Abstract
This current literature review focuses on the diversity of members on the board of directors in corporations. By exploring contemporary literature in finance, this article seeks to understand the effects of board member gender diversity on firm financial performance. Firstly, diversity in board members is shown to have mixed results on firm performance. Secondly, heterogeneous board members’ different life experiences and demographic characteristics lead them to solve problems and make decisions in various ways which could ultimately impact the financial performance of the firms they serve. Thirdly, gender diversity is a topic that has gained much attention on modern corporate boards. Appointing women to executive boards has proven to have effects on firm performance. In addition, governments around the world have taken action to promote gender equality by enacting gender quota legislation or by implementing codes of good governance. Furthermore, when appointed to the executive board, women face additional difficulties once in the boardroom. Lastly, the effects of gender diversity on firm performance are found to be mixed and varied.
Highlights
The board of directors serves as the focal point of control and administration within a corporation
Extensive research has been conducted on corporate board composition focusing on individual board member heterogeneity, which can be defined as the differences present among board members such as ethnicity, level of education, gender and main profession (Ferreira, 2011)
Extant finance literature illustrates that having board members from a variety of demographic backgrounds can impact firm performance by increasing or decreasing financial indicators such as market value and ROA
Summary
The board of directors serves as the focal point of control and administration within a corporation. Extensive research has been conducted on corporate board composition focusing on individual board member heterogeneity, which can be defined as the differences present among board members such as ethnicity, level of education, gender and main profession (Ferreira, 2011). This is in opposition to director homogeneity where executives. This literature review engages with the question of how diversity affects firm performance through the appointment of dissimilar executives to the board of directors in corporations.
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