Board Diversity, Firm Risk-taking and Firm Performance: Empirical Evidence from India
DOI:
https://doi.org/10.48165/gmj.2022.17.2.5Keywords:
Board Diversity, firm risk, firm performance, panel data regression, Dynamic Panel RegressionAbstract
The study examines the impact of board diversity on the firm risk-taking and firm performance of Indian firms. A subset of Nifty 200 Index companies has been analysed over the period of five years using Panel Regression (fixed-effects) and Dynamic Panel Regression. After controlling for several firms and governance variables, the results showed that board education diversity played significant positive role in influencing firm risk-taking ability whereas board experience diversity found to have no link. With respect to impact of board diversity on firm performance, board educational and board experience diversity had a significant negative influence on stock-based measure of firm performance whereas no relationship in case of accounting-based measure. This research is a novel attempt to study the impact of education and experience attributes of board and recognizes various board-level characteristics on the firm-risk and firm performance, particularly in the wake of the implementation of the Companies Act 2013 in India.
Downloads
References
Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309. https://doi.org/10.1016/j.jfineco.2008.10.007
Aggarwal, R., Jindal, V., & Seth, R. (2019). Board diversity and firm performance: The role of business group affiliation. International Business Review, 28(6), 101600.
Ali, M., Ng, Y. L., & Kulik, C. T. (2014). Board Age and Gender Diversity: A Test of Competing Linear and Curvilinear Predictions. Journal of Business Ethics, 125(3), 497–512. https://doi.org/10.1007/s10551-013-1930-9
Ararat, M., Aksu, M., & Cetin, A. T. (2015). HOW BOARD DIVERSITY AFFECTS FIRM PERFORMANCE IN EMERGING MARKETS: EVIDENCE ON CHANNELS IN CONTROLLED FIRMS. https://doi.org/10.1002/corg.12103
Arora, A., & Bodhanwala, S. (2018). Relationship between Corporate Governance Index and Firm Performance: Indian Evidence. Global Business Review, 19(3), 675–689. https://doi.org/10.1177/0972150917713812
Baysinger, B., & Hoskisson, R. E. (1990). The Composition of Boards of Directors and Strategic Control: Effects on Corporate Strategy. The Academy of Management Review, 15(1), 72. https://doi.org/10.2307/258106
Bernile, G., Bhagwat, V., & Yonker, S. (2018). Board diversity, firm risk, and corporate policies. Journal of Financial Economics, 127(3), 588–612. https://doi.org/10.1016/j.jfineco.2017.12.009
Boyd, B. K. (1995). CEO Duality and Firm Performance: A Contingency Model. In Management Journal (Vol. 16, Issue 4). https://www.jstor.org/stable/2486959
Bruna, M. G., Dang, R., Scotto, M. J., & Ammari, A. (2019). Does board gender diversity affect firm risk-taking? Evidence from the French stock market. Journal of Management and Governance, 23(4), 915–938. https://doi.org/10.1007/s10997-019-09473-1
Carter, D. A., D’Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5), 396–414. https://doi.org/10.1111/j.1467-8683.2010.00809.x
Carter, D. A., Simkins, B. J., Simpson, W. G., Borokhovich, K., Crutchley, C., Elson, C., Fry, M., Hersch, P., Li, J., & Longhofer, S. (2003). Corporate Governance, Board Diversity, and Firm Value We wish to thank. In The Financial Review (Vol. 38). http://www.iccr.org.
Chung, K. H., & Pruitt, S. W. (1994). A simple approximation of Tobin's q. Financial management, 70-74.
Daily, C. M., Dalton, D. R., & Cannella Jr, A. A. (2003). Corporate governance: Decades of dialogue and data. Academy of management review, 28(3), 371-382.
Dalton, D. R., Daily, C. M., Johnson, J. L., & Ellstrand, A. E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management journal, 42(6), 674-686.
