Abstract

Purpose – The empirical study aims to examine the impact of board diversity with respect to gender and nationality on firm performance in an emerging economy. This research further splits the sample into family and non-family domains and investigates the diversity-performance nexus in isolation.

Design/methodology/approach – The sample consists of 183 listed companies in Bangladesh over the period 2007 to 2017. This study employed the Generalised Method of Moments technique to address the possible endogeneity issue in the governance-performance connection. To underscore the strength of diversity, three distinctive assessment measures were used: percentage representation of females and foreign directors, the Blau index, and the Shannon index.

Findings – The results for the full sample models reveal that board heterogeneity regarding both female and foreign directors positively and significantly influences firm performance as measured by ROA. Further to this, female directors in family-owned businesses have a positive association with profitability, whereas foreign nationals demonstrate a significant positive association with performance in non-family firms. Additionally, it needs at least three women directors to make a positive difference in profitability, however, a sole director with foreign nationality is capable of demonstrating a similar impact on performance.

Practical implications – The findings are significant for policymakers and organizations that advocate diversity on corporate boards of directors. It needs to consider the minimum number of diverse board members depending on the identity to bring about a significant change in organisational outcome. Therefore, the findings of this study may be applied to other emerging economies with similar institutional characteristics.