Advertisement

Board Diversity, Risk Management and Efficiency Evaluation: Evidence from European Listed Manufacturing Companies

  • Simona AlfieroEmail author
  • Massimo Cane
  • Ruggiero Doronzo
  • Alfredo Esposito
Chapter

Abstract

Board diversity can influence the management of different kinds of risks affecting performance. Our research analyzes the relationship between corporate efficiency and board diversity in 451 European listed manufacturing companies for the year 2015. In particular, we investigate the effects on profitability efficiency and risk management of gender inclusion (women and foreigners on boards). In order to assess the profitability efficiency, we rely on a non-oriented, slack-based model for Data Envelopment Analysis, and a logistic regression analysis to identify the effect of diversity management variables. The results demonstrate that the increased presence of women is associated with a higher probability for greater relative efficiency in countries without mandatory gender regulation. The increased presence of foreigners, however, is associated with a lower probability of above-average efficiency.

Keywords

Corporate performance Board diversity Gender diversity Risk management National diversity Profitability efficiency DEA Logit 

References

  1. Adams, R. B., & Ferreira, D. (2007). A theory of friendly boards. The Journal of Finance, 62(1), 217–250.CrossRefGoogle Scholar
  2. Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309.Google Scholar
  3. Adler, R. D. (2001). Women in the executive suite correlate to high profits. Harvard Business Review, 79(3), 30–32.Google Scholar
  4. Ahern, K. R., & Dittmar, A. K. (2012). The changing of the boards: The impact on firm valuation of mandated female board representation. Quarterly Journal of Economics, 127(1), 137–197.CrossRefGoogle Scholar
  5. Akpan, E. O., & Amran, N. A. (2014). Board characteristics and company performance: Evidence from Nigeria. Journal of Finance and Accounting, 2(3), 81–89.CrossRefGoogle Scholar
  6. Alchian, A. A., & Demsetz, H. (1972). Production, information costs, and economic organization. The American Economic Review, 62(5), 777–795.Google Scholar
  7. Avkiran, N. K. (2011). Association of DEA super-efficiency estimates with financial ratios: Investigating the case for Chinese banks. OMEGA, The International Journal of Management Science, 39(3), 323–334.CrossRefGoogle Scholar
  8. Bajary, P., Fox, J., & Kyoo, K. (2009). The random coefficients logit model is identified (NBER Working Paper No. 14934).Google Scholar
  9. Banker, R., Charnes, A., & Cooper, W. (1984). Some models for estimating technical and scale inefficiencies in data envelopment analysis. Management Science, 30, 1078–1092.CrossRefGoogle Scholar
  10. Bassett-Jones, N. (2005). The paradox of diversity management, creativity and innovation. Creativity and Innovation Management, 14(2), 169–175.CrossRefGoogle Scholar
  11. Bear, S., Rahman, N., & Post, C. (2010). The impact of board diversity and gender composition on corporate social responsibility and firm reputation. Journal of Business Ethics, 97, 207–231.CrossRefGoogle Scholar
  12. Bonn, I., Yoshikawa, T., & Phan, P. H. (2004). Effects of board structure on firm performance: A comparison between Japan and Australia. Asian Business & Management, 3(1), 105–125.CrossRefGoogle Scholar
  13. Boone, A. L., Field, L. C., Karpoff, J. M., & Raheja, C. G. (2007). The determinants of corporate board size and composition: An empirical analysis. Journal of Financial Economics, 85(1), 66–101.CrossRefGoogle Scholar
  14. Campbell, K., & Minguez-Vera, A. (2008). Gender diversity in the boardroom and firm financial performance. Journal of Business Ethics, 83(3), 435–451.CrossRefGoogle Scholar
  15. Carroll, A. B. (1996). Business and society: Ethics and stakeholder management (3rd ed.). Cincinnati, OH: South-Western College Publishing.Google Scholar
  16. Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial Review, 38(1), 33–53.CrossRefGoogle Scholar
