The performance of a company depends on diverse internal and external factors. Many studies have investigated how standard variables such as diversity, the age of the firm, company leverage, and current ratios influence performance. It is vital for management to understand how these variables affect operations and profitability. While it is easy to calculate coefficients and significance levels, understanding such information and relating it to the real-life organizational environment requires a deeper understanding of descriptive statistics. The analysis of the data set below and reference to relevant literature shows the impacts of gender, national diversity, and age on the success of a firm.
Effects of Gender Diversity on ROA
The table above shows gender diversity significance level of -0.187. From these results, there is a statistically significant link between gender diversity in a board and the ROA of the organization. However, the negative sign on the value goes against the study expectation, leading to the rejection of the hypothesis. Many companies are under pressure to make public their performance and earning reports (Zalata & Roberts, 2017). Hypothesis 4 (H4) states that there is a gender diversity is directly proportional to the ROA of a firm. Thus, the results indicate that the performance of a company reduces as gender difference in the board increases. Companies may perform poorly since women on company boards are more likely to avoid risks due to their moral values (Gull, Nekhili, Nagati & Chtioui, 2018; Omoye & Eriki, 2014). A primary goal of diversity studies has been to understand the impacts of diversity in an organization (Gonzalez, 2013). Nonetheless, many firms have been slow in ensuring equal gender representation in their boardrooms (Labelle, Francoeur & Lakhal, 2015).
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These results go against the agency theory, which states that individuals in an organization take care of their interests (Susanto, 2016). The theory proposes internal and external mechanisms to ensure effective firm governance that will balance the interests of the agents and principals in an organization (Nzulwa & Wagana, 2017). Therefore, the supporters of the agency theory believe that having a balanced board should reduce conflicts, prevent groups from dominating the deliberation process, and improve the performance of a firm. The philosophy hence advocates for the position of female directors for a better performance of an organization (Nzulwa & Wagana, 2017). By showing a negative link between gender diversity and ROA, the results go against the agency theory. Researchers have found that few women participate in higher levels of organizational management (Ittonen, Vähämaa & Vähämaa, 2013).
The results are also inconsistent with the findings of the resource dependency theory. This theory states that organizations need to be in control of critical resources that affect their performance (Herdhayinta, 2014). According to the theory, diversity offers vital knowledge for making decisions at top management levels (Herdhayinta, 2014). Thus, the results from the table go against the theory by indicating that there is a negative relationship between gender diversity and the performance of an organization. Contrary to the indications from the table, Al-Shammari and Al-Saidi (2014) found that women have more capacity to handle stress and drive the success of a company. Other studies have reported that gender diversity affects the quality of financial reporting in a company (Peni & Vähämaa, 2010).
Effects of Age Diversity on Firm Performance
From the table, there is a significant relationship (0.0343) between the age diversity of a company board and the success of the organization. The value is also positive hence supporting the expectations of the study. Hypothesis 5 of the research outlines that there is a positive relationship between age diversity in a company board and its performance. When calculating age diversity, statisticians compare the age of the company director to the average age of other members of the board. Age diversity is a dummy variable represented by 1 or 0. For instance, the value can be 1 when a company director is younger than a particular age. It will then be 0 if the director of the organization is older than the set age limit. According to the results in the table, a firm performs better if it has high company board diversity in terms of age.
The results from the table are consistent with the resource dependency theory and the social capital theory. Increasing the age diversity in a company board will lead to more ideas and different experiences. The resource dependency theory suggests that a company is likely to be successful if it is in control of external factors that affect its operations and can make independent strategic decisions (Ali, Ng & Kulik, 2014). Variables that determine the independence of a firm may include skills, expertise, and experience. The social capital theory states that people benefit from the relationships they form with team members (Callahan, Libarkin, McCallum & Atchison, 2015). The results from the table support the dependency theory since a higher diversity increases the resources for decision-making, promoting the success of a company. However, some studies have found that older directors have greater motivation compared to the younger ones (Tanikawa, Kim & Jung, 2017). Others have also indicated a negative relationship between the performance of a firm and its age diversity (Shehata, Salhin & El-Helaly, 2017).
