396 Corporate Governance: An International Review, 2010, 18(5): 396–414
The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial Performance corg_809 396..414
David A. Carter, Frank D’Souza, Betty J. Simkins, and W. Gary Simpson* ABSTRACT Manuscript Type: Empirical Research Question/Issue: 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. Research Findings/Insights: 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. Theoretical/Academic Implications: 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. Practitioner/Policy Implications: 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. Keywords: Corporate Governance, Financial Performance, Board Committees, Board Composition
volving cultural, political, and societal views of corporate board membership are partially driving interest in the demographic diversity of corporate directors. In addition, the global desire for better corporate governance is a major factor. The Cadbury Report in the United Kingdom, the General Motors Board of Directors guidelines in the US, and the Dey Report in Canada illustrate an interest in improved governance in different countries (Monks & *Address for correspondence: Spears School of Business, Oklahoma State University, Stillwater, OK 74078-4011, USA. E-mail: firstname.lastname@example.org
Minow, 2004). The movement in the US for improved corporate governance following governance failures and a heightened awareness of the importance of corporate governance produced the Sarbanes-Oxley Act of 2002, a massive piece of legislation. Other countries have passed legislation and/or guidelines regulating corporate governance as well. Rose (2007) reports a signiﬁcant interest in Scandinavian countries in increasing the number of women on corporate boards. Norway has a law that requires 40 per cent of the directors for a company to be women (Rose, 2007). Similar to Norway, Spain recently passed legislation requiring a quota for the number of female directors (Adams & Ferreira, 2009). The Higgs Report, commissioned by the British Department © 2010 Blackwell Publishing Ltd doi:10.1111/j.1467-8683.2010.00809.x
BOARD DIVERSITY AND FINANCIAL PERFORMANCE
of Trade and Industry, suggests that demographic diversity increases board effectiveness and recommends that more women be included on boards (Adams & Ferreira, 2009). Hillman, Cannella, and Harris (2002) contend that one of the most important trends in US boardrooms over the past two decades...
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