Board diversity and organizational valuation: unravelling the effects of ethnicity and gender

Abstract

Organizational boards of directors are one of the most important subgroups within most modern organizations, performing critical advisory, monitoring and resource dependence roles. This paper investigates the crucial question of whether the stock market values ethnic and gender diversity within organizational boards. We find that board diversity is positively associated with market valuation. We distinctively demonstrate further that ethnic diversity is valued more highly by the stock market than gender diversity. By contrast, we do not find any evidence of a significant non-linear link between board diversity and market valuation. Our findings are robust across a number of econometric models that deal with different types of endogeneities and market valuation measures. Overall, our results are consistent with agency and resource dependence theoretical predictions.JEL classification: G30, G32, G34, G38

Corporate Boards and Ownership Structure as Antecedents of Corporate Governance Disclosure in Saudi Arabian Publicly Listed Corporations

“…The positive connection between GONR and the SCGI provides empirical support for H3 and the results of Eng and Mak (2003), Al-Janadi et al (2013), Ntim, Opong, Danbolt, and Thomas (2012), Ntim et al (2013), and Ntim andSoobaroyen (2013a, 2013b) suggest that corporations with high government ownership make significantly more voluntary CG and CSR disclosures, as well as the broader objectives of government investments. Through the GOSI, PIF, and PPA, the Saudi government holds significant ownership stakes in major corporations with keen interest in positively influencing CG and stakeholder issues.…”

“…Similarly, using a 2002 cross-sectional sample of 244 Canadian listed firms, Bozec and Bozec (2007) report a negative link between ownership concentration and disclosure of good CG practices. In addition, using a sample of 100 South African listed firms from 2002 to 2009, Ntim andSoobaroyen (2013a, 2013b) and Ntim et al (2013) report a negative effect of block ownership on voluntary CSR and risk disclosures, respectively. Within the Saudi context, corporate ownership has historically been concentrated with control firmly in the hands of dominant royal families and government (Al-Razeen & Karbhari, 2004;Piesse et al, 2012), and hence our prediction is that block ownership is more likely to affect voluntary CG disclosure.…”

“…Prior evidence relating to the connection between government ownership and voluntary disclosure is limited, although Eng and Mak (2003) and Al-Janadi et al (2013) find that government ownership is positively associated with voluntary disclosure, while Ntim andSoobaroyen (2013a, 2013b) and Ntim et al (2013) report that government ownership affects positively on voluntary CSR and risk disclosures, respectively. With regard to the Saudi corporate setting, the government holds significant ownership stakes in large public and private corporations through a number of institutions, including the General Organization for Social Insurance (GOSI), Public Investment Fund (PIF), and Public Pension Agency (PPA) with keen interest in CG and stakeholder issues, and thus, the study's third hypothesis is that Hypothesis 3 (H3): There is a statistically significant positive association between government ownership and the level of voluntary compliance and disclosure of good CG practices.…”

“…Agency theory suggests that increased managerial monitoring associated with larger boards can have a positive influence on corporate disclosures, including CG practices and performance (Samaha et al, 2012), whereas others have suggested that larger boards are often characterized by poor coordination, communication, and monitoring problems (Jensen, 1993;Ntim, Lindop, Osei, & Thomas, 2015;2015), which can impact negatively on CG disclosure and financial performance. Also, resource dependence theory indicates that larger boards are associated with greater diversity in terms of expertise (Branco & Rodrigues, 2008;Chen & Roberts, 2010), experience, and stakeholder (stakeholder theory) representation (Ntim & Soobaroyen, 2013a, 2013bReverte, 2009), which can enhance corporate legitimacy (legitimacy theory) and reputation (Ashforth & Gibbs, 1990).…”

“…For example, both Rouf (2011) and Samaha et al (2012) find that board size is positively related to voluntary disclosure in a sample of 120 and 100 Bangladeshi and Egyptian listed corporations, respectively. Similarly, and employing a sample of 100 South African listed firms from 2002 to 2009, Ntim andSoobaroyen (2013a, 2013b) and Ntim et al (2013) report that board size has a positive effect on voluntary CSR and risk disclosures, respectively. In addition, Al-Janadi et al (2013) report a positive link between board size and voluntary disclosure in a sample of 87 Saudi listed firms.…”