Board diversity and corporate risk: evidence from China

• Pages: 280-293
• DOI: https://doi.org/10.1108/CG-01-2019-0001
• Date: 18 December 2019
• Published date: 18 December 2019
• Author: Kalim Ullah Bhat,Yan Chen,Khalil Jebran,Zulfiqar Ali Memon
• Subject Matter: Corporate governance,Strategy

Board diversity and corporate risk:

evidence from China

Kalim Ullah Bhat, Yan Chen, Khalil Jebran and Zulfiqar Ali Memon

Abstract

Purpose –The purpose of this study shows how overallboard diversity influences corporate risk-taking.

Board diversity is quantified into task-oriented diversity (tenure and education) and relation-oriented

diversity (age and gender). Further, this study tests whether the association of board diversity and

corporaterisk varies across state-ownedfirms (SOEs) and non-state-ownedfirms (NSOEs).

Design/methodology/approach –The authors used a sample of Chinese listed firmsover the period

1999-2017. The results are estimated using the fixed-effects model. To deal with the endogeneity

problem and single model bias,the authors use a dynamic model, i.e. two-step generalized method of

moment’smodel.

Findings –The results show that both task-oriented and relation-oriented diversity reduces corporate

risk. Further,the authors document that overall board diversityreduces risk-taking acrossdifferent types

of firms,that is, SOEs and NSOEs. Theseresults are consistent aftercontrolling for endogeneityproblems.

Practical implications –The resultsprovide implications for enhancing corporategovernance practices

by considering overall board diversity as an important factor influencing corporate decisions. The

findings suggest that policymakers and shareholders should consider different diversity attributes

importantfor the composition of a board, which can enhance board outcomes.

Originality/value –Most of the prior studies consideredonly one dimension of diversity, and therefore,

have overlookedthe overall board diversity. Unlikeprior studies, this study considers four boarddiversity

attributes –age, gender, tenure and education, and further tests their association with corporate risk.

Further,this study also examines the effect of overall diversityon corporate risk in SOEs and NSOEs.

Keywords Board diversity, Relation-oriented diversity, Task-oriented diversity, Corporate risk,

Chinese f‌irms

Paper type Research paper

1. Introduction

In recent years, board diversity has received considerable attention among policymakers,

researchers and corporations. To promote diversity, most of the countries have passed

legislation to ensure the presence of female directors on corporate boards (Smith, 2014).

Most of the studies in the literature have considered gender diversity as the only important

attribute of board diversity (Anderson et al.,2011;Carter et al., 2003;Minton et al., 2014),

leaving behind the fact that indeed board is a group of people, and it has many diverse

attributes such as age, tenure and education. Therefore, most of the prior studies are

limited to considering only a single attribute of board diversity. This study is an attempt to fill

this gap by considering many facets of board diversity. Specifically, we consider four

diversity attributes of a board that are age, gender, tenure and education. We further

quantified diversity attributes into relation-oriented dimensions such as age and gender,

which are considered as surface-level differences, and task-oriented dimension, such as

tenure and education, which are considered as job-related differences.

In this study, we argue that board diversity can influence corporate risk. We draw our

hypothesis from theories in-group diversity and performance, specifically intergroup

Kalim Ullah Bhat is based at

School of Accounting,

Dongbei University of

Finance and Economics,

Dalian,China. Yan Chen is

based at China Internal

Control Research Center

and School of Accounting,

Dongbei University of

Finance and Economics,

Dalian, China. Khalil Jebran

and Zulfiqar Ali Memon are

both based at the School of

Accounting, Dongbei

University of Finance and

Economics, Dalian, China.

Received 1 January 2019

Revised 17 April 2019

2 August 2019

29 August 2019

17 September 2019

6 October 2019

8 October 2019

Accepted 25 November 2019

PAGE 280 jCORPORATE GOVERNANCE jVOL. 20 NO. 2 2020, pp. 280-293, ©EmeraldPublishing Limited, ISSN 1472-0701 DOI 10.1108/CG-01-2019-0001