The Effect of Board Diversity on Firm Performance: A Conceptual Exploration through Human Capital Theory
Abstract
A crucial element of corporate governance that could affect organizational results and strategic decision-making is board diversity. The diversity of human capital has been recognized as important in ensuring corporate governance effectiveness. Finding opportunities, coming up with ideas, and overcoming blind spots are all made easier for a company and CEO when a diverse group of directors contributes a range of skills, knowledge, and information. The Human Capital Theory explains the value of individual attributes, where individuals from different backgrounds possess unique knowledge and abilities that contribute to productivity. Despite the growing interest in this topic, empirical findings remain inconsistent, calling for more conceptual exploration. The purpose of this conceptual paper is to explore the effect of board diversity on firm performance by examining relationships through the Human Capital Theory. Specifically, this paper examines how diverse boards could contribute to firm value and the quality of governance. This paper also highlights the different outcomes in existing literature on these issues and proposes direction for future research. Through the lens of the Human Capital Theory, this paper identifies diversity as a strategic asset, where a variety of professional experience, educational backgrounds, and demographic profiles support innovative capacity, board-level decision-making, and the caliber of oversight.
Downloads
References
Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309. https://doi.org/10.1016/j.jfineco.2008.10.007
Ali, F., Gang, B., Zahib, Z., Mughal, A., & Husnain, B. (2023). Does board diversity mitigate firm risk-taking? Empirical evidence from China. Journal of Operational Risk. https://doi.org/10.21314/jop.2022.035
Becker G. S. (1964) Human Capital: A theoretical and Empirical Analysis, with special Reference to Education. Third Edition.
Dong, Y., Liang, C., & Wanyin, Z. (2023). Board diversity and firm performance: Impact of ESG activities in China. Economic Research-Ekonomska Istraživanja, 36(1), 1592–1609. https://doi.org/10.1080/1331677x.2022.2090406
EmadEldeen, R., Elbayoumi, A. F., Basuony, M. A. K., & Mohamed, E. K. A. (2021). The effect of the board diversity on firm performance: An empirical study on the UK. Corporate Ownership and Control, 18(3, special issue), 337–347. https://doi.org/10.22495/cocv18i3siart8
Firew, B. G. (2024). Gender diversity and firm performance: Evidence from Malaysia boardrooms. Cogent Economics & Finance, 12(1). https://doi.org/10.1080/23322039.2024.2381135
Gardiner, E. (2024). What’s age got to do with it? The effect of board member age diversity: a systematic review. Management Review Quarterly, 74(1), 65–92. https://doi.org/10.1007/s11301-022-00294-5
Hillman, A. J., Cannella, A. A., & Paetzold, R. L. (2000). The resource dependence role of corporate directors: Strategic adaptation of board composition in response to environmental change. Journal of Management Studies, 37(2), 235–255. https://doi.org/10.1111/1467-6486.00179
Kabir, A., Ikra, S. S., Saona, P., & Azad, Md. A. K. (2023). Board gender diversity and firm performance: New evidence from cultural diversity in the boardroom. LBS Journal of Management & Research, 21(1), 1–12. https://doi.org/10.1108/lbsjmr-06-2022-0022
Li, L., Mohamed Saat, M., Chu, P., Tang, Z., & Lai, X. (2025). Examining the Impact of Board Diversity on Firm Performance: Insights from Demographics, Human Capital, Social Capital, Culture and Structure. International Journal of Academic Research in Accounting, Finance and Management Sciences, 15(1). https://doi.org/10.6007/ijarafms/v15-i1/24890
Lim, K. P., Lye, C.-T., Yuen, Y. Y., & Teoh, W. M. Y. (2019). Women directors and performance: Evidence from Malaysia. Equality, Diversity and Inclusion: An International Journal, 38(8), 841–856. https://doi.org/10.1108/edi-02-2019-0084
Onyekwere, S. C., & Babangida, N. I. (2021). Board Diversity and Firm Performance: Panel Data Evidence from 12 Selected Commercial Banks in Nigeria. Daengku: Journal of Humanities and Social Sciences Innovation, 2(1), 28–53. https://doi.org/10.35877/454ri.daengku587
Ooi, C.-A., Hooy, C.-W., & Mat Som, A. P. (2017). The influence of board diversity on human capital and social capital in crisis. Managerial Finance, 43(6), 700–719. https://doi.org/10.1108/mf-08-2016-0226
Puntaier, E., Zhu, T., & Hughes, P. (2022). Board diversity as a strategic choice and why it should matter to SMEs. International Journal of Entrepreneurial Behavior & Research. https://doi.org/10.1108/ijebr-03-2022-0225
Saha, R., & Maji, S. G. (2022). Board human capital diversity and firm performance: Evidence from top listed Indian firms. Journal of Indian Business Research, 14(4), 382–402. https://doi.org/10.1108/jibr-08-2021-0289
Sarto, F., Saggese, S., Viganò, R., & Mauro, M. (2019). Human capital and innovation: Mixing apples and oranges on the board of high-tech firms. Management Decision, 58(5), 897–926. https://doi.org/10.1108/md-06-2017-0594
Simionescu, L. N., Gherghina, ?. C., Tawil, H., & Sheikha, Z. (2021). Does board gender diversity affect firm performance? Empirical evidence from the Standard & Poor’s 500 Information Technology Sector. Financial Innovation, 7(1). https://doi.org/10.1186/s40854-021-00265-x
Tajfel, H., & Turner, J. C. (1986). The social identity theory of intergroup behavior. In S. Worchel & W. G. Austin (Eds.), Psychology of Intergroup Relations (pp. 7–24). Nelson-Hall.
Wang, K., Ma, J., Xue, C., & Zhang, J. (2024). Board Gender Diversity and Firm Performance: Recent Evidence from Japan. Journal of Risk and Financial Management, 17(1), 20. https://doi.org/10.3390/jrfm17010020
Wang, T. (2022). Board human capital diversity and corporate innovation: A longitudinal study. Corporate Governance: The International Journal of Business in Society, 22(4), 680–701. https://doi.org/10.1108/cg-03-2021-0126
Wuttaphan, N. (2017). Human Capital Theory: The Theory of Human Resource Development, Implications and Future. Rajabhat J. Sci. Humanit. Soc. Sci. 18 (2): 240-253, 2017.
Copyright (c) 2025 Nur Mimi Najihah Ghazali, Najihah Marha Yaacob, Nur Raihana binti Mohd Sallem, Siti Nasuha Muhmad
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.
