Do board diversity influence capital structure decisions? A use of GMM and RLS estimator

This study aims to investigate the relationship between capital structure, board diversity, and firm performance among KSE-100 index firms listed on the Pakistan Stock Exchange. We use a panel data approach and STATA MP-14 to analyze the impact of two capital structure measures (debt-to-equity ratio and debt-to-total assets) and three board diversity measures (female representation, female executive presence, and male executive presence) on three financial performance indicators (firm size, firm age, and return on equity). Our findings reveal a significant positive association between debt financing and female board representation, as well as a positive relationship between capital structure and female executive presence. However, we find an insignificant and negative relationship between capital structure and managerial ownership. This study contributes to the existing literature on corporate governance and capital structure by highlighting the importance of board diversity in emerging markets. Future studies can build on our findings by exploring the relationship between capital structure and board diversity in other developing countries and comparing the results to identify potential variations.

Organizations in the modern society are faced with numerous challenges that require those in charge with governance to make effective decisions that enhance organizations’ overall performance and sustainability. One of the key decisions an organization’s board ought to make involve capital structure. Despite various research that have been conducted relating to board characteristics and capital structure, several authors concurs that the manner in which banks select the best capital structure, and the factors that influence their corporate financing behavior are not well understood. The main aim of this study therefore was to investigate board characteristics and capital structure decisions of commercial banks in Kenya. The study measured board characteristics with respect to board size, board diversity, board independence and board expertise while the capital structure decisions was gauged with capital structure ratio, that is, total debt ratio. These dimensions also formed the specific objectives of the study. The study assessed various literatures covering both theoretical and empirical that elaborates on the study variables providing more insight as well as identified gaps that needed to be filled. The study employed correlation design as it strived to demonstrate the causative connection between study variables. All selected commercial banks formed the target population with chief finance officers and internal auditors being the target respondents in these banks. The primary source of information was both primary and secondary data of this study whereby primary data collection instrument was the questionnaire whose reliability and validity was ensured before collecting data. Collected data was properly assessed and checked before conducting final analysis. Data was analyzed using descriptive and inferential analysis, which was aided by statistical package for social science and the outputs were presented in form of graphs, pie charts, frequency tables and narrations. The findings of the study showed a strong positive correlation between all the study measures as shown by R value of 0.824. From inferential analysis findings, the study concludes that on the overall all the board of directors’ characteristics studied had a significant influence on capital structure decisions of commercial banks in Kenya. The regression coefficients p-values were 0.000, 0.000, 0.002 and 0.001 consecutively which were all less than 0.05 indicating a significant relationship between board characteristics dimensions studied and capital structure decisions; therefore, all the null hypotheses were rejected. The study also established that capital structure of commercial banks in Kenya over a period of 5 years between 2013 and 2017 averaged at 0.841 which was less than 1.00, indicating that these banks finance their assets using equity as opposed to debts. As a result, the study concluded that board characteristics have a significant impact on capital structure decisions made by Kenyan commercial banks. Furthermore, commercial banks in Kenya regard financial flexibility as more important than the tax shelter advantage, implying aversion to debt and a proclivity to follow an inverted pecking order when it comes to external funds. The study therefore recommends that banks’ board and management should manage debt and equity levels rationally to enhance their performance; banks should select the right size of board with the right mix of expertise and diversity who will be able to monitor the management but will not interfere with or infringe on capital structure decisions; banks should also increase board independence in order to benefit from the skills and expatriates of these board members; and finally a selection of banks’ board with divergent skills and qualifications so that banks can reap from the heterogeneity of educational backgrounds and competences.

PurposeThe purpose of this study is to investigate whether capital structure affects accruals and real earnings management (AEM and REM) of nonfinancial firms listed on Pakistan Stock Exchange (PSX). Moreover, to investigate whether institutional development (ID) moderates the relation between capital structure and earnings management (EM).Design/methodology/approachData were taken from annual reports of nonfinancial firms listed on the PSX during 2012–2019. Data of 150 firms for a period of eight years were found completed with respect to the variables used in this study. The generalized moments of methods estimator is used to estimate the effects of explanatory variables on earning management. Furthermore, fixed and random effects methods were used to estimate the impact of capital structure on AEM and REM.FindingsResults show that all three measures of capital structure (i.e. total debt ratio, long-term debt ratio and short-term debt ratios) are inversely related to AEM. In contrast, all measures of capital structure are positively related to abnormal cash flow from operations. Total debt ratio and long-term debt ratio are negatively while short-term debt ratio is positively related to abnormal discretionary expenses. Total debt ratio and short-term debt ratio are significant and negatively related to abnormal production cost. Additionally, interaction terms of ID (i.e. rule of law and regulatory quality) significantly moderate the controlling role of debt on discretionary accruals. In sum, results show that the use of debt induces lender's monitoring. Consequently, managers move toward REM because of lower probability of being exposed.Practical implicationsFindings of this study have significant implications for managers and regulatory authorities. For instance, the use of debt increases the lender’s influence which restricts the managers to be involved in EM practices. Moreover, regulatory authorities are required to address the loopholes in regulations to refrain the managers to be engaged in EM.Originality/valueTo the best of the authors’ knowledge, this is the first study in Pakistan that has explored the impact of capital structure on AEM and REM. More importantly, a careful review of the literature affirms that this study is among the few studies that have used ID as a moderating variable to explain the relation between capital structure and EM.

