The Impact of Board Diversity on Firms’ Performance: The Case of Retail Industry in Europe

Abstract

The aim of this paper is to examine the relationship between board diversity and firms’ performance. The board of directors is the highest decision-making body responsible for governing an organization on behalf of its shareholders. It performs key functions like strategy formulation, policy development, monitoring, supervising, providing leadership, and accountability. An optimal board composition is crucial for effective corporate governance and is found to have a significant influence on firms’ performance. At the same time, board diversity is reported to have a significant impact on the quality of internal audit. Firms’ performance is defined based on three different dependent variables as reported in the relevant literature. These variables refer to Return on Assets (ROA), Return on Equity (ROE) and Tobin’s Q. Data of 213 listed firms belonging to the retail industry from eight different European countries have been analyzed using correlation analysis and panel data regression. The research results have shown a positive impact of some of the independent variables on the variables referring to firms’ performance. The research results provide useful insights on how firms can benefit from their boards of directors’ diversity.