Board diversity on firm performance from resource-based view perspective: new evidence from Pakistan

Abstract

PurposeThis study aims to investigate the impact of extensive board diversity on firm performance from the perspective of resource-based view (RBV) theory in the context of Pakistan.Design/methodology/approachThe analyses are made using a panel random-effects model and generalized method of moment (GMM) across 188 non-financial firms listed in the Pakistan Stock Exchange (PSX) over the period of 2009–2020. The robustness of findings is checked through alternative measurements of the variables and alternative estimation techniques.FindingsThe results show that board members' nationality, ethnicity and educational level diversities are significantly positively related to firm performance. In contrast, age and educational background diversities negatively affect firm performance. However, gender and tenure diversities have an insignificant relationship with firm performance.Research limitations/implicationsThis study is conducted in the context of Pakistani firms; thus, the findings may not be generalizable to other economies because different economies have different institutional settings and governance structures.Practical implicationsThe policy-makers should encourage the inclusion of board members' nationality, ethnicity and educational level diversities having relevant educational backgrounds to improve firms' competitive performance. The suggested structure of the corporate board may improve firm performance by attracting multiple stakeholders and fulfilling their expectations.Social implicationsThe appointment of a director should be based on merit rather than on political connections or personnel relationships to improve social welfare and avoid their negative impact on firm competitive performance.Originality/valueTo the best of the authors' knowledge, this is the first study that investigates the impact of board diversity on firm accounting-based performance and market-based performance in the emerging economy of Pakistan. This study uses RBV theory to provide a unique corporate governance structure based on board diversity, particularly in Pakistan.