The key aim of current research is to investigate the influence of CG on financial performance (FP) and capital structure (CS) of cement companies listed on Pakistan Stock Exchange (PSX). To accomplish this purpose, twenty cement firms listed on the PSX was deployed from 2005 to 2014. Auto-correlation and heteroscedasticity were tested and Regression analyses were used to test the hypotheses. SPSS 21 is conducted to perform the analyses.CG is analyzed via board size, board independence, and institutional ownership while, return on assets and return on equity are employed to analyze FP, whereas CS is calculated via debt to equity. The outcomes document that CG positively affects FP, however, negatively impact CS. This research not only contributes to examining the impact and association between CG, FP, and CS but also prove the outcomes of previous studies that have presented a significant influence and association between CG, FP, and CS.

PurposeThe purpose of this paper is twofold. First, it aims to investigate the dynamic impact of board composition (board size, board independence and board diversity) on independent corporate social responsibility (CSR) practices (marketplace, environment, community and workplace). Second, it tends to examine the mutual effect of board composition and CSR practices on organizational returns (return on assets and Tobin’s Q) of 631 Malaysian PLCs listed on Bursa Malaysia during 2006-2017.Design/methodology/approachThe dynamic model (system GMM) provided by Arellano and Bond (1991) and Arellano and Bover (1995) is used for estimations that control for potential dynamic endogeneity, reverse causality, unobserved heterogeneity and simultaneity problems.FindingsFindings reveal weak linkage between board composition and CSR practices where only board diversity is found to be positively linked to marketplace practices of CSR. Further, the mutual impact of board composition and CSR practices on organizational returns suggests board size be positive and board independence to be negative with Tobin’s Q. Board diversity is negative with ROA and positive with Tobin’s Q. Conversely, CSR practices indicate marketplace practices are positive and community practices are negative with Tobin’s Q, environment practices are insignificant with performance, whereas workplace practices are positive with ROA and negative with Tobin’s Q.Practical implicationsThis research is practically considerable for Bursa Malaysia, Securities Commission Malaysia, policymakers, stakeholders, investors and managers. For academia, the theoretical linkages between agency theory, resource dependence theory, resource-based view and stakeholder theory are highlighted. Moreover, methodological underpinnings are also novel for academicians as well as for practitioners.Originality/valueThe paper uncovers multiple aspects: first, it elaborates the dynamic relationship between board composition and CSR practices; second, it examines the combined effect of board composition and CSR practices on company’s accounting and market gains; finally, the study controls for dynamic endogeneity that is the main econometric problem for CG-CSR-performance relationships.

Previous research studies have used multiple theories, such as resource dependence, human capital, social capital, busyness, signalling, behavioural, and agency theories in order to investigate the association between board diversity and earnings management and the association between board diversity and firm performance. This chapter surveys 75 research studies and used 37 theories. Most of the studies focused on agency and resource dependent theories. Also, this study used social capital theory as a contribution of the chapter, which was rarely used and which examined the relationship between board diversity and earnings management in addition to firm performance.

This study examines how board diversity affects the capital structure decisions of United Kingdom (UK)-listed firms on the London Stock Exchange (LSE) under varying market conditions for the period from 2002 to 2021. Data were gathered from BoardEx, ORBIS, and DataStream databases. Linear regression and fixed-effect models were used, along with transition two- and three-regime regression models. The findings reveal that educational diversity consistently negatively affects capital structure across all market conditions. Gender diversity and board independence improve capital structure, except in extreme market states. However, age diversity negatively influences capital structure only in extremely bad market conditions, while board size positively impacts capital structure in good, moderate, and extremely good markets. Nationality diversity has no significant effect across all market conditions. These results align with pecking order, trade-off, and agency theories, emphasizing the need to balance debt and equity. This study highlights the importance of tailoring board composition to market conditions. Enhancing gender diversity and board independence can improve debt financing, especially in stable markets. Companies are encouraged to continually assess board diversity to align with shifting market dynamics for better capital structure decisions.

