The impact of board diversity on firm financial performance

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School of Business | Master's thesis
Degree programme
Global Management
In the past few years, board diversity has emerged as a critical issue in corporate governance, receiving attention from both industry practitioners and academics. This study investigates the relationship between board diversity and financial performance of a company. The focus is on gender diversity, age diversity, and education diversity. The data is drawn from 112 listed companies in Finland, excluding financial institutions, over the period 2015-2019. The dependent variable is financial performance, measured by Tobin’s q. Tobin’s q is computed as total market value divided by total assets and is the most commonly used measure in corporate governance literature. The independent variable are gender diversity, age diversity, and education diversity. They are measured by the Blau index. Control variables include firm size, firm age, and board size. To analyse the data, this study uses both fixed effects model and a more robust dynamic panel generalised method of moment (GMM) estimation. The results reveal a significant and positive correlation between the gender diversity of the board and the financial performance of a company. However, age diversity and education diversity show insignificant impacts. The main limitations of the study are data and data collection. The data collected during the research was small in size, as the study focuses on the Finnish market, where there are only over 100 publicly listed companies. The data collection process is partly manual, as board information is not always updated in financial databases. The study is expected to make practical contributions to companies and policymakers, as it strengthens the business case for board diversity. Companies will be able to recruit the right directors and form more effective boards, achieving “board-performance fit” that ensures better performance. Policymakers will be able to formulate recommendations and laws that direct the formation of boards with desirable characteristics such as gender, age, and education. Overall, the study encourages gender diversity in the boardroom, but a lot of tact and circumspection are required.
Thesis advisor
Joenväärä, Juha
board diversity, corporate governance, board, diversity
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