The Effects of Gender Diversity in The Boardroom on Firm Financial Performance in Indonesia

Ayu Denisa Linggih,I G B Wiksuana

doi:10.24843/jekt.2018.v11.i02.p07

Abstract

This research investigates the effects of gender diversity in the boardroom on firm financial performance in Indonesia. To achieve the objective of this study, panel data analysis and fixed effects estimators have been applied to companies listed in Indonesia Stock Exchange in 2014 until 2016. The result of this study indicates that the percentage of women in the boardroom (board of commissioners and board of directors) has a significant positive effect on the company's financial performance as measured by return on assets (ROA). The relationship between these variables is then explained by agency theory where increasing the percentage of women in the boardroom improves the supervision of the company's agents which in return will positively affect the financial performance of the company. The managerial implications and suggestions of this research are that companies should begin to empower more women in the company's top management, also the government should consider a minimum quota policy for women on board of commissioners and directors in Indonesia.

Highlights

One of the most important factors that determine the success of a company is its corporate governance
Involving gender diversity in the boardroom has been considered as an implementation of good corporate governance because of the potential benefits it could bring to the company
It can be concluded that gender diversity in the boardroom has a significant positive effect on the firm’s financial performance

Summary

Introduction

One of the most important factors that determine the success of a company is its corporate governance. Good corporate governance will guide and control the company to reach their goals and achieve long-term success. Involving gender diversity in the boardroom has been considered as an implementation of good corporate governance because of the potential benefits it could bring to the company. Problems faced by companies are increasingly complex, and it needs the integration of diversity to improve the quality of the company’s decision-making process. Low et al (2015) and Luckerath-Rovers (2013) found that women increases company’s ability to raise profits through mitigating agency problem by increasing supervision, on the other hand, Adams and Ferreira (2009) believe gender diversity slow down the decision making process due to the lack of good cooperation between men and women. Diversity in upper management can lead to conflict, decline in-group cohesiveness, and decrease in corporate value (Herring, 2009)

Methods

Findings

Conclusion