  17. Carter, D. A., D’Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5), 396–414.CrossRefGoogle Scholar
  18. Charnes, A., Cooper, W., & Rhodes, E. (1978). Measuring the efficiency of decision-making units. European Journal of Operational Research, 2, 429–444.CrossRefGoogle Scholar
  19. Chen, G., Liu, C., & Tjosvold, D. (2005). Conflict management for effective top management teams and innovation in China. Journal of Management Studies, 42(2), 277–300.CrossRefGoogle Scholar
  20. Clarke, T. (2007). International corporate governance: A comparative approach. London: Routledge.CrossRefGoogle Scholar
  21. Clarkson, M. B. E. (1998). The corporation and its stakeholders: Classic and contemporary readings. Toronto: University of Toronto Press.CrossRefGoogle Scholar
  22. Cooper, W. W., Seiford, L. M., & Tone, K. (2007). Data envelopment analysis: A comprehensive text with models, applications, references and DEA-solver software (2nd ed.). New York: Springer.Google Scholar
  23. Dahya, J., & McConnell, J. J. (2007). Board composition, corporate performance, and the Cadbury committee recommendation. Journal of Financial and Quantitative Analysis, 42(3), 535–564.CrossRefGoogle Scholar
  24. Darmadi, S. (2011). Board diversity and firm performance: The Indonesian evidence. Corporate Ownership and Control Journal, 8(2), 1–38.Google Scholar
  25. Darmadi, S. (2013). Do women in top management affect firm performance? Evidence from Indonesia. Corporate Governance: The International Journal of Business in Society, 13(3), 288–304.CrossRefGoogle Scholar
  26. De Andres, P., Azofra, V., & Lopez, F. (2005). Corporate boards in OECD countries: Size, composition, functioning and effectiveness. Corporate Governance: An International Review, 13(2), 197–210.CrossRefGoogle Scholar
  27. Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49–64.CrossRefGoogle Scholar
  28. Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board of director diversity and firm financial performance. Corporate Governance: An International Review, 11(2), 102–111.CrossRefGoogle Scholar
  29. Eulerich, M., Velte, P., & Van Uum, C. (2014). The impact of management board diversity on corporate performance—An empirical analysis for the German two-tier system (November 8, 2013). Problems and Perspectives in Management (PPM), 12, 25–39.Google Scholar
  30. Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law & Economics, 26(2), 301–325.Google Scholar
  31. Färe, R., & Lovell, C. K. (1978). Measuring the technical efficiency of production. Journal of Economic Theory, 19(1), 150–162.CrossRefGoogle Scholar
  32. Farrell, M. (1957). The measurement of productive efficiency. Journal of the Royal Statistical Society, 120(3), 253–290.CrossRefGoogle Scholar
  33. Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: The state of the art. New York: Cambridge University Press.CrossRefGoogle Scholar
  34. Gabrielsson, J., & Huse, M. (2004). Context, behavior, and evolution: Challenges in research on boards and governance. International Studies of Management & Organization, 34(2), 11–36.CrossRefGoogle Scholar
  35. Gallego-Álvarez, I., García-Sánchez, I. M., & Rodríguez-Dominguez, L. (2010). The influence of gender diversity on corporate performance. Revista de contabilidad, 13(1), 53–88.CrossRefGoogle Scholar
  36. Heidrick & Struggles. (2014). Towards dynamic governance 2014: European Corporate Governance Report.Google Scholar
  37. Hill, C. W. L., & Jones, T. M. (1992). Stakeholder-agency theory. Journal of Management Studies, 29(2), 131–134.CrossRefGoogle Scholar
  38. Hillman, A. J., Cannella, A. A., & Harris, I. C. (2002). Women and racial minorities in the boardroom: How do directors differ? Journal of Management, 28(6), 747–763.CrossRefGoogle Scholar
  39. Hillman, A. J., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28(3), 383–396.CrossRefGoogle Scholar
  40. Ibrahim, N. A., & Angelidis, J. P. (1994). Effect of board members’ gender on corporate social responsiveness orientation. Journal of Applied Business Research, 10(1), 35.CrossRefGoogle Scholar
