Board diversity and investment efficiency: evidence from China. Issue 6 (23rd July 2020)

• Record Type: Journal Article
• Authors: Ullah, Irfan; Zeb, Aurang; Khan, Muhammad Arif; Xiao, Wu
• Is Part Of: Corporate governance. Volume 20:Issue 6(2020)
• Page Start: 1105
• Page End: 1134
• Publication Date: 2020-07-23
• Subjects: China -- Investment efficiency -- Board diversity -- Task-oriented diversity -- Overall board diversity -- Relation-oriented diversity; Corporate governance -- Periodicals; 658.4
• DOI: 10.1108/CG-01-2020-0001
• Languages: English
• ISSNs: 1472-0701

Abstract

Abstract : Purpose: The purpose of this study is to investigate the relationship between board diversity measured as relation-oriented, task-oriented and board overall diversity and firm's investment efficiency. Design/methodology/approach: This study estimates four dimensions of board diversity, including age, gender, tenure and education. The four dimensions are further categorized in relation-oriented diversity (i.e. age and gender), task-oriented diversity (i.e. tenure and education) and overall board diversity (relation and task oriented). Panel data analysis is used to examine the board diversity–investment efficiency relationship in Chinese listed firms during the years 2003–2018. The findings of the study are robust to a battery of econometric techniques. Findings: This study finds relation-oriented, task-oriented and overall diversity of a board curb investment inefficiency by discouraging sub-optimal investment (over- or under-investment). In other words, board diversity improves firms' investment efficiency. Practical implications: The results suggest that board diversity plays a significant role in corporate decisions. The findings illustrate that board diversity disciplines the management, reduces agency conflicts and thereby improves corporate governance, resulting in higher investment efficiency. Originality/value: This study has two important contributions. First, this study extends the prior literature of investment efficiency by considering socio-psychological dimension of the board diversity by constructing relation- and task-oriented diversity. Second, contrary to earlier studies on board diversity, this study takes four facets of board diversity, i.e. age, gender, education and tenure that improve corporate governance mechanism.