Board Gender Diversity, Financial and Social Performance of Indian Firms

Abstract

Gender diversity of boards is an important dimension of corporate governance but there have been limited studies in this regard using Indian data. The present study is motivated by the need to extend research on impact of gender diverse boards, an integral element of corporate governance, in the Indian context. Specifically, the study investigates impact of gender-wise heterogeneous boards on financial and social performance of Indian firms. The sample consists of 54 companies drawn from Economic Times ranking, spread over widely different industry segments, 38 of which belong to the private sector and 16 to the public sector. The study uses Blau’s diversity index to capture gender diversity of the Board. With regard to financial performance, this study uses accounting-based return on capital employed (ROCE) as a proxy measure because accounting-based measures more effectively capture the internal efficiency of firms. In order to measure social performance, the research develops firm-specific corporate social responsibility score (CSRS) using the KLD (Kinder, Lyderberg, & Domini) assessment parameters namely shareholder relationships, environment, product, community and employee relations. Controlling for variables such as firm size (measured by natural logarithm of assets), leverage (measured by debt to equity ratio) and board size (measured by natural logarithm of number of people constituting the board) that might impact financial and social performance, the study examines interrelationship with gender diversity using regression analysis. Results of the current research do not find a significant association of gender diversity of corporate boards with financial performance of firms. Also, the study is unable to establish significant association between gender diversity of boards and social performance. The study concludes that relationship between this element of corporate governance and firm performance in India requires investigation over a longer duration. This line of research is expected to provide useful insights into whether there is a business case for gender diverse corporate boards. This input would have significant firm-specific and public policy implications.