  41. Jackling, B., & Johl, S. (2009). Board structure and firm performance: Evidence from India’s top companies. Corporate Governance: An International Review, 17(4), 492–509.CrossRefGoogle Scholar
  42. Jafari, M., Aghaei Chadegani, A., & Biglari, V. (2011). Effective risk management and company’s performance: Investment in innovations and intellectual capital using behavioral and practical approach. Journal of Economics and International Finance, 3(15), 780–786.Google Scholar
  43. Jensen, M. C. (1983). Organization theory and methodology. Accounting Review, 58(2), 319–333.Google Scholar
  44. Jensen, M. C. (2000). Value maximization and the corporate objective function. In M. Beer & N. Nohria (Eds.), Breaking the code of change (pp. 37–58). Boston: Harvard Business School Press.Google Scholar
  45. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.Google Scholar
  46. Kanter, R. M. (1977). Men and women of the corporation. New York: Basic Books.Google Scholar
  47. Kiel, G. C., & Nicholson, G. J. (2003). Board composition and corporate performance: How the Australian experience informs contrasting theories of corporate governance. Corporate Governance: An International Review, 11(3), 189–205.CrossRefGoogle Scholar
  48. Kim, H., & Lim, C. (2010). Diversity, outside directors and firm valuation: Korean evidence. Journal of Business Research, 63(3), 284–291.CrossRefGoogle Scholar
  49. Konrad, A. M., Kramer, V., & Erkut, S. (2008). Critical mass: The impact of three or more women on corporate boards. Organizational Dynamics, 37(2), 145–164.CrossRefGoogle Scholar
  50. Kramer, V. W., Konrad, A. M., Erkut, S., & Hooper, M. J. (2006). Critical mass on corporate boards: Why three or more women enhance governance (pp. 2–4). Boston: Wellesley Centers for Women.Google Scholar
  51. Loden, M., & Rosener, J. B. (1991). Workforce America!: Managing employee diversity as a vital resource. Homewood: McGraw-Hill.Google Scholar
  52. Luo, X. (2003). Evaluating the profitability and marketability efficiency of large banks: An application of data envelopment analysis. Journal of Business Research, 56(8), 627–635.CrossRefGoogle Scholar
  53. Luoma, P., & Goodstein, J. (1999). Research notes. Stakeholders and corporate boards: Institutional influences on board composition and structure. Academy of Management Journal, 42(5), 553–563.Google Scholar
  54. Macey, J. R. (1998). Fiduciary duties as residual claims: Obligations to nonshareholder constituencies from a theory of the firm perspective. Cornell Law Review, 84, 1266.Google Scholar
  55. Mallin, C. (2004). Corporate governance. New York: Oxford University Press.Google Scholar
  56. Miller, T., & del Carmen Triana, M. (2009). Demographic diversity in the boardroom: Mediators of the board diversity–firm performance relationship. Journal of Management Studies, 46(5), 755–786.CrossRefGoogle Scholar
  57. Mohammed, H. K., & Knápková, A. (2016). The impact of total risk management on company’s performance. Procedia-Social and Behavioral Sciences, 220, 271–277.CrossRefGoogle Scholar
  58. Näsi, J. (1995). What is stakeholder thinking? A snapshot of a social theory of the firm. In J. Näsi (Ed.), Understanding stakeholder thinking (pp. 19–32). Helsinki: LSR-Julkaisut.Google Scholar
  59. Oakley, J. G. (2000). Gender-based barriers to senior management positions: Understanding the scarcity of female CEOs. Journal of Business Ethics, 27(4), 321–334.CrossRefGoogle Scholar
  60. Oxelheim, L., & Randøy, T. (2003). The impact of foreign board membership on firm value. Journal of Banking & Finance, 27(12), 2369–2392.CrossRefGoogle Scholar
  61. Pelled, L. H., Eisenhardt, K. M., & Xin, K. R. (1999). Exploring the black box: An analysis of work group diversity, conflict and performance. Administrative Science Quarterly, 44(1), 1–28.CrossRefGoogle Scholar
  62. Peng, M. W., Buck, T., & Filatotchev, I. (2003). Do outside directors and new managers help improve firm performance? An exploratory study in Russian privatization. Journal of World Business, 38(4), 348–360.CrossRefGoogle Scholar
