Effect of Board Diversity on Financial Performance of Firms in Malaysia: A Moderating Role of Corporate Sustainability Practices

Abstract

The volatile financial performance (FP) of listed firms in Bursa Malaysia has been observed since 2008. The total earnings by companies in FTSE Bursa Malaysia KLCI index in 2016 dropped by 30 percent showing unusual performance pattern among the listed firms. Both FTSE Bursa Malaysia KLCI and EMAS index year on year capital return performance are also found negative from 2014 to 2016. The declining FP of firms is often associated with weak corporate governance (CG) practices. The board diversity (BD) under CG mechanisms induces the improvement of FP and long-term success of a firm. Since BD impacts on FP, this study proposes a conceptual framework by introducing corporate sustainability practices (CSP) to see how it moderates the relationship between BD and FP. The conceptual framework offers useful information which may help for further investigating in BD and FP. The future studies should validate empirically the proposed research framework. There are two ways BD might influence firms' FP. Firstly, BD directly influences the firms' FP which is based on the agency theory and the resource dependence theory and empirical evidence from previous studies. Secondly, BD can influence FP of firms with the help of CSP which is based on the stakeholder theory. Figure 1 shows the conceptual research framework of the paper.