Board Diversity and Firm Financial Performance: Gender, Nationality and Age Diversity in European Boardrooms

Abstract

This thesis examines the relationship between demographic diversity in the board of directors and the financial performance of European firms. Demographic board diversity is conceptualised as gender, nationality and age diversity as well as a diversity index is constructed to investigate the combined overall diversity effect. Theory suggests that diversity leads to more effective strategic decision-making, creativity and innovations and thereby affects the financial performance positively, while diverse boards are also associated with integration costs and more time-consuming processes. In general, this research assumes that the more demographic diversity in the board of director, the better the financial performance of firms which is measured as return on assets (ROA) and Tobin’s Q. A cross-sectional empirical analysis investigates the largest European companies listed on the STOXX Europe 600 Index in the year 2016. The findings reveal that overall demographic board diversity has a significant and positive effect on the financial performance of firms. Also, gender and nationality board diversity significantly improve the financial performance, while the influence of age diversity is insignificant.