This study investigates how corporate board governance attributes influence carbon emission disclosure (CED) across ASEAN-5 countries (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) from 2015 to 2022. Using panel data regressions and a composite Board Effectiveness Score, the analysis evaluates both individual board characteristics—gender diversity, size, independence, meeting frequency, and environmental committees—and their collective impact on CED as measured by CDP scores. Grounded in agency, resource dependence, stakeholder, legitimacy, signaling, and voluntary disclosure theories, the findings reveal that gender diversity and the presence of an environmental committee significantly enhance CED, supporting the notion that board diversity and specialized structures improve sustainability oversight. In contrast, board size and meeting frequency show no consistent influence, challenging conventional assumptions within agency and stakeholder theories. Notably, board independence has a negative impact on disclosure, highlighting contextual governance challenges in the ASEAN region. The Board Effectiveness Score emerges as a stronger predictor of CED than individual attributes, confirming that integrated governance mechanisms better explain corporate transparency. Additional robustness tests—including quantile regression, logit analysis, and dynamic GMM—confirm the consistency of results. Control variables such as green innovation, firm size, age, and profitability also positively affect disclosure. As one of the first region-wide governance studies in Southeast Asia, this research provides important implications for policymakers, investors, and sustainability advocates, underscoring the need for enhanced governance frameworks and regulatory mandates to bridge ASEAN’s sustainability disclosure gap and align corporate practices with global climate goals.

The aim of this study is to examine the corporate governance factors that drive the firms’ earning per share (EPS) sample of firms listed on Pakistan Stock Exchange (PSX) over the period of 2011 to 2016. This paper analyzed the impact and relationship of dependent variable (Earning per Share) and independent variables (Board Independence, Ownership concentration, CEO duality and Board diversity). The panel data collected from the sample of top 20 companies (market capitalizations) listed in Pakistan stock exchange. To investigate the relationship between variables the Pearson correlation and regression applied and to identify the impact of independent variables (board independence, ownership concentration, CEO duality and Board diversity) on dependent variable (earning per share) used regression tool. The study result of correlations and regression result revealed that board independence, ownership concentration and Board diversity have significant impact on performance while CEO Duality has negative impact on Firm financial performance.

The main purpose of our study is to take a look at how it impacts corporate governance and shariah governance on the profitability of conventional banks of Pakistan and their Islamic windows, one more objective of this study is to investigate whether there is any significant difference in the profitability of conventional banks after opening of Islamic windows. Our research study's theoretical basis draws from corporate governance theories, agency theory, resource dependence theory, and Islamic finance principles. By examining the relationships between these independent variables and the dependent variables (ROA and ROE) our study aims to provide insights into the factors influencing the financial performance of Shariah-compliant banks. Our study is based on 10 conventional banks which also provide Islamic windows. For our analysis in the current study, we will use annual data that covers the period from 2013 to 2022. To achieve these objectives we are using a linear regression model and paired sample t-test. Our findings conclude that bank age and board size have a significant positive impact on corporate governance in contrast, board diversity has a significant but negative impact on the ROA of conventional banks on the other hand bank size and board independence do not have any impact on ROA and if we talk about ROE board size and board independence had a helpful important impact on ROE while bank size bank age and board diversity doesn't have any significant impact on ROE of conventional banks of Pakistan. In the case of Shariah governance, only the Shariah board has a significant positive effect on ROA and ROE ratio on the other hand remuneration and charities don’t have any effect on the Islamic windows of conventional banks. We further discover no substantial variation in the ROA & ROE of Pakistani conventional banks following the establishment of Islamic windows. The findings of this study suggest that the government of Pakistan should focus on promoting good corporate governance practices in banks, especially regarding board size, bank age, board diversity, and shariah board because these factors increase the profitability of conventional banks.

Despite being recognized as pillars of economic upsurge and development, the manufacturing and allied firms listed at the Nairobi Securities Exchange in Kenya have consistently faced challenges as far as their profitability is concerned. For instance, in the period 2016-2023, their average value of return on assets stood at -0.0134, meaning significant amount of loses were reported by these firms. Against this background, the study sought to establish the effect of corporate governance and inflation rate on profitability of manufacturing and allied firms listed at the Nairobi Security Exchange in Kenya. More specifically, this study sought to establish the effect of board size, board independence and board diversity on profitability of manufacturing and allied firms listed at Nairobi Securities Exchange. The agency, stewardship, resource dependence and Keynesian theories provided anchorage to the proposed study. The study adopted descriptive survey design targeting 13 manufacturing and allied firms that were listed on the Nairobi Securities Exchange and census was adopted. Information from auxiliary sources was gathered on a period 2016-2023 and SPSS guided processing. Correlation results were that while board size had a moderate but positive relationship with profitability, board independence also had a moderate but negative relationship with profitability. On the other hand, board diversity and inflation rate all had strong and positive relationship with profitability of the listed manufacturing firms in Kenya. The study concludes that corporate governance and inflation have significant effect on profitability. The study recommends that Capital Market Authority should establish an optimal board size should be used as a benchmark by these listed firms. To improve the profitability of the listed manufacturing firms in Kenya, there is need for more independent and executive directors to be included on boards. Keywords: Corporate Governance, Board Size, Board Independence, Board Diversity, Inflation, Profitability

