Board Diversity and Firm Performance: Panel Data Evidence from 12 Selected Commercial Banks in Nigeria
https://doi.org/10.35877/454RI.daengku587
Keywords:
Board Diversity, Female directors, Panel Data, Firm Performance, Nigerian Banks
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Abstract
Motivated by the continuous but inconclusive and ambiguous evidence on the relationship between board diversity and financial performance, this study aimed at providing new evidence that will enhance the state of knowledge by establishing if board diversity affects the financial performance of listed Banking institutions in Nigeria. The key dependent variables of interest were Return on Assets (ROA) and Return on Equity (ROE) and the independent variables of interest were board gender diversity and board independence. The study sampled 12 listed banks from the Nigerian stock exchange and relied on secondary data from the Bloomberg database and the annual reports of the banking institutions. Panel data methodology was used to analyse the data for the period under review (2015-2019). The results of the study indicated that board gender diversity has a significant positive impact on both ROA and ROE of the banking institutions. Conversely, the findings of the study indicated that board independence has a significant negative impact on both ROA and ROE of banking institutions. The findings of this study are related to Agency and Resource dependence theories and will contribute to meaningful policy reforms that can improve corporate governance, especially in the banking industry. The results of the study strongly recommend the need to increase the number of female directors on the boards of banking institutions. The study further recommends ways in which the contributions of both female and independent directors can be promoted in other to benefit from their presence on the board.
References
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Laux, V., 2008. Board Independence and CEO Turnover. Journal of Accounting Research, 46(1), pp.137-171.
Liu, Y., Miletkov, M., Wei, Z. and Yang, T., 2015. Board independence and firm performance in China. Journal of Corporate Finance, 30, pp.223-244.
Lückerath-Rovers, M., 2013. Women on boards and firm performance. Journal of Management & Governance, 17(2), pp.491-509.
Mallin, C., 2016. Corporate Governance. 5th ed. Oxford: Oxford University Press.
Marinova, J., Plantenga, J. and Remery, C., 2015. Gender diversity and firm performance: evidence from Dutch and Danish boardrooms. The International Journal of Human Resource Management, 27(15), pp.1777-1790.
Moghalu, K., 2015. Taking Corporate Governance to the Next Level: Perspectives from the Nigerian Banking Sector. Corporate Governance Journal, 1(3), pp.17-24.
Musleh Alsartawi, A., 2019. Board independence, frequency of meetings and performance. Journal of Islamic Marketing, 10(1), pp.290-303.
Ngo, M., Pham, T. and Luu, T., 2019. Effect of Board Diversity on Financial Performance of the Vietnamese Listed Firms. Asian Economic and Financial Review, 9(7), pp.743-751.
Nguyen, H. and Faff, R., 2007. Impact of board size and board diversity on firm value: Australian evidence. Corporate Ownership and Control, 4(2), pp.24-32.
Onyekwere, S., Wesiah, S. and Nuuman Danbatta, S., 2019. The Relationship Between Board Diversity and Corporate Financial Performance: Empirical Evidence from Five Selected Commercial Banks in Nigeria. International Journal of Finance and Banking Research, 5(4), p.76.
Pfeffer, J. and Salancik, G., 1978. The External Control of Organizations: A Resource Dependence Perspective. Contemporary Sociology, 8(4), p.612.
Qadorah, A. and Bt Fadzil, F., 2018. The Effect of Board Independence and Board Meeting on Firm Performance: Evidence from Jordan. Journal of Finance and Accounting, 6(5), p.105.
Rashid, A., Zoysa, A., Lodh, S. and Rudkin, K., 2010. Board Composition and Firm Performance: Evidence from Bangladesh. Australian Accounting, Business and Finance Journal, 4(1), pp.76-95.
Rashid, A., 2018. Board independence and firm performance: Evidence from Bangladesh. Future Business Journal, 4(1), pp.34-49.
Reguera-Alvarado, N., de Fuentes, P. and Laffarga, J., 2015. Does Board Gender Diversity Influence Financial Performance? Evidence from Spain. Journal of Business Ethics, 141(2), pp.337-350.
