Abstract
The purpose of this study to analyze the effect of board of directors diversity and monitoring intensity to profitability. Board of directors diversity measured by a composite index of gender, age, education, citizenship, and independence of the board of directors. Meanwhile, monitoring intensity measured by the composition of audit quality, number of meetings, and the number of committee. The objects are banks listed in the Indonesia Stock Exchange period of 2015-2017 with a panel data regression. Selected samples was 40 banks and 120 observation. The results showed that board of directors diversity had a significant negative on profitability, this result provoke a gap to the previous research. While monitoring intensity is positive significant to profitability. Some practical and implications will be discussed in this study.
Highlights
Research about the relationship between boards of directors and profitability is usually based on two theories
The hypothesis test was performed by using a t-test. t-test was done by observing the significance level of 5% to identify whether or not there is significance influence among tested variables (Ghozali 2016)
Relationship Between Board of Directors Diversity and Bank Profitability The first hypothesis test showed that the board diversity has a significant negative effect on profitability by identifying the significance level below 5% (p = 0,0117)
Summary
Research about the relationship between boards of directors and profitability is usually based on two theories. Agency theory states that the board's main activity is supervising management on behalf of shareholders, and effectivity can improve firm performance by reducing agency costs (Hillman and Dalziel, 2003). These researchers have examined the relationship between proxies of board incentives under supervision (e.g., board dependency or stock compensation) and financial performance that has mixed results. The result is that directors' bonuses are positively correlated with financial performance, so based on agency theory, these findings can align directors' and shareholders' interests. Different results from Chapple and Humphrey (2014) state that diversity on the board is not related to performance besides that there is a weak negative correlation between having multiple female boards on performance
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