Board Diversity and Its Effects on Firm Performance and Risk: A Study in Banking Firms

Abstract

This study examines the effect of board diversity on firm performance and risk in banking firms. The data used in this study was obtained from Bloomberg and OSIRIS database and also firm’s annual reports during 2014-2018 and conducted on banking firms in Indonesia. The final sample used in this study consists of a total of 160 observations. This study uses panel data regression model analysis, ie. fixed effect regression and random effect regression. The results showed that woman director has a positive effect on performance. This results are consistent with resource dependence theory and human capital theory which states that a more diverse board will provide more valuable resources, which can result in better firm performance. The results also showed that woman director have a negative effect on risk because woman director can correct bias in important decisions. Otherwise, based on the research data, the small number of foreign directors make their existence have no effect on performance and risk.

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