Rose, C., 2007. Does female board representation influence firm performance? The Danish evidence. Corporate Governance: An International Review, 15(2), pp.404-413.
Sanda, A., Garba, T. and Mikailu, A., 2011. Board Independence and Firm Financial Performance: Evidence from Nigeria. African Economic Research Consortium.
Saunders, M., Lewis, P. and Thornhill, A., 2009. Research Methods For Business Students. Essex: Pearson Education Limited.
Shehata, N., Salhin, A. and El-Helaly, M., 2017. Board diversity and firm performance: evidence from the U.K. SMEs. Applied Economics, 49(48), pp.4817-4832.
Taljaard, C., Ward, M. and Muller, C., 2015. Board diversity and Financial Performance: A Graphical Time-Series Approach. South African Journal of Economic and Management Sciences, 18(3), pp.425-448.
Tarigan, J., Hervindra, C. and Hatane, S., 2018. Does Board Diversity Influence Financial Performance?. International Research Journal of Business Studies, 11(3), pp.193-215.
Terjesen, S., Couto, E. and Francisco, P., 2015. Does the presence of independent and female directors impact firm performance? A multi-country study of board diversity. Journal of Management & Governance, 20(3), pp.447-483.
Ujunwa, A., Nwakoby, I. and Ugbam, C., 2012. Corporate board diversity and firm performance: Evidence from Nigeria. Corporate Ownership and Control, 9(2), pp.216-226.
Uwana, I., 2015. The Role of Director in Ensuring Corporate Governance. Corporate Governance Journal, 1(3), pp.35-41.
Zabri, S., Ahmad, K. and Wah, K., 2016. Corporate Governance Practices and Firm Performance: Evidence from Top 100 Public Listed Companies in Malaysia. Procedia Economics and Finance, 35, pp.287-296.
Zhu, J., Ye, K., Tucker, J. and Chan, K., 2015. Board Hierarchy, Independent Directors, and Firm Value: Evidence from China. SSRN Electronic Journal.
Al-Qudah, A., Azzam, M., Shakhatreh, M. and Mahmoud, M., 2019. The impact of board of directors characteristics on banks performance: evidence from Jordan. Academy of Accounting and Financial Studies Journal, 23(2), pp.1-16.
Alshetwi, M., 2020. The Association between Board Size, Independence and Firm Performance: Evidence from Saudi Arabia. Global Journal of Management and Business Research, 17(1), pp.17-28.
Ameer, R., Ramli, F. and Zakaria, H., 2010. A new perspective on board composition and firm performance in an emerging market. Corporate Governance: The international journal of business in society, 10(5), pp.647-661.
Atrill, P. and McLaney, E., 2016. Financial Accounting For Decision Makers. Harlow: Pearson Education Limited.
Bhagat, S. and Bolton, B., 2008. Corporate governance and firm performance. Journal of Corporate Finance, 14(3), pp.257-273.
Boubaker, S., Dang, R. and Nguyen, D., 2014. Does board gender diversity improve the performance of French listed firms? Gestion 2000, 31(1), p.259.
Campbell, K. and Mínguez-Vera, A., 2008. Gender Diversity in the Boardroom and Firm Financial Performance. Journal of Business Ethics, 83(3), pp.435-451.
Carter, D., Simkins, B. and Simpson, W., 2003. Corporate Governance, Board Diversity, and Firm Value. The Financial Review, 38(1), pp.33-53.
Carter, D., D'Souza, F., Simkins, B. and Simpson, W., 2010. The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial Performance. Corporate Governance: An International Review, 18(5), pp.396-414.
Cavaco, S., Challe, E., Crifo, P., Rebérioux, A. and Roudaut, G., 2016. Board independence and operating performance: analysis on (French) company and individual data. Applied Economics, 48(52), pp.5093-5105.
Darmadi, S., 2011. Board diversity and firm performance: the Indonesian evidence. Corporate Ownership and Control, 8(2).
Denis, D. and McConnell, J., 2003. International Corporate Governance. The Journal of Financial and Quantitative Analysis, 38(1), p.1.
