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Essays on Diversity and Firm Performance

Al-Sarraf, J.A. (2023). Essays on Diversity and Firm Performance. (Unpublished Doctoral thesis, City, University of London)


This thesis is comprised of three empirical essays examining board diversity and its impact on organisational performance. The essays investigate the influence of diversity on both the board and firm levels, considering financial aspects like earnings quality and financial performance, in addition to non-financial aspects. They provide valuable insights into how corporate diversity affects financial and non-financial performance in UK firms. The first essay focuses on the expertise of female audit committee members and its impact on earnings quality in FTSE 100 non-financial companies. The second essay explores the relationship between board gender diversity and environmental, social and governance (ESG) performance in FTSE 350 non-financial companies. The third essay examines the connection between organisational diversity and non-financial and financial performance in FTSE 350 non-financial companies.

The first essay investigates the impact of gender diversity on audit committees in terms of the quality of earnings; it uses a collected panel dataset including 77 non-financial firms from the FTSE 100 over the 2011–2021 period. The findings indicate that firms that have female financial experts on their audit committees, particularly in accounting and finance, exhibit superior earnings quality. The study's findings withstand rigorous econometric testing, including ordinary least squares (OLS), sub-sample analysis, the two-step generalised method of moments (GMM), and Difference-in-Differences test. The findings contribute to agency theory and gender gender characteristics studies. Generally speaking, female directors with financial expertise improve monitoring and governance by leveraging their knowledge, reducing information asymmetry, and enhancing earnings quality. The findings support the ethical sensitivity perspective and highlight women's cautious decision-making and ethical behaviour. Gender diversity initiatives are effective, as all categories of financial expertise among female directors significantly relate to earnings quality. These insights inform decision-making on audit committee composition and emphasise the importance of diverse expertise in governance practices.

The second essay uses a sample of FTSE 350 non-financial firms operating between 2011 and 2021 to examine how a diversity of expertise on a corporate board can impact ESG performance, with a focus on the moderating effects of board gender diversity. The study employs OLS regression and finds a significant and positive relationship between board expertise diversity and ESG performance, particularly in the governance pillar. Additionally, the study identifies that board gender diversity moderates the relationship between board expertise diversity and ESG performance. The robustness of these results is confirmed through the utilistion of alternative econometric models such as GMM and sub-analysis. This study contributes to resource dependence theory by examining the relationship between board expertise diversity and ESG performance. The findings support the importance of accessing diverse external resources for organisational success. The presence of a diverse range of expertise on the board positively influences ESG performance, bringing valuable resources and improving overall performance. Additionally, gender diversity on the board enhances the positive impact of expertise diversity on ESG performance. This combination of diverse expertise and gender diversity brings unique perspectives, knowledge, and skills to the board, ultimately contributing to better ESG outcomes. Furthermore, the study's findings support the inclusion of female directors on corporate boards to enhance valuable resources such as expertise and improve ESG performance. They highlight the importance of diverse expertise for better governance and ethical conduct. These insights have practical implications for policymakers, regulators, and stakeholders in promoting sustainable and responsible business practices.

The last essay analyses the impact of diversity and inclusion on companies’ financial (return on assets (ROA), return on equity (ROE), and Tobin’s Q) and non-financial (e.g., ESG) performance. Using a sample comprising FTSE 350 firms for the 2011–2021 period, the study employs OLS regression and demonstrates a positive and significant relationship between companies' diversity commitments and policies, and their organisational performance. Additionally, the study reveals that the link is moderated by board independence diversity. This study contributes to the resource-based view by highlighting the positive relationship between diversity commitments and organisational performance. It emphasises diversity as a valuable and rare resource that can enhance competitive advantage and improve performance outcomes. The study aligns with the principles of the resource-based view by emphasising the significance of diversity commitments and policies in leveraging diversity as a strategic resource. The findings have practical implications for organisations and stakeholders, indicating that implementing diversity initiatives can improve performance. This study outcome can guide policymakers and organisational leaders in promoting diversity as a strategic resource.

Overall, the essay's findings show that diversity positively impacts the non-financial and financial performance of firms. Various dimensions of diversity, including expertise and independence, should be considered alongside gender diversity. The findings underscore the importance of promoting diversity on the board and in the workplace for companies seeking to enhance their performance. Policymakers and regulators should also take note of the practical implications of this research and prioritise board diversity to improve the effectiveness of corporate boards.

Publication Type: Thesis (Doctoral)
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
H Social Sciences > HQ The family. Marriage. Woman
Departments: Bayes Business School
Bayes Business School > Finance
Doctoral Theses
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