The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial Performance

19 Pages Posted: 15 Sep 2010

See all articles by David Carter

David Carter

Oklahoma State University - Stillwater - Department of Finance

Frank P. D'Souza

Loyola University - Sellinger School of Business and Management

Betty J. Simkins

Oklahoma State University - Stillwater - Department of Finance

W. Gary Simpson

Oklahoma State University - Stillwater - Department of Finance

Abstract

We examine the business case for the inclusion of women and ethnic minority directors on the board. Specifically, we investigate the relationship between the number of women directors and the number of ethnic minority directors on the board and important board committees and financial performance measured as return on assets and Tobin’s Q.

We do not find a significant relationship between the gender or ethnic diversity of the board, or important board committees, and financial performance for a sample of major US corporations. Our evidence also suggests that the gender and ethnic minority diversity of the board and firm financial performance appear to be endogenous.

Reasonable theoretical arguments drawn from resource dependence theory, human capital theory, agency theory, and social psychology suggest that gender and ethnic diversity may have either a positive, negative, or neutral effect on the financial performance of the firm. Our statistical analysis supports the theoretical position of no effect, either positive or negative. Our results are consistent with a contingency explanation because the effect of the gender and ethnic diversity of the board may be different under different circumstances at different times. Over several companies and time periods, the results could offset to produce no effect.

The results of our analysis do not support the business case for inclusion of women and ethnic minorities on corporate boards. However, we find no evidence of any negative effect either. Our evidence implies that decisions concerning the appointment of women and ethnic minorities to corporate boards should be based on criteria other than future financial performance.

Suggested Citation

Carter, David A. and D'Souza, Frank P. and Simkins, Betty J. and Simpson, W. Gary, The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial Performance. Corporate Governance: An International Review, Vol. 18, No. 5, pp. 396-414, September 2010. Available at SSRN: https://ssrn.com/abstract=1677099 or http://dx.doi.org/10.1111/j.1467-8683.2010.00809.x

David A. Carter (Contact Author)

Oklahoma State University - Stillwater - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078-4011
United States
405-744-5104 (Phone)
405-744-5180 (Fax)

Frank P. D'Souza

Loyola University - Sellinger School of Business and Management ( email )

4501 North Charles Street
Baltimore, MD 21210-2699
United States

Betty J. Simkins

Oklahoma State University - Stillwater - Department of Finance ( email )

336 Business Building
Stillwater, OK 74078-4011
United States
405-744-8625 (Phone)
405-744-5180 (Fax)

HOME PAGE: http://spears.okstate.edu/~simkins

W. Gary Simpson

Oklahoma State University - Stillwater - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078-4011
United States

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