Erhardt, N., Werbel, J. and Shrader, C., 2003. Board of Director Diversity and Firm Financial Performance. Corporate Governance, 11(2), pp.102-111.
Fauzi, F. and Locke, S., 2012. Board Structure, Ownership Structure and Firm Performance: A Study of New Zealand Listed-Firm. Asian Academy of Management Journal of Accounting and Finance, 8(2), pp.43-67.
Francoeur, C., Labelle, R. and Sinclair-Desgagné, B., 2008. Gender Diversity in Corporate Governance and Top Management. Journal of Business Ethics, 81(1), pp.83-95.
Fuzi, S., Abdul Halim, S. and Julizaerma, M., 2016. Board Independence and Firm Performance. Procedia Economics and Finance, 37, pp.460-465.
García Martín, C. and Herrero, B., 2018. Boards of directors: composition and effects on the performance of the firm. Economic Research-Ekonomska Istraživanja, 31(1), pp.1015-1041.
Gillan, S., 2006. Recent Developments in Corporate Governance: An Overview. Journal of Corporate Finance, 12(3), pp.381-402.
Gujarati, D. and Porter, D., 2010. Essentials Of Econometrics. 4th ed. New York: McGraw-Hill.
Haldar, A., Shah, R., Nageswara Rao, S., Stokes, P., Demirbas, D. and Dardour, A., 2018. Corporate performance: does board independence matter? – Indian evidence. International Journal of Organizational Analysis, 26(1), pp.185-200.
Hamdan, A. and Al Mubarak, M., 2017. The impact of board independence on accounting-based performance. Journal of Economic and Administrative Sciences, 33(2), pp.114-130.
Hassan, R. and Marimuthu, M., 2016. Corporate Governance, Board Diversity, and Firm Value: Examining Large Companies Using Panel Data Approach. Economics Bulletin, 36(3).
Hsu, H. and Wu, C., 2014. Board composition, grey directors and corporate failure in the UK. The British Accounting Review, 46(3), pp.215-227.
Ibrahim, H., Ouma, C. and Koshal, J., 2019. Effect of gender diversity on the financial performance of insurance firms in Kenya. International Journal of Research in Business and Social Science (2147- 4478), 8(5), pp.274-285.
International Finance Corporation, 2019. Board Gender Diversity In ASEAN. Washington D.C: International Finance Corporation, pp.1-76.
Jensen, M. and Meckling, W., 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), pp.305-360.
Kang, H., Cheng, M. and Gray, S., 2007. Corporate Governance and Board Composition: diversity and independence of Australian boards. Corporate Governance: An International Review, 15(2), pp.194-207.
Kazeem, Y., 2018. These Three Charts Show How Nigeria’S Economy Recovered In 2017. [online] Quartz Africa. Available at:
Kılıç, M. and Kuzey, C., 2016. The effect of board gender diversity on firm performance: evidence from Turkey. Gender in Management: An International Journal, 31(7), pp.434-455.
Kweh, Q., Ahmad, N., Kiong Ting, I., Zhang, C. and Bin Hassan, H., 2019. Board Gender Diversity, Board Independence and Firm Performance in Malaysia. Institutions and Economies, 11(1), pp.1-20.
Laux, V., 2008. Board Independence and CEO Turnover. Journal of Accounting Research, 46(1), pp.137-171.
Liu, Y., Miletkov, M., Wei, Z. and Yang, T., 2015. Board independence and firm performance in China. Journal of Corporate Finance, 30, pp.223-244.
Lückerath-Rovers, M., 2013. Women on boards and firm performance. Journal of Management & Governance, 17(2), pp.491-509.
Mallin, C., 2016. Corporate Governance. 5th ed. Oxford: Oxford University Press.
Marinova, J., Plantenga, J. and Remery, C., 2015. Gender diversity and firm performance: evidence from Dutch and Danish boardrooms. The International Journal of Human Resource Management, 27(15), pp.1777-1790.
Moghalu, K., 2015. Taking Corporate Governance to the Next Level: Perspectives from the Nigerian Banking Sector. Corporate Governance Journal, 1(3), pp.17-24.
Musleh Alsartawi, A., 2019. Board independence, frequency of meetings and performance. Journal of Islamic Marketing, 10(1), pp.290-303.
