Diversity management in corporate boards and its impact on sustainable financial performance

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Abstract

In light of the numerous global crises currently unfolding, the importance of effective diversity management within board structures has grown significantly. This study explores how diversity management in corporate boards impacts sustainable financial performance. Recognized as a critical factor in building investor confidence and engagement, effective diversity management not only helps mitigate risks, but also protects investor rights. The quantitative research paradigm has been employed to assess the impact of diversity management on sustainable financial performance. Diversity management, encompassing dimensions such as gender, nationality, and political affiliation, is considered the independent variable. To account for additional influences, firm size, and leverage are included as control variables. The analysis is conducted using a range of econometric and statistical tools, including descriptive statistics, variance inflation factor analysis, correlation analysis, heteroscedasticity testing, and regression analysis. The study’s results indicate that gender diversity and political affiliation diversity positively influence sustainable financial performance, while nationality diversity appears to have a negative effect on long-term financial sustainability. Categorizing diversity provides a framework for enhancing board decision-making, which can significantly impact sustainable financial performance. Additionally, in developing economies, diverse boards have the potential to drive transformative changes that contribute to long-term financial sustainability.

Keywords: Diversity Management, Gender Diversity, Nationality Diversity, Political Affiliation Diversity, Sustainable Firm Performance

Authors’ individual contributions: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G34, H70, M14

Received: 14.11.2024
Accepted: 07.02.2025
Published online: 11.02.2025

How to cite this paper: Khan, A. W. (2025). Diversity management in corporate boards and its impact on sustainable financial performance. Corporate Board: Role, Duties and Composition, 21(1), 31–36. https://doi.org/10.22495/cbv21i1art3