Đặng, R., Houanti, L. H., Reddy, K., & Simioni, M. (2020). Does board gender diversity influence firm profitability? A control function approach. Economic Modelling, 90, 168–181. https://doi.org/10.1016/j.econmod.2020.05.009
Darmadi, S. (2013). Board members' education and firm performance: evidence from a developing economy. International Journal of Commerce and Management.
Duppati, G., Rao, N. V., Matlani, N., Scrimgeour, F., & Patnaik, D. (2020). Gender diversity and firm performance: evidence from India and Singapore. Applied Economics, 52(14), 1553–1565. https://doi.org/10.1080/00036846.2019.1676872
Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board of director diversity and firm financial performance. Corporate governance: An international review, 11(2), 102-111.
Faccio, M., Marchica, M. T., & Mura, R. (2016). CEO gender, corporate risk-taking, and the efficiency of capital allocation. Journal of Corporate Finance, 39, 193–209. https://doi.org/10.1016/j.jcorpfin.2016.02.008
Fernández-Temprano, M. A., & Tejerina-Gaite, F. (2020). Types of director, board diversity and firm performance. Corporate Governance: The International Journal of Business in Society.
Finkelstein, S., & Hambrick, D. C. (1996). Strategic leadership: Top executives and their effects on organizations. Minneapolis, MN: West Publishing Company.a
Flannery, M. J., & Hankins, K. W. (2013). Estimating dynamic panel models in corporate finance. Journal of Corporate Finance, 19(1), 1–19. https://doi.org/10.1016/j.jcorpfin.2012.09.004
García-Meca, E., García-Sánchez, I. M., & Martínez-Ferrero, J. (2015). Board diversity and its effects on bank performance: An international analysis. Journal of Banking and Finance, 53, 202–214. https://doi.org/10.1016/j.jbankfin.2014.12.002
Gill, S., & Kaur, P. (2015). Family Involvement in Business and Financial Performance: A Panel Data Analysis. Vikalpa, 40(4), 395–420. https://doi.org/10.1177/0256090915605756
Gottesman, A. A., & Morey, M. R. (2010). CEO Educational Background and Firm Financial Performance. In Journal of applied finance (Issue 2). https://ssrn.com/abstract=2693079
Gregory-Smith, I., Main, B. G. M., & O’Reilly, C. A. (2014). Appointments, pay and performance in UK boardrooms by gender. Economic Journal, 124(574). https://doi.org/10.1111/ecoj.12102
Haniffa, R. M., & Cooke, T. E. (2002). CULTURE AND CORPORATE GOVERNANCE IN MALAYSIA ABACUS ORIGINAL ARTICLE 0 0 Graphicraft Limited, Hong Kong Culture, Corporate Governance and Disclosure in Malaysian Corporations. ABACUS, 38(3).
Harjoto, M. A., Laksmana, I., & Yang, Y. wen. (2018). Board diversity and corporate investment oversight. Journal of Business Research, 90, 40–47. https://doi.org/10.1016/j.jbusres.2018.04.033
Hart, O. (1995). Corporate Governance: Some Theory and Implications. In Source: The Economic Journal (Vol. 105, Issue 430).
Haslam, S. A., Ryan, M. K., Kulich, C., Trojanowski, G., & Atkins, C. (2010). Investing with prejudice: The relationship between women’s presence on company boards and objective and subjective measures of company performance. British Journal of Management, 21(2), 484–497. https://doi.org/10.1111/j.1467-8551.2009.00670.x
Jackling, B., & Johl, S. (2009). Board structure and firm performance: Evidence from India’s top companies. Corporate Governance: An International Review, 17(4), 492–509. https://doi.org/10.1111/j.1467-8683.2009.00760.x
Jatana, C. (2022). Board characteristics and CEO turnover–performance relationship: evidence from India. Corporate Governance (Bingley). https://doi.org/10.1108/CG-01-2022-0038
Jatana, C. (2023). Corporate governance, CEO compensation, and corporate performance: evidence from India. Corporate Governance (Bingley), 23(1), 132–168. https://doi.org/10.1108/CG-08-2021-0282
John, K., Litov, L., & Yeung, B. (2008). Corporate Governance and Risk-Taking. In THE JOURNAL OF FINANCE •: Vol. LXIII (Issue 4).
