The effect of the sex diversity of the board of commissioners on firm performance and the role of the ethnic background of president commissioners

Abstract

AbstractThis study aims to obtain empirical evidence on the effect of the sex diversity of the board of commissioners (SDBOC) on firm performance (FP). In addition, this study examines the role of the ethnic background of the president commissioner (ETC) as a moderating variable that strengthens the influence of the sex diversity of the board of commissioners (SDBOC) on firm performance (FP). The sample consists of manufacturing companies, registered as public companies in Indonesia between 2017 and 2021, resulting in 783 observations. The data analysis includes several multivariate regression techniques consisting of ordinary least squares (OLS), fixed effects (FE), and the Heckman selection model for data robustness and hypothesis testing. The results showed that the sex diversity of the board of commissioners increased firm performance, as measured by Tobin’s Q (TQ), but it had no significant effect on the market to book value (MBV). Furthermore, the ethnic background of the president commissioner strengthened the influence of the sex diversity of the board of commissioners on firm performance, as measured by TQ and MBV. The results support the theories used, namely agency theory, resource dependence theory, and upper echelon theory. Shareholders can use the result of this study to highlight certain aspects during the appointment of the board of commissioners, in terms of their gender diversity and the ethnic background of the president commissioner. Meanwhile, the required number of women on the board of commissioners, to improve board decisions, equates to two. This is supported by the critical mass theory.

Keywords

• Sex diversity of board of commissioners
• firm performance
• ethnic background of president commissioner
• Tobin’s Q
• market to book value
• Nor Shaipah Abdul Wahab