This study investigates the impact of board characteristics and audit quality on fraudulent financial reporting (FFR) among non-financial firms listed on the Pakistan Stock Exchange from 2012 to 2022. Utilizing the Beneish M-score model to identify potential earnings manipulation, the analysis incorporates governance variables such as board independence, CEO financial expertise, board gender diversity, board vigilance, audit committee independence and vigilance, Big 4 audit affiliation, and external auditor independence. Panel regression results indicate that board independence, CEO expertise, gender diversity, and audit committee vigilance significantly reduce the likelihood of FFR. Conversely, long-term auditor-client relationships appear to increase fraud risk. These findings support agency and resource dependency theories and offer important implications for regulators and firms aiming to enhance corporate governance, transparency, and audit effectiveness in emerging markets like Pakistan. Keywords: Board independence, Audit quality, Fraudulent financial reporting, Beneish M-score, Corporate governance, Pakistan, Emerging markets

Purpose This study aims to investigate the association between board diversity and systematic risk. The theoretical framework used in this study is based on agency and resource dependency theories.Design/methodology/approach Using a panel data set of 788 firms listed in the Morgan Stanley Capital International (MSCI) Emerging Markets index from 2015 to 2020, the authors apply Panel-Corrected Standard Error estimation method to test the three proposed hypotheses and the two-stage least squares method is adopted for the endogenous test.Findings The results suggest that board-specific skills diversity (BSSD) and board independence (BIND) have a negative impact on systematic risk. On the other hand, board gender diversity does not affect systematic risk. The findings reinforce the relevance of board diversity for reducing systematic risk and offer valuable insights for policymakers and investors, suggesting that the presence of directors with specific skills and independent directors could reduce firms’ systematic risk.Research limitations/implications The study extends the scope of agency and resource dependency theories by suggesting that the BSSD and BIND reduce agency costs and bring critical resources to the firm’s survival.Practical implications The findings support policymakers and managers in reducing systematic risk. In addition, the results demonstrate the importance of policies that encourage board diversity and BIND.Social implications The study demonstrates how companies can reduce systematic risk through board diversity and BIND.Originality/value To the best of our knowledge, this is the first study to investigate the association between board diversity and systematic risk only in emerging markets.

The prime objective of this study is to investigate the legitimate role of corporate boards and corporate social responsibility on the performance of Malaysian listed companies during 2006–2017. Elements of corporate boards include board size, board independence and board diversity, whereas corporate social responsibility (CSR) dimensions constitute marketplace, environment, community and workplace. Both accounting-based (return on assets [ROA], return on equity [ROE]) and market-based (earnings per share [EPS]) performance measures have been employed for measuring performance. Pooled ordinary least squares method (OLS) and multiple regressions are used to estimate the dataset. Findings reveal larger board size and higher board independence positively affect firm performance and significantly legitimise the board role in firms. However, the presence of women on Malaysian corporate boards does not legitimate the performance due to their lower percentage on board, hence insignificantly affecting firm value. Additionally, out of four CSR dimensions, only marketplace is positively and significantly related to EPS and negatively and significantly related to ROA. Conversely, environment, community and workplace are insignificantly related to all performance measures, leaving firms in a questionable legitimate state. This study embraces support from agency theory, resource dependence theory, legitimacy theory and stakeholder theory. However, this research raises questionable insights for regulatory bodies and academicians in the form of corporate legitimacy.

Inspired by the studies on the impact of diversity among decision-making groups, this study was carried out to examine whether the diversity of the members of the board of directors, encompassing gender, nationality, education, and experience, moderates the relationship between the corporate governance and investment decisions of listed companies of the Pakistan Stock Exchange. Furthermore, the determinants of investment decisions in the context of Pakistani firms’ are also explored. Panel data analysis techniques are used to gauge the cause and effect relationship among the variables. We find short-term liquidity and profitability are the determinants of Pakistani firms’ investment decisions, both having adverse relationships. Moreover, we explore board independence, and chief executive officer (CEO) duality has a significant positive impact on investment decisions. We further find that experience diversity strongly moderates the relationship between board independence and board size with investment decisions in the opposite direction. Education diversity moderates the relation of board size and investment decisions in the same direction. Foreign directors’ presence on the board also significantly moderates the relationship between board independence and investment decisions. The results of this empirical study confirm that board diversity moderates the relationship between corporate governance and investment decisions.