Board Diversity and Firm Performance: Evidence from Saudi Arabia

Abstract

Corporations generally comprise a board of directors who perform critical functions to enhance the firm. This dissertation particularly examines the relationship concerning diversity on the board and firm performance in Saudi Arabia. The mixed theoretical arguments and empirical evidence indicate that the relationship is dependent on the overall contextual environment. Accordingly, the aim is to provide additional evidence from a unique socio-cultural context that has yet to be addressed. To conduct the empirical analysis, sample-data was collected for all the publicly listed firms in Saudi Arabia over the years 2013 to 2019. The studied period coincides the establishment of the Saudi Vision 2030. Thus, the research design utilised the exogenous shock of the kingdom reform on Saudi firms. The final sample presented a panel dataset of 294 firm-year observations. Using fixed-effect regression analysis, the empirical results demonstrate a positive association between firm performance and board diversity, in terms of gender and nationality. Involving female directors on the board is associated with an increase in the firm’s financial performance, and the addition of different nationalities boosts the firm’s market value. However, findings suggest that the Saudi Vision 2030 is relatively recent and requires a more extended period to address its potential impact. Further findings reveal that the size of the firm may deteriorate the positive impact of board diversity on firm performance. Practical implications for policymakers and firm stakeholders are discussed.