Aaltodoc publication archive (Aalto University institutional repository)
School of Business | Department of Finance | Finance | 2015
Thesis number: 14068
Boardroom diversity and company's financial performance: Evidence from China
|Title:||Boardroom diversity and company's financial performance: Evidence from China|
|Year:||2015 Language: eng|
|Department:||Department of Finance|
|Index terms:||rahoitus; financing; hallitukset; boards of directors; johtaminen; management; pörssiyhtiöt; exchange-listed companies; suorituskyky; efficiency; Kiina; China|
|Key terms:||board of directors; board diversity; firm performance; Chinese listed companies|
The purpose of the thesis is to study board of directors (BOD) diversity and its relation with firm financial performance of Chinese listed companies. Following previous studies on western countries' BODs, diversity is measured by director's personal background such gender, age and ethnicity and board independence. In addition, this study adds new aspect of board diversity: the director's political background. Company's financial performance is measured by its profitability figures ROA and ROE. Firm fixed effects are also controlled.
DATA and METHODOLOGY:
The sample for the study contains 400 firm-year observations, which include 100 companies' information for 4 years from 2009 to 2012. Correlation study, OLS regression and fixed effects regression are used to analyze the data.
The study shows that on average there are only 10% of the directors who are women and 2% who do not belong to Chinese Han ethnic group. 14% of the director positions are taken by members that are 60 years old or older. Independent directors account for 36% of the board memberships on average and 1/4 of them are currently or used to be politicians. In total, 21% of the directors have political background and about half the directors are Chinese communist party members. When firm fixed effects are controlled, if company has ethnic minority directors, its ROA is expected to be 0.027 lower than those with only Chinese Han directors. ROE of companies with minority directors is 0.114 lower than companies without such kind of directors. The percentage of independent directors is positively related with firm profitability but the relation is only significant when profitability is measured by ROA. No significant relation is found between other board diversity variables and firm performance. According to the study, there are two kinds of typical boards in Chinese listed companies, the "traditional" boards that consist higher percentage of male, older and politically related directors; and the "modern" boards that have more female and younger directors and higher probability to include ethnic minority directors. However, the higher diversity of the modern boards are related with lower board independence.
DISCUSSION OF CAUSALITY:
Endogeneity of board structure makes it difficult to analyze if board diversity affects firm performance or the other way around. Due to limited knowledge and resources, the study does not solve the reverse causality problem, but only shows the relation between board diversity and firm performance
Master's theses are stored at Learning Centre in Otaniemi.