Board Diversity and Its Impact on Firm Performance
堪培拉论文代写:Board Diversity and Its Impact on Firm Performance
Contents
Board Diversity and Its Impact on Firm Performance. 1
Introduction. 3
Heterogeneous Element: Age, Education and Others. 3
Gender diversity. 4
Theoretical background and Practical Aspect of the Argument 4
Discrepancies across Developed country and Developing country. 5
Mandatory Rules and Its Implication. 5
Conclusion. 6
References. 7
Introduction
Board diversity is an interesting research topic has realistic value, for it has direct connection with board performance, and therefore, with firm performance. At the same time, it also reflects the concerns in business realm including corporate governance code ethics. Corporate governance codes to business world are law to our society. Society cannot operate without law, rules and code keep the society running smooth and in order. A healthy market based on reasonable and proper corporate governance. In general, corporate governance code consists of actions carried out by corporate managers which are responsible for corporate performances and activities (Weil, Gotshal & Manges, 2002, p.1). Board diversity, especially gender diversity in board composition related to code ethics. Moreover, researches conducted also focus on other composition dissimilarities, such as education, age, expertise experiences etc to clarify whether the differences have impact on board performances or not. Board performances are reflected from the financial performances of the firm. Board of directors give strategic decisions which control the immediately moves the firms will make for the near future, and given the fact that all firms over financial performances, the strategic decisions made by board of directors are of crucial importance for the firm.
When considering demographic diversity in the board, basically there are two distinct types of diversity. The first one is observable, which is demographic; the other one is non-observable, which belongs to the cognitive scope (Shrader, 2003, p. 102). In this essay, the focus will be on demographic diversity. Demographic diversity includes a number of elements. Researchers conducted previously all have different stands comes to define diversity. In order to avoid confusion, in this essay, the researcher will address a few elements that can be derived from existing researches. Moreover, more weight will be positioned on examining gender difference of board composition and its impact on board performances. A number of researches have been conducted regarding this issue from different perspectives. Corporate governance code is different from region to region, so is economic situation. Therefore, studies conducted under individual circumstances are likely to have distinct results. But the overall findings are consistent in at least European Union countries. Also, the researches agreed upon that more researches must be done in the future to clarify several issues of gender diversity in the board.
Heterogeneous Element: Age, Education and Others
To view diversity in board of directors from a rational perspective, the diversity can be seen as a functional trait that serves the heterogeneous group to accomplish a common goal (Siciliano, 1996 cited by Mahadeo et al., 2011, p. 376). According to Simons and Pelled (1999), such functionality stimulates the group by providing a mix of expertise, innovation, and creativity and therefore making the group more competitive. Ideally, if this functionality view of the board is valid, any criteria of the members in the board should not be universal. Taking age for example, age should not be considered separately from the person's life experiences. In other words, age here is not simply a number but the substitutes to measure the person's professional experiences and expertise. It is an inherited nature for companies to prefer a board that have members who are mature and experienced (Kang et al 2007 cited by Mahadeo et al., 2011, p.377). People who fulfill those criteria by default are generally retired, experienced business directors that are old in age. Statistics show that retired executives indeed enjoy spending their time to sit in a variety of boards and their old age is of natural career progression (Kang et al, 2007). The advocates for a homogeneous board believe that such a group understands the value and tradition of the company, since they spend their entire career in the company. On the other hand, a board with diverse age range has several advantages as well. One of them is that by using diverse age range in boards ensures reasonable labor division (Houle 1990 cited by Mahadeo et al., 2011, p. 377). The other one is by using middle aged executives to address top management issues; the younger people can develop business knowledge in preparation for the future. Nonetheless, an age diverse group will lack inner strength for the lack of cohesion, especially when the concern is short-term growth (Marray 1989, pp. 134-135 cited by Mahadeo et al., 2011, p. 377). It is possible that to have an age diverse board will cause fractions and unnecessary conflicts which will slow down decision making at crucial moments, as well as provoke commitment and trusting issues. Having examining both sides of the table, it is not convincing enough to say either one is better than the other from functionality perspective (Mahadeo et al., 2011, p. 378). To adopt the age diverse group choice, the company will have to rely on the assumption that directors will perform in board according to their duties and does not let the short-term issues interfere them; if a homogeneous board is being adopted, conflicts is avoided at the expense of new ideas and innovations. Education level, unlike age has little empirical evidence to support its impact on board performances. However, in a study conducted in oil industry, a homogeneous board performs better than others (Murray, 1989, p.136 cited by Mahadeo et al., 2011, p. 378). Nevertheless, oil industry is an exception due to its high demand for expertise, hence an all-engineers board outperforms. While in banking industry, a heterogeneous group with diverse education background outperforms ones with a board consisting of uniform educational background. Research also finds out the while gender might not have significant impact on firm performance but citizenship has impact (Funch et al, 2013, pp.15-28).
