Ethnic Board Diversity and Financial Performance: Evidence from Malaysian GLCs

Abstract

Recently, there has been an increasing research regarding government involvement in corporate control. Most of them focus on the ownership structure and firm performance but very little concentrate on the board diversity and financial performance. Therefore, the main objective of this study is to investigate the association between board diversity and firms’ financial performance of 26 Malaysian government-linked companies (GLCs). Focusing on ethnicity variable to explain the board diversity, this study aims to observe its relationship with financial performance of the firms, as measured by return on equity (ROE) and return on asset (ROA). A final sample of 99 GLCs listed on the Bursa Malaysia across four years from 2007 to 2010 was utilized. The empirical results revealed that ethnic board diversity in GLCs was negatively and significantly related to firms’ financial performance. The findings hence rejected the hypothesis made in this study that ethnic board diversity has a positive impact towards financial performance. As GLCs have unique characteristics compared to other entities, a future look on other aspect of firm performance may help to explain the goodness of ethnic board diversity in the GLCs.