Boards’ Gender Diversity and Firms’ Financial and Ethical Performance in Pakistan: A Comparative Analysis

Abstract

Board diversity has lately being a heavily contested topic of research. Women, having a unique pool of resources and human capital, bring unique and diverse skills to the board that could improve board performance which positively impacts firm value. This study aims to investigate board gender diversity and its impact on firms’ performance in Pakistan. More specifically, this study compares the different performance characteristics of firms with and without gender diversity in boards. We also analyzed the effect of women on board (WOB) on different performance measures in the presence of control variables. These measures included Return to assets, equity and sales, TOBIN Q, and Ethical and Social Compliance (ESCC). For this, panel data of 4 years from 2015 to 2018 were collected from 100 companies, and ANOVA and regression analysis were performed. The comparative analysis showed that the non-women component has a significantly higher ROA than women, whereas ROE is higher for women. Moreover, non-women board companies seem to take a higher financial risk by taking more leverage. Surprisingly, the ESCC factor seems to be significantly higher for non-women board companies showing better social compliance. Evidence from regression found remains inconclusive. In fact, the performance measures like Tobin Q, and ROA seems to be negatively affected by WOB, whereas ROE was positively and significantly affected. ESCC seems to have a strong and positive effect on Tobin Q in companies with WOB, as well as ROA in overall companies. Evidence also suggested that WOB also seems to have a negative effect on ESCC. Hence, in the case of Pakistan, the findings remained inconclusive because women's representation on board is not enough to have an influencing role in the board. The size of the female representation on the board needs to be sufficiently large to have an influencing role on corporate boards.