Board diversity on firm performance from resource-based view perspective: new evidence from Pakistan

Abstract

PurposeThis study aims to investigate the impact of extensive board diversity on firm performance from the perspective of resource-based view (RBV) theory in the context of Pakistan.Design/methodology/approachThe analyses are made using a panel random-effects model and generalized method of moment (GMM) across 188 non-financial firms listed in the Pakistan Stock Exchange (PSX) over the period of 2009–2020. The robustness of findings is checked through alternative measurements of the variables and alternative estimation techniques.FindingsThe results show that board members' nationality, ethnicity and educational level diversities are significantly positively related to firm performance. In contrast, age and educational background diversities negatively affect firm performance. However, gender and tenure diversities have an insignificant relationship with firm performance.Research limitations/implicationsThis study is conducted in the context of Pakistani firms; thus, the findings may not be generalizable to other economies because different economies have different institutional settings and governance structures.Practical implicationsThe policy-makers should encourage the inclusion of board members' nationality, ethnicity and educational level diversities having relevant educational backgrounds to improve firms' competitive performance. The suggested structure of the corporate board may improve firm performance by attracting multiple stakeholders and fulfilling their expectations.Social implicationsThe appointment of a director should be based on merit rather than on political connections or personnel relationships to improve social welfare and avoid their negative impact on firm competitive performance.Originality/valueTo the best of the authors' knowledge, this is the first study that investigates the impact of board diversity on firm accounting-based performance and market-based performance in the emerging economy of Pakistan. This study uses RBV theory to provide a unique corporate governance structure based on board diversity, particularly in Pakistan.

Does corporate social responsibility mediate the relationship between board diversity and financial distress: evidence from an emerging economy?

“…The findings support the resource-based view that foreign directors provide the company with access to a broader social network, diverse and international expertise and communication skills (Beji et al , 2021) and bring new ideas and perspectives into the business (Hafsi and Turgut, 2013), all of which improve financial performance and save the firm from FD. Furthermore, the findings corroborate the idea that boards with international directors may have superior financial performance as a result of their worldwide experience (Sarhan et al , 2019; Ararat et al , 2015; Estelyi and Nisar, 2016; Khan et al , 2023).…”

“…Furthermore, in line with the resource-based view, these internal resources should be prioritized because it will reduce the firm’s FD through the emphasis on CSR. Second, policymakers and regulators should encourage PSX-listed enterprises to appoint board members with suitable educational resources to improve firm performance and keep it out of FD, as irrelevant educational background reduces firm performance (Khan et al , 2023). It is further suggested that PSX-listed companies link the board of directors’ tenure to the company’s performance in terms of profitability, investment effectiveness and CSR.…”

“…Several studies have shown that board features like board size, independence and ownership level have an impact on the FD (Farooq et al , 2020; Ali and Nasir, 2018; Manzaneque et al , 2016; Ali et al , 2021; Farooq and Noor, 2021). Recently, board members’ diversity has received considerable attention in corporate governance (Ali et al , 2021; Khan et al , 2023). Board diversity refers to board members’ differences in age, gender, nationality, experience, knowledge, skills, preferences, etc.…”

“…This paper contains numerous contributions. First, few studies have been conducted to examine the association between board diversity and FD, as existing studies focused on board diversity and its relationship with firm competencies, CSR reporting, financial information reporting and financial performance (Lone et al , 2016; Khan et al , 2019; Khan et al , 2023). Limited attention has been given to the study of the impact of board diversity and FD and no study has been conducted on how board diversity affects FD.…”

Does board diversity reduce the likelihood of financial distress in the presence of a powerful Chinese CEO?

“…Corporate leaders emphasize board members with diverse backgrounds, such as heterogeneity in experience, skills and knowledge (Gabaldon et al, 2018;Guizani and Abdalkrim, 2022). The resource dependency view suggests that board diversity could lead to MD 61,6 a complete appraisal of strategic matters and improve the board's decision quality and creativity (Harrison and Klein, 2007;Khan et al, 2023a;Milliken and Martins, 1996) Therefore, the study hypothesizes as follows:…”