Board diversity and firm performance: empirical evidence from the united kingdom

Abstract

This study examines the relationship between board diversity and firms’ performance in the UK by examining cross-sectional data for 2013–2016 from the Financial Times Stock Exchange (FTSE) 350 companies. Board diversity was measured by gender diversity, background and skills, and board tenure. Performance was measured by Return on Assets (ROA) and Tobin’s Q using two regression models. The study revealed mixed results. Performance, as measured by both proxies, had a positive association with gender diversity, a negative association with background and skills, and mixed results with board tenure. Tobin’s Q revealed a non-significant relationship with board tenure diversity, whereas ROA had a positive association. Regarding the control variables, board size and number of meetings had positive association with performance, whereas firm size and level of leverage had negative association with performance. The presence of a corporate governance committee and a nomination committee had positive association with Tobin’s Q model but not with ROA, while executive members’ gender diversity had a positive association with the ROA but not with Tobin’s Q. This study provides useful insights into the importance of board diversity and its implications for firm performance, which can help develop future regulations and policies, such as having a quota of women on the board.