Abstract:

This study examines the relationship between firm performance and board diversity. Board diversity is measured in terms of gender and nationality diversity in the board of directors’ composition. The study uses a sample of non-financial companies listed on the London Stock Exchange (LSE) between the period of 2017 and 2019. The result shows that firms whose board composition is made up of more women and foreign directors have better financial performance than their counterparts. This finding supports the contention that women directors have different beliefs, values, and abilities of problem-handling, bringing thought diversity to management, which contributes to better firm performance. Besides that, more foreign directors on the board also add value to firm performance as they bring better bring more viewpoints, exclusive and expertise information which contributes to a better boardroom as well as access to international networks. Taken together, this study supports the notion that board diversity brings a better supervision mechanism, improved board productivity and expertise, and richness of external information and networks, thereby improving the company’s performance to some extent. Our results are robust to sub-sample of FTSE 100 and FTSE 350 companies, as well as when alternative measures of board diversity are used in the study. The sensitivity analyses performed also indicate that the positive effects of board diversity are sensitive to alternative measures of firm performance. This study fills the gap in the literature by using a larger set of UK samples and examines the issue in a more recent period. This study also adds to the very limited research using earnings per share to measure firm performance.

Keywords:

Firm performance, women, gender diversity, foreign directors, UK, board of directors, Return on Assets, Tobin’s Q, Earnings Per Share, Return on Equity, ROA, ROE, EPS.

How to Cite:

Khairul Ayuni Mohd Kharuddin and Yong Liu. The Relationship between Firm Performance, Gender, and Nationality of the UK Boards. [ref]: vol.21.2023. available at: https://refpress.org/ref-vol21-a171/