Board demographic diversity, firm performance and strategic change

Daniel Kipkirong Tarus · Federico Aime

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Gender Diversity and Inequality Corporate Finance and Governance Team Dynamics and Performance

Abstract

Purpose – The purpose of this study is to examine the effect of boards’ demographic diversity on firms’ strategic change and the interaction effect of firm performance. Design/methodology/approach – This paper used secondary data derived from publicly listed firms in Kenya during 2002-2010 and analyzed the data using fixed effects regression model to test the effect of board demographic and strategic change, while moderated regression analysis was used to test the moderating effect of firm performance. Findings – The results partially supported board demographic diversity–strategic change hypothesis. In particular, results indicate that age diversity produces less strategic change, while functional diversity is associated with greater levels of strategic change. The moderated regression results do not support our general logic that high firm performance enhances board demographic diversity–strategic change relationship. In effect, the results reveal that at high level of firm performance, board demographic diversity produces less strategic change. Originality/value – Despite few studies that have examined board demographic diversity and firm performance, this paper introduces strategic change as an outcome variable. This paper also explores the moderating role of firm performance in board demographic diversity–strategic change relationship, and finally, the study uses Kenyan dataset which in itself is unique because most governance and strategy research uses data from developed countries.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 2011External Control of Organizations: Resource Dependence Perspective 1984Upper Echelons: The Organization as a Reflection of Its Top Managers 1997THE CORPORATE SOCIAL PERFORMANCE-FINANCIAL PERFORMANCE LINK 1978Patterns in Strategy Formation 1989Top management and innovations in banking: Does the composition of the top team make a difference?1992TOP MANAGEMENT TEAM DEMOGRAPHY AND CORPORATE STRATEGIC CHANGE.

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2021The effect of the board diversity on firm performance: An empirical study on the UK 2018Boardroom Diversity and Operating Performance: The Moderating Effect of Strategic Change 2019Improving corporate governance with functional diversity on FTSE 350 boards: directors’ perspective 2018Contextualizing comprehensive board diversity and firm financial performance: Integrating market, management and shareholder’s perspective 2022Measuring the impact of board gender and cultural diversity on corporate governance and social performance: evidence from emerging markets

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