Effects of National Diversity on Firm Performance
National diversity refers to the ratio of foreign directors on the board of a company. From the results in the table, there is a positive relationship between the national diversity in a company board and the performance of the organization. The findings indicate significance levels of 0.0186. Statistically, these values are insignificant and against the expectations and hypothesis of the study. Hypothesis 6 stated that there is a positive relationship between national diversity and the performance of a firm. The results of the table are contrary, indicating that national diversity may not be an essential factor affecting the performance of a company.
The insignificance of the findings on national diversity is inconsistent with the concepts of resource dependency, social capital, and agency theories. Furthermore, these results are inconsistent with several research findings. For instance, Al-Shammari and Al-Saidi (2014) indicated a positive relationship between national diversity and firm performance. Harjoto, Laksmana & Lee (2015) also found that companies with international directors are likely to perform better.
Control Variables
The control variables remained constant throughout the experience. However, these values also affect performance. For instance, the table indicates a negative relationship between the age of a company and its performance (-0.000587). Organizations with one or more founding members on their board also have a lower performance hence the negative sign (-0.00848). There are also negative relationships between the current ratio of an organization and its performance (-0.00139). Nonetheless, the results from the table indicate that the effects of control variables (firm age, leverage, current ratio, and family firms) in the study are statistically significant. Among the control variables, only firm leverage has a positive relationship with the performance of a company.
Indeed, descriptive statistics is vital in understanding and interpreting data sets. From the table, there is a direct relationship between the performance of a firm and its age diversity, national diversity, and leverage. Other variables like gender diversity, firm age, family board membership, and current ratio have an inverse relationship with the return on assets (ROA). Descriptive statistics thus provides a mechanism of deriving meaning and identifying patterns from raw data sets.
References
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Al-Shammari, B., & Al-Saidi, M. (2014). Kuwaiti women and firm performance. International Journal of Business and Management, 9 (8), 51- 60.
Callahan, C. N., Libarkin, J. C., McCallum, C. M., & Atchison, C. L. (2015). Using the lens of social capital to understand diversity in the earth system sciences workforce. Journal of Geoscience Education , 63 (2), 98-104.
Gonzalez, J. A. (2013). Matchmaking: Community and business unit racial/ethnic diversity and business unit performance. International Journal of Human Resource Management, 24 , 4063–4081.
Gull, A. A., Nekhili, M., Nagati, H., & Chtioui, T. (2018). Beyond gender diversity: How specific attributes of female directors affect earnings management. The British Accounting Review, 50 (3), 255-274.
Harjoto, M., Laksmana, I., & Lee, R. (2015). Board diversity and corporate social responsibility. Journal of Business Ethics, 132 (4), 641-660.
Herdhayinta, H. (2014). The influence of board diversity on financial performance: An empirical study of Asia-Pacific companies (Master's thesis, Universitet i Agder/University of Agder).
Ittonen, K., Vähämaa, E., & Vähämaa, S. (2013). Female auditors and accruals quality. Accounting Horizons , 27 (2), 205-228.
Labelle, R., Francoeur, C. & Lakhal, F. (2015). To Regulate Or Not To Regulate? Early Evidence on the Means Used Around the World to Promote Gender Diversity in the Boardroom. Gender, Work and Organization , Vol. 22, No. 4, pp.339-363.
Nzulwa, J. D., & Wagana, D. M. (2017). Corporate governance, board gender diversity and corporate performance: A critical review of literature.
Peni, E., & Vähämaa, S. (2010). Female executives and earnings management. Managerial Finance , 36 (7), 629-645.
Shehata, N., Salhin, A., & El-Helaly, M. (2017). Board diversity and firm performance: Evidence from the UK SMEs. Applied Economics, 49 (48), 4817- 4832.
Susanto, Y. K. (2016). The effect of audit committees and corporate governance on Earnings Management: Evidence from Indonesia manufacturing industry. International Journal of Business, Economics and Law , 10 (1), 32-37.
Tanikawa, T., Kim, S., & Jung, Y. (2017). Top management team diversity and firm performance: Exploring a function of age. Team Performance Management: An International Journal, 23 (3/4).
Zalata, A. M., & Roberts, C. (2017). Managing earnings using classification shifting: UK evidence. Journal of International Accounting, Auditing and Taxation , 29 , 52-65.