Gender diversity
It is contended that to have a "diverse" board, especially a gender diverse board has more symbolic implication than its realistic meaning. In western culture, egalitarian is the norm, or at least the "norm to be achieved". Gender diversity captures the attention for academic researchers and business realm not only as a research topic but also as an opportunity to improve shareholder's value. Putting up a diverse board can be a political move as well as a strategic move. For example, research indicates that achieve a critical mass of women on boards can contribute to improving innovations in the business and therefore to improving the firm’s performance (Torchia et al. 2011). The following sections will discuss the theoretical background and the advantages of gender diversity; different situations in developing countries and developed countries; last but the least, the implication of making gender diverse board mandatory
Theoretical background and Practical Aspect of the Argument
There are several theoretical background that concern gender diversity and firm performance. Firstly, resource dependency theory views the firm as an open system which depends on the changes from external environment. The board is in possession of sources such as skills and knowledge, legitimacy, and connections to external environment. Thus to include female in boards brings more resources (Dang et al., 2013, pp. 1-35). Another theory called agency theory considers the board as a mechanism to oversee managers. The usefulness to include female directors is that female directors tend to ask more questions than male counter parts, hence serve a better function in monitoring and controlling managers (Dang et al., 2013, pp. 1-35).
These theories can be utilized to explain the contribution that female directors have to the performance of the firm. Comparing to theoretical background, the practical aspect is more convincing in explaining the importance of a gender diverse board. Firstly, to have female directors in board make better decision-making, for female directors are generally more risk-averse than their male counterpart (Byrnes et al. 1999 cited by Dang et al., 2013, p. 5). Secondly, men and women possess distinct cognitive styles. In other words, they will not share same cognitive bias. Therefore, when the firm faces a situation, the best solution will arises from a collaboration of male and female directors. Female directors will offer alternatives to the situation at hands. Finally, female directors have significant impact on the overall input of the board. For example, female directors have higher tendencies to show up than males. In addition, female directors are more likely to point out the financial losses caused by CEOs (Adams & Ferreira, 2009 cited by Dang et al., 2013, p. 5). Moreover, with the presence of female directors in board, compensation package will be equal and efficiency of decision making is ensured since female directors are less prone to extreme positions (Dang et al., 2013, p. 6). To have female directors in board certainly has certain merits in balancing things out for higher management. Whether or not it has a direct connection with firm performance shall be discussed further.
堪培拉论文代写:Board Diversity and Its Impact on Firm Performance
Discrepancies across Developed country and Developing country
Numerous researches have been conducted to find out if putting female on board indeed enhances board performances, the answers are not uniform. Benchmark research conducted in Germany using 151 listed firms found that the firm performance followed a U-shape after appointing female board directors. Moreover, the study also found that female board member should not exceed 30% in order to have a positive impact (Joecks et al., 2013, pp. 61-72). Another research uses 20 European banks to study if firm characters had predictable effects on gender diversity. It found out that banks with higher growth potential are inclined to include women on their boards (Mateos de Cabo et al., 2012, pp. 145-162). Such finding raises an interesting research question that whether high growth causes gender diversity in board or the other way around.
While a number of studies have been conducted using Fortune's companies, French listed companies, German and Nordic companies, very few researches are concerning the situations in emerging economics. Researches done in Germany mentioned above is able to find a connection between gender diversity and board performance which is U-shaped. Research done in Pakistan does not reach the same conclusion. Researchers claimed that while the result is consistent with previous researches in emerging markets, this result should be used as a starting point for future researches in developing countries. In previous researches, a research done in Indonesia claiming that by using listed firms in Indonesia and Tobin's Q as measurement for firm value finds a negative result between gender diversity and firm value (Slaim 2011 cited by Entebang et al., 2013, p. 102). There are other emerging markets yet to be examined more closely, because the two countries of choices are not representative enough. Both Pakistan and Indonesia are known to be make-dominant countries; the reason for them to include female board members could be more political than economical. It is possible that the competent female directors are already scarce in these economies, and other political causes
堪培拉论文代写:Board Diversity and Its Impact on Firm Performance
