a lack of research literature discussing the impact of board diversity on firm performance with the mediating effect of the board meeting.
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References
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References
Abdullah, S. (2004). Board composition, CEO duality, and performance among Malaysian listed companies. Corporate Governance, 4(4), 47-61. https://doi.org/10.1108/14720700410558871 DOI: https://doi.org/10.1108/14720700410558871
Anazonwu, H., Egbunike, F., & Gunardi, A. (2018). Corporate Board Diversity and Sustainability Reporting: A Study of Selected Listed Manufacturing Firms in Nigeria. Journal of Sustainability Accounting and Management, 2(1), 65-78. https://doi.org/10.28992/ijsam.v2i1.52 DOI: https://doi.org/10.28992/ijsam.v2i1.52
Andreoni, J., & Vesterlund, L. (2001). Which is the Fair Sex? Gender Differences in Altruism. The Quarterly Journal of Economics, Volume 116, 293–312. https://doi.org/10.1162/003355301556419 DOI: https://doi.org/10.1162/003355301556419
Ararat, M., Aksu, M., & Tansel, C. (2015). How board diversity affects firm performance in emerging markets: Evidence on channels in controlled firms. Corporate Governance. An International Review, 23(2), 83-103. https://doi.org/10.1111/corg.12103 DOI: https://doi.org/10.1111/corg.12103
Brown-Kruse, J., & Hummels, D., (1993). Gender Differences in Laboratory Public Goods Contribution: Do Individuals Put Their Money Where Their Mouth is? Journal of Economic Behavior and Organization, Volume 22, 255–267. https://doi.org/10.1016/0167-2681(93)90001-6 DOI: https://doi.org/10.1016/0167-2681(93)90001-6
Cox, T., & Blake, S. (1991). Managing Cultural Diversity: Implication for Organizational Competitiveness. Academy of Management Executive, Volume 5, 45– 56. https://doi.org/10.5465/ame.1991.4274465 DOI: https://doi.org/10.5465/ame.1991.4274465
Erhardt, N., Werbel, J., & Shrader, C. (2003). Board of Directors Diversity and Firm Financial Performance. Corporate Governance: An International Review, 11(2), 102-111. https://doi.org/10.1111/1467-8683.00011 DOI: https://doi.org/10.1111/1467-8683.00011
Fama, E., E., & Jensen, M. (1983). Separation of Ownership and Control. Journal of Law and Economics, Volume 26, 301–325. https://doi.org/10.1086/467037 DOI: https://doi.org/10.1086/467037
Farrell, K., & Hersch, P. (2005). Additions to corporate boards: The effect of gender. Journal of Corporate Finance, Volume 11, 85-106. https://doi.org/10.1016/j.jcorpfin.2003.12.001 DOI: https://doi.org/10.1016/j.jcorpfin.2003.12.001
Fernandez, W., & Thams, Y. (2018). Board diversity and stakeholder management: the moderating impact of boards’ learning environment. The Learning Organization, 26(2), 160-175. https://doi.org/10.1108/TLO-12-2017-0126 DOI: https://doi.org/10.1108/TLO-12-2017-0126
Golden, B., & Zajac, E. (2001). , 2001. When will boards influence strategy? inclination × power = strategic change. Strategic Management Journal, 22(12), 1087-1111. https://doi.org/10.1002/smj.202 DOI: https://doi.org/10.1002/smj.202
Hambrick, D. (2007). Upper echelons theory: An update. Academy of Management Review, 32(2), 334–343. https://doi.org/10.5465/amr.2007.24345254 DOI: https://doi.org/10.5465/amr.2007.24345254
Hillman, A., Shropshire, C., & Cannella, A. (2007). Organizational predictors of women on corporate boards. Academy of Management Journal, Volume 50, 941-952. https://doi.org/10.5465/amj.2007.26279222 DOI: https://doi.org/10.5465/amj.2007.26279222
Julizaerma, M., & Sorib, Z. (2012). Gender Diversity in the Boardroom and Firm Performance of Malaysian Public Listed Companies. Social and Behavioral Sciences, Volume 65, 1077-1085. https://doi.org/10.1016/j.sbspro.2012.11.374 DOI: https://doi.org/10.1016/j.sbspro.2012.11.374
Kagzi, M., & Guha, M. (2018). Does board demographic diversity influence firm performance? Evidence from Indian-knowledge intensive firms. Benchmarking An International Journal, 25(3), 1028-1058. https://doi.org/10.1108/BIJ-07-2017-0203 DOI: https://doi.org/10.1108/BIJ-07-2017-0203
Kilic, M., & Kuzey, C. (2016). The effect of board gender diversity on firm performance: evidence from Turkey. Gender in Management An International Journal, 31(7), 434-455. https://doi.org/10.1108/GM-10-2015-0088 DOI: https://doi.org/10.1108/GM-10-2015-0088
Konrad, A., Kramer, V., & Erkut, S. (2008). Critical mass: the impact of three or more women on corporate boards. Organizational Dynamics, Volume 37, 145–164. https://doi.org/10.1016/j.orgdyn.2008.02.005 DOI: https://doi.org/10.1016/j.orgdyn.2008.02.005
Milliken, F., & Martins, L. (1996). Searching for common threads: understanding the multiple effects of diversity in organizational groups. Academy of Management Review, Volume 21, 402–433. https://doi.org/10.5465/amr.1996.9605060217 DOI: https://doi.org/10.5465/amr.1996.9605060217
Pathan, S., & Faff, R. (2013). Does the board structure in banks affect their performance?. Journal of Banking & Finance, 37(5), 1573-1589. https://doi.org/10.1016/j.jbankfin.2012.12.016 DOI: https://doi.org/10.1016/j.jbankfin.2012.12.016
Rose, C. (2007). Does the female board representation influence firm performance? The Danish evidence. Corporate Governance, 15(2), 404-413. https://doi.org/10.1111/j.1467-8683.2007.00570.x DOI: https://doi.org/10.1111/j.1467-8683.2007.00570.x
Rupawaththa, R., & Gunasekara, W. (2016). Do Women in Top Management Affect Firm Performances? Analysis of Public Quoted Companies in Sri Lanka. (pp. 53-73). Nugegoda: University of Sri Jayawardenepura. https://doi.org/10.2139/ssrn.2908791 DOI: https://doi.org/10.2139/ssrn.2908791
Simons, S., & Rowland, K. (2011). Diversity and its Impact on Organizational Performance: The Influence of Diversity Constructions on Expectations and Outcomes. Journal of Technology Management & Innovation, 6(3), 171-183. https://doi.org/10.4067/S0718-27242011000300013 DOI: https://doi.org/10.4067/S0718-27242011000300013
Tajfel, H., & Turner, J. (1986). The Social Identity of Inter-Group Behavior’. (pp. 7–24.). Nelson-Hall, Chicago: S. Worchel and W. Austin.
Wellalage, N., & Locke, S. (2013). Corporate governance, board diversity and firm financial performance: new evidence from Sri Lanka. Int. J. Business Governance and Ethics, 8(2), 116-136. https://doi.org/10.1504/IJBGE.2013.054416 DOI: https://doi.org/10.1504/IJBGE.2013.054416
Zahra, S., & Pearce, J. (1989). Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15(2), 291–334. https://doi.org/10.1177/014920638901500208 DOI: https://doi.org/10.1177/014920638901500208