The Effect of Board Diversity on Firm Performance: A Conceptual Exploration through Human Capital Theory

Nur Mimi Najihah Ghazali, Najihah Marha Yaacob, Nur Raihana binti Mohd Sallem and Siti Nasuha Muhmad

Information Management and Business Review, 2025, vol. 17, issue 2, 31-38

Abstract: A crucial element of corporate governance that could affect organizational results and strategic decision-making is board diversity. The diversity of human capital has been recognized as important in ensuring corporate governance effectiveness. Finding opportunities, coming up with ideas, and overcoming blind spots are all made easier for a company and CEO when a diverse group of directors contributes a range of skills, knowledge, and information. The Human Capital Theory explains the value of individual attributes, where individuals from different backgrounds possess unique knowledge and abilities that contribute to productivity. Despite the growing interest in this topic, empirical findings remain inconsistent, calling for more conceptual exploration. The purpose of this conceptual paper is to explore the effect of board diversity on firm performance by examining relationships through the Human Capital Theory. Specifically, this paper examines how diverse boards could contribute to firm value and the quality of governance. This paper also highlights the different outcomes in existing literature on these issues and proposes direction for future research. Through the lens of the Human Capital Theory, this paper identifies diversity as a strategic asset, where a variety of professional experience, educational backgrounds, and demographic profiles support innovative capacity, board-level decision-making, and the caliber of oversight.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:rnd:arimbr:v:17:y:2025:i:2:p:31-38

DOI: 10.22610/imbr.v17i2(I)S.4563

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