Boardroom diversity and firm performance: The Moderating role of Institutional Ownership

Muhammad Zubair Akhtar

Abstract

This study investigates the relationship between boardroom diversity and firm performance and the influence of institutional ownership as moderator. Distinctly, panel data fixed-effect analysis applied to examine the relationship dataset of non-financial listed firms at Pakistan Stock Exchange (PSX) covering 2010 to 2019. Boardroom diversity is measured through the
BD-Index based on six diversity attributes includes gender, age, education, nationality, experience and tenure. A total score of BD-Index is calculated as a score obtained from total score of 6. The higher performance measures refer to the effective and efficient use of firm’s resources to maximize shareholder’s wealth. Therefore, this study employs both performance
measures of a firm (market and accounting based) to validate the study findings includes Tobin’s Q (TQ), return on assets (ROA) and return on equity (ROE). Institutional ownership is measured as shares hold by
institutional owners to total shares outstanding. The study findings confirms
that boardroom diversity is positively related to firm performance.
Additionally, the study findings partially confirm that institutional ownership
increases firm performance. Overall, findings suggest that internal board
control and monitoring are important to drive higher firm performance and
important when institutional owners' external monitoring is highly
pronounced. This study offers policymakers insights to implement legislation
for a diverse board placement in the boardroom and exploit the balanced
board's potential benefits, which generally improves firm performance.
Keywords: Governance, BD-Index, Board of Directors, Financial
performance and Institutional Ownership.