Board diversity, corporate governance, corporate performance, and executive pay

Abstract

Departing from previous studies, this paper investigates the impact of corporate board diversity on corporate performance and executive pay within the context of Middle East and North African countries. Our sample includes a balanced panel of 600 firm‐year observations, consisting of 100 individual firms drawn from five Middle Eastern countries (Egypt, Jordan, Oman, Saudi Arabia, and United Arab of Emirates) over the 2009–2014 period. The findings are three‐fold. First, board diversity, as measured by director gender and nationality, has a positive effect on corporate financial performance. Second, the relationship between board diversity and corporate performance is stronger in better governed firms than their poorly governed counterparts. Finally, board diversity, as measured by director gender, ethnicity, and nationality, enhances the pay‐for‐performance sensitivity but not the actual executive pay. Our results suggest that decisions about board diversity are not merely influenced by moral values; they arise because of the cost–benefit considerations of what diversity can bring to the firm. The findings are robust to controlling for different alternatives of board diversity measures, corporate governance proxies, corporate outcomes, and types of endogeneities.

Does Board Gender Diversity Bring Better Financial and Governance Performances? An Empirical Investigation of Cases in Taiwan

“…Corporate governance is the framework of mechanisms by which companies can be directed and controlled [34]. Agency theory suggests that more diversified corporate boards are more independent and thus better able to perform their monitoring function [11,31]. Over time, the role of gender in the boardroom has become a significant aspect of corporate governance, as women differ from men in terms of ethical and social behavior [35].…”

“…Agency theory suggests that corporate boards serve a key role in resolving agency issues and ensuring a good balance between shareholders and management. To this end, diversity in the boardroom brings a broader range of knowledge, skills, experience, ideas and behaviors, which can reduce the extent of agency conflict and have a positive impact on board performance [9][10][11]. Authors of Reference [12] found that the ratio of white female directors and ethnic minority directors positively correlated to the return on assets (ROA) and shareholder returns.…”

Why Gender Equality in Policing is Important for Achieving United Nations Sustainable Development Goals 5 and 16

“…Research has shown that diversity in, and an egalitarian culture surrounding, the executive board positions of the commercial sphere promote greater effectiveness, productivity and decisionmaking (Creary et al 2019;Sarhan, Ntim and Al-Najjar 2019). The same is true for policing.…”

Does Structural Power Matter? Board Attributes and Firm Performance

“…Firm performance encompasses the ability of an organization to maximize the shareholders' wealth and thus increase the firm value (Sarhan, Ntim, & Al-Najjar, 2019). However, in recent years financial crises, economic collapse, and fall of large corporations have resulted in investors of the firms to endure severe losses (Martín & Herrero, 2018).…”

“…Although previous studies have extensively researched on board attributes and firm performance, the results are inconclusive. While studies have shown positive relationships between board attributes and firm performance (Han, Nanda, & Silveri, 2016;Sarhan et al, 2019), others have shown negative relationships (Boyd, 1995;Duru et al, 2016;Garkaz, Abdollahi, Niknam, & Branch, 2016;Martín & Herrero, 2018). Whereas, there are studies which have not shown significant relationships (Sheikh, Shah, & Akbar, 2018).…”