Ngo, M., Pham, T. and Luu, T., 2019. Effect of Board Diversity on Financial Performance of the Vietnamese Listed Firms. Asian Economic and Financial Review, 9(7), pp.743-751.
Nguyen, H. and Faff, R., 2007. Impact of board size and board diversity on firm value: Australian evidence. Corporate Ownership and Control, 4(2), pp.24-32.
Onyekwere, S., Wesiah, S. and Nuuman Danbatta, S., 2019. The Relationship Between Board Diversity and Corporate Financial Performance: Empirical Evidence from Five Selected Commercial Banks in Nigeria. International Journal of Finance and Banking Research, 5(4), p.76.
Pfeffer, J. and Salancik, G., 1978. The External Control of Organizations: A Resource Dependence Perspective. Contemporary Sociology, 8(4), p.612.
Qadorah, A. and Bt Fadzil, F., 2018. The Effect of Board Independence and Board Meeting on Firm Performance: Evidence from Jordan. Journal of Finance and Accounting, 6(5), p.105.
Rashid, A., Zoysa, A., Lodh, S. and Rudkin, K., 2010. Board Composition and Firm Performance: Evidence from Bangladesh. Australian Accounting, Business and Finance Journal, 4(1), pp.76-95.
Rashid, A., 2018. Board independence and firm performance: Evidence from Bangladesh. Future Business Journal, 4(1), pp.34-49.
Reguera-Alvarado, N., de Fuentes, P. and Laffarga, J., 2015. Does Board Gender Diversity Influence Financial Performance? Evidence from Spain. Journal of Business Ethics, 141(2), pp.337-350.
Rose, C., 2007. Does female board representation influence firm performance? The Danish evidence. Corporate Governance: An International Review, 15(2), pp.404-413.
Sanda, A., Garba, T. and Mikailu, A., 2011. Board Independence and Firm Financial Performance: Evidence from Nigeria. African Economic Research Consortium.
Saunders, M., Lewis, P. and Thornhill, A., 2009. Research Methods For Business Students. Essex: Pearson Education Limited.
Shehata, N., Salhin, A. and El-Helaly, M., 2017. Board diversity and firm performance: evidence from the U.K. SMEs. Applied Economics, 49(48), pp.4817-4832.
Taljaard, C., Ward, M. and Muller, C., 2015. Board diversity and Financial Performance: A Graphical Time-Series Approach. South African Journal of Economic and Management Sciences, 18(3), pp.425-448.
Tarigan, J., Hervindra, C. and Hatane, S., 2018. Does Board Diversity Influence Financial Performance?. International Research Journal of Business Studies, 11(3), pp.193-215.
Terjesen, S., Couto, E. and Francisco, P., 2015. Does the presence of independent and female directors impact firm performance? A multi-country study of board diversity. Journal of Management & Governance, 20(3), pp.447-483.
Ujunwa, A., Nwakoby, I. and Ugbam, C., 2012. Corporate board diversity and firm performance: Evidence from Nigeria. Corporate Ownership and Control, 9(2), pp.216-226.
Uwana, I., 2015. The Role of Director in Ensuring Corporate Governance. Corporate Governance Journal, 1(3), pp.35-41.
Zabri, S., Ahmad, K. and Wah, K., 2016. Corporate Governance Practices and Firm Performance: Evidence from Top 100 Public Listed Companies in Malaysia. Procedia Economics and Finance, 35, pp.287-296.
Zhu, J., Ye, K., Tucker, J. and Chan, K., 2015. Board Hierarchy, Independent Directors, and Firm Value: Evidence from China. SSRN Electronic Journal.
Published
2021-11-27
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How to Cite
Onyekwere, S. C., & Babangida, N. I. (2021). Board Diversity and Firm Performance: Panel Data Evidence from 12 Selected Commercial Banks in Nigeria. Daengku: Journal of Humanities and Social Sciences Innovation, 2(1), 28-53. https://doi.org/10.35877/454RI.daengku587
Copyright (c) 2022 Sixtus Cyprian Onyekwere, Nafisah I. Babangida
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