Fall
Nationality Diversity on Board of
Directors and its Impact on Firm
Performance
I.F. Da Silva Rodrigues
ANR 331964
Master Thesis in Finance
14
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Abstract
Several studies have shown the importance of the composition of the
board of directors upon firm performance. Earlier studies focus in characteristics
like independence or size of the board. However these characteristics only
started to have a cognitive impact on the decision in the last few years. Recently
the focus have been in diverse the board. The first characteristic studied was the
gender. At the moment there is a mixed result about its impact on the firm
performance. I used the companies listed in the S&P500 between 2000 and 2012
to study the relationship between diversity and firm performance. The sample
consists in 358 firms each one was tested every 2 years. A regression analysis of
the effect of nationality diversity on the board was performed to see the impact
on the firm performance. Nationality diversity was measured as the number of
different nationalities on the board and as a concentration index. Firm
performance was measured by both ROA and Tobin’s Q.
The analysis tested whether nationality diversity on the board improve
firm performance. Since other studies have shown a relation between some
characteristics (independence, size, tenure, age and gender) and the firm
performance, I controlled for this ones. During the analysis it was possible to see
that nationality diversity has an impact on both indicators, ROA and Tobin’s Q.
However, when using Tobin’s Q as an indicator the results could not be
generalized since there is a significant correlation between size and nationality
diversity. In light of these findings, nationality diversity should be taken into
consideration along with the other characteristics when choosing an optimal
board of directors.
I.F. Da Silva Rodrigues 2
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Table of Contents
Abstract .................................................................................................................................. 2
1. Introduction ................................................................................................................. 4
1.1
1.2
1.3
1.4
Background......................................................................................................................... 4
Problem Discussion ......................................................................................................... 5
Problem Formulation and Purpose ........................................................................... 6
Thesis Structure ................................................................................................................ 6
2. Theory............................................................................................................................. 7
2.1 Theoretical Framework ................................................................................................. 7
2.1.1 Agency Theory.............................................................................................................................. 7
2.1.2 Stewardship Theory................................................................................................................... 9
2.1.3 Resource Dependence Theory ............................................................................................ 10
2.1.4 Human Capital and Social Capital Theories .................................................................. 11
2.1.5 Social Psychological and Organizational Behavior Theories ................................. 12
2.2 Previous Research ..........................................................................................................13
2.2.1 Board Independence .......................................................................................................... 13
2.2.2 Board Size ............................................................................................................................... 14
2.2.3 Board Tenure ......................................................................................................................... 16
2.2.4 Diversity .................................................................................................................................. 17
2.2.5 Gender Diversity .................................................................................................................. 17
2.2.6 Age Diversity.......................................................................................................................... 18
2.2.7 Ethnic Diversity .................................................................................................................... 19
3. Methods ....................................................................................................................... 19
3.1
3.2
3.3
3.4
3.5
3.6
Hypothesis.........................................................................................................................19
Research Design ..............................................................................................................20
Measurements .................................................................................................................21
Longitudinal Design .......................................................................................................21
Data Sources, Sampling and data collection .........................................................22
Method of Data Analysis ...............................................................................................23
4. Results and Analysis ............................................................................................... 23
4.1 Hypothesis 1 .....................................................................................................................23
4.1.1 Effects on ROA ....................................................................................................................... 23
4.1.2 Effects on Tobin’s Q............................................................................................................. 24
4.1.3 Analysis of Hypothesis 1 ....................................................................................................... 25
4.2 Hypothesis 2 .....................................................................................................................25
4.2.1 Effects on ROA ....................................................................................................................... 25
4.2.2 Effects on Tobin’s Q............................................................................................................. 26
4.2.3 Analysis of Hypothesis 2 ................................................................................................... 26
4.3 Validity of Results, ROA vs. Tobin’s Q as metric ..................................................26
5. Conclusions and implications.............................................................................. 27
5.1
5.2
5.3
Main Conclusions ............................................................................................................27
Implications for Board Composition .......................................................................28
Future Research ..............................................................................................................28
Appendix ............................................................................................................................. 29
Bibliography ...................................................................................................................... 40
I.F. Da Silva Rodrigues 3
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
1. Introduction
Board composition has received increased attention during the last thirty
years. In particular, the study has been focused on maximizing the firm
performance by choosing the right members for the board. The first study on this
field was about independence, i.e. the potential advantage of replacing inside for
outsiders directors. Board size and tenure were the next step. Both
characteristics showed to be of importance for corporate governance. Lately the
focus has been in diversity and how this can improve firm performance. The first
characteristic studied was gender, followed by age diversity. Both of the studies
were found to be important for board composition, although there still some
research to be done in this field. Lately some researchers focus on nationality,
but just a little few of these studies are published. Diversity should be examined
separately in each culture and market due to the differences between countries.
Therefore, I hope that this thesis will contribute to the developing research field
of nationality diversity on the board of directors.
1.1 Background
In the aftermath of recent economic crises, government and industries are
given more attention to corporate governance. There is some legislation that try
to regulate corporate governance, for instance the Sarbanes-Oxley Act in Us or
the Cadbury Report in the UK. Diversity has been a topic of conversation in
industrial countries. Through time, laws have been made in order to include
diversity and many firms have changed their policies in other to also include it.
Historically, these laws have been made in order to prevent discrimination in the
workplace. Norway is an example of it. Norway