Does boardroom diversity impact the financial performance of FTSE 350 firms?

Iarina Corniciuc
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Iarina Corniciuc: University of Warwick

Warwick-Monash Economics Student Papers from Warwick Monash Economics Student Papers

Abstract: This paper examines the impact of diversity on a firm's financial performance, a topic which requires more research due to the fast changes in boardroom composition and the inconclusive previous literature. The main analysis utilises panel data with a fixed effect model to examine FTSE 350 UK firms between 2001 and 2020. Results show that the percent of females is positively and significantly correlated with the two firm performance variables, Tobin's Q and ROA. Initial results also show that a higher count of nationalities have a positive and significant impact on firm performance. These results are in line with various theories which state that diverse groups are found to be more innovative as they cover a wider range of knowledge. The paper provides empirical proof of token theory, which states that gender diversity below a threshold of 15% has a negative impact on a firm's performance. This could be due to being perceived as a minority causing isolation, which in turn impacts performance. Results also show that the critical mass point, where most benefits are reaped in the relationship, lies at 40% and above female directors. This is in line with the proposed EU directive of a quota of 40% female directors.Â

Keywords: G34; G38; J15; J16; J48 JEL Classification: Corporate Governance; Board Diversity; Critical Mass Theory; Token Theory; Performance (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-gen
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