  63. Perryman, A. A., Fernando, G. D., & Tripathy, A. (2016). Do gender differences persist? An examination of gender diversity on firm performance, risk, and executive compensation. Journal of Business Research, 69(2), 579–586.CrossRefGoogle Scholar
  64. Pfeffer, J., & Salancik, G. R. (2003). The external control of organizations: A resource dependence perspective. Redwood City: Stanford University Press.Google Scholar
  65. Post, C., & Byron, K. (2015). Women on boards and firm financial performance: A meta-analysis. Academy of Management Journal, 58(5), 1546–1571.CrossRefGoogle Scholar
  66. Randøy, T., Thomsen, S., & Oxelheim, L. (2006). A Nordic perspective on corporate board diversity. Age, 390(0.5428), 1–26.Google Scholar
  67. Robinson, G., & Dechant, K. (1997). Building a business case for diversity. The Academy of Management Executive, 11(3), 21–31.Google Scholar
  68. Rose, C. (2007a). Does female board representation influence firm performance? The Danish evidence. Corporate Governance: An International Review, 15(2), 404–413.CrossRefGoogle Scholar
  69. Rose, J. M. (2007b). Corporate directors and social responsibility: Ethics versus shareholder value. Journal of Business Ethics, 73(3), 319–331.CrossRefGoogle Scholar
  70. Rose, P. (2007c). The corporate governance industry. Journal of Corporation Law, 32(4), 887.Google Scholar
  71. Shrader, C. B., Blackburn, V. B., & Iles, P. (1997). Women in management and firm financial performance: An exploratory study. Journal of Managerial Issues, 9(3), 355–372.Google Scholar
  72. Siciliano, J. I. (1996). The relationship of board member diversity to organizational performance. Journal of Business Ethics, 15(12), 1313–1320.CrossRefGoogle Scholar
  73. Smith, N., Smith, V., & Verner, M. (2006). Do women in top management affect firm performance? A panel study of 2,500 Danish firms. International Journal of Productivity and Performance Management, 55(7), 569–593.CrossRefGoogle Scholar
  74. Tone, K. (2001). A slacks-based measure of efficiency in data envelopment analysis. European Journal of Operational Research, 130, 498–509.CrossRefGoogle Scholar
  75. Torchia, M., Calabrò, A., & Huse, M. (2011). Women directors on corporate boards: From tokenism to critical mass. Journal of Business Ethics, 102(2), 299–317.CrossRefGoogle Scholar
  76. Tosi, H. L., Jr. (2008). Quo Vadis? Suggestions for future corporate governance research. Journal of Management and Governance, 12(2), 153–169.CrossRefGoogle Scholar
  77. Ujunwa, A. (2012). Board characteristics and the financial performance of Nigerian quoted firms. Corporate Governance: The International Journal of Business in Society, 12(5), 656–674.CrossRefGoogle Scholar
  78. Ujunwa, A., Okoyeuzu, C., & Nwakoby, I. (2012). Corporate board diversity and firm performance: Evidence from Nigeria. Revista de Management Comparat International, 13(4), 605.Google Scholar
  79. Van den Berghe, L. A., & Levrau, A. (2004). Evaluating boards of directors: What constitutes a good corporate board? Corporate Governance: An International Review, 12(4), 461–478.CrossRefGoogle Scholar
  80. Van Der Walt, N., & Ingley, C. (2003). Board dynamics and the influence of professional background, gender and ethnic diversity of directors. Corporate Governance: An International Review, 11(3), 218–234.CrossRefGoogle Scholar
  81. Vani Kant, B. (2001). Logit and Probit. London: Sage.Google Scholar
  82. Voordeckers, W., Van Gils, A., & Van den Heuvel, J. (2007). Board composition in small and medium-sized family firms. Journal of Small Business Management, 45(1), 137–156.CrossRefGoogle Scholar
  83. Zahra, S. A., & Stanton, W. W. (1988). The implications of board of directors composition for corporate strategy and performance. International Journal of Management, 5(2), 229–236.Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Simona Alfiero
    • 1
    Email author
  • Massimo Cane
    • 1
  • Ruggiero Doronzo
    • 1
  • Alfredo Esposito
    • 1
  1. 1.Department of ManagementUniversity of TurinTurinItaly

Personalised recommendations