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Does boardroom diversity impact the financial performance of FTSE 350 firms?

Author

Listed:
  • Corniciuc, Iarina

    (University of Warwick)

Abstract

This paper examines the impact of diversity on a firm's financial performance, a topic which requires more research due to the fast changes in boardroom composition and the inconclusive previous literature. The main analysis utilises panel data with a fixed effect model to examine FTSE 350 UK firms between 2001 and 2020. Results show that the percent of females is positively and significantly correlated with the two firm performance variables, Tobin's Q and ROA. Initial results also show that a higher count of nationalities have a positive and significant impact on firm performance. These results are in line with various theories which state that diverse groups are found to be more innovative as they cover a wider range of knowledge. The paper provides empirical proof of token theory, which states that gender diversity below a threshold of 15% has a negative impact on a firm's performance. This could be due to being perceived as a minority causing isolation, which in turn impacts performance. Results also show that the critical mass point, where most benefits are reaped in the relationship, lies at 40% and above female directors. This is in line with the proposed EU directive of a quota of 40% female directors.Â

Suggested Citation

  • Corniciuc, Iarina, 2021. "Does boardroom diversity impact the financial performance of FTSE 350 firms?," Warwick-Monash Economics Student Papers 07, Warwick Monash Economics Student Papers.
    • Handle: RePEc:wrk:wrkesp:07
    as

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    File URL: https://warwick.ac.uk/fac/soc/economics/research/wmesp/manage/7_-_iarina_corniciuc.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    G34 ; G38 ; J15 ; J16 ; J48 JEL Classification: Corporate Governance ; Board Diversity ; Critical Mass Theory ; Token Theory ; Performance;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy

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