Does Board Cultural and Gender Diversity Influence Firm Performance? Panel Data Evidence from US Listed Companies

Abstract

By uncovering the nuanced effects of board diversity on key performance metrics, this study contributes to a deeper understanding of the dynamics shaping modern corporate governance. Thus, this study investigates the impact of cultural and gender diversity in the boards of directors of American companies listed in the S&P 500 index. Focusing on 204 firms from the IT, industrial, and health sectors, the analysis spans from 2000 to 2023. The quantitative framework consists of fixed and random-effects linear and non-linear regression models, covering also interaction terms in order to capture the effects of the COVID-19 global health crisis. The empirical findings reveal several noteworthy insights. Firstly, the presence of a diversity policy on boards positively influences return on equity and return on assets. Secondly, gender diversity on boards is positively associated with firm performance as measured by return on equity and return on assets. On the contrary, cultural diversity exhibits a negative impact on firm performance. Moreover, non-linear models reveal the presence of a turning point at 35.78 for gender diversity. Beyond this point, its impact transitions from positive to negative while retaining statistical significance. Furthermore, models incorporating interaction variables based on the pandemic crisis reveal interesting dynamics. In models without effects, the pandemic crisis negatively influences cultural diversity, suggesting a detrimental impact. Overall, these findings highlight the complex interplay between board diversity, firm performance, and external factors such as the pandemic crisis, offering valuable insights for policymakers and managers aiming to foster inclusive corporate governance and navigate crises effectively.