Kagzi, M., & Guha, M. (2018). Board demographic diversity: a review of literature. In Journal of Strategy and Management (Vol. 11, Issue 1, pp. 33–51). Emerald Group Publishing Ltd. https://doi.org/10.1108/JSMA-01-2017-0002
Kang, H., Cheng, M., & Gray, S. J. (2007). Corporate Governance and Board Composition: diversity and independence of Australian boards.
Kim, K.-H. (2008). CEO Duality Leadership And Firm Risk-Taking Propensity. In The Journal of Applied Business Research-First Quarter (Vol. 24, Issue 1).
Kohli, M. (2018). Impact of Ownership Type and Board Characteristics on the Pay–Performance Relationship: Evidence from India. Indian Journal of Corporate Governance, 11(1), 1–34. https://doi.org/10.1177/0974686218763853
Mahadeo, J. D., Soobaroyen, T., & Oogarah Hanuman, V. (2012). Board Composition and Financial Performance: Uncovering the Effects of Diversity in an Emerging Economy. Source: Journal of Business Ethics, 105(3), 375–388. https://doi.org/10.1007/s
Milliken, F. J., & Martins, L. L. (1996). Searching for common threads: Understanding the multiple effects of diversity in organizational groups. Academy of management review, 21(2), 402-433. Webber, S. S., & Donahue, L. M. (2001). Impact of highly and less job-related diversity on work group cohesion and performance: A meta-analysis. Journal of management, 27(2), 141-162.
Mohsni, S., Otchere, I., & Shahriar, S. (2021). Board gender diversity, firm performance and risk-taking in developing countries: The moderating effect of culture. Journal of International Financial Markets, Institutions and Money, 73. https://doi.org/10.1016/j.intfin.2021.101360
Murray, A. I. (1989). Top management group heterogeneity and firm performance. Strategic management journal, 10(S1), 125-141.
Nielsen, S., & Huse, M. (2010). The contribution of women on boards of directors: Going beyond the surface. Corporate Governance: An International Review, 18(2), 136–148. https://doi.org/10.1111/j.1467-8683.2010.00784.x
Ozdemir, O., Erkmen, E., & Binesh, F. (2022). Board diversity and firm risk-taking in the tourism sector: Moderating effects of board independence, CEO duality, and free cash flows. Tourism Economics, 28(7), 1782–1804. https://doi.org/10.1177/13548166211014367
Pathan, S., & Faff, R. (2013). Does board structure in banks really affect their performance? Journal of Banking and Finance, 37(5), 1573–1589. https://doi.org/10.1016/j.jbankfin.2012.12.016
Rose, C. (2007). Does female board representation influence firm performance? The Danish evidence.
Schwizer, P., Soana, M. G., & Cucinelli, D. (2012). The relationship between board diversity and firm performance: The Italian evidence. Retrieved September, 10, 2013.
Westphal, J. D., & Zajac, E. J. (1998). The symbolic management of stockholders: Corporate governance reforms and shareholder reactions. Administrative science quarterly, 127-153.
Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581–606. https://doi.org/10.1016/j.jfineco.2012.03.005
Yeh, C. M., & Trejos, B. (2015). The influence of governance on tourism firm performance. Current Issues in Tourism, 18(4), 299–314. https://doi.org/10.1080/13683500.2013.820258
Zhang, H. (2009). Effect of derivative accounting rules on corporate risk-management behavior. Journal of Accounting and Economics, 47(3), 244–264. https://doi.org/10.1016/j.jacceco.2008.11.007
Zhang, Y., & Rajagopalan, N. (2010). Research notes and commentaries once an outsider, always an outsider? CEO origin, strategic change, and firm performance. Strategic Management Journal, 31(3), 334–346. https://doi.org/10.1002/smj.812
Downloads
Published
Issue
Section
License
Copyright (c) 2023 Gyan Management Journal
This work is licensed under a Creative Commons Attribution 4.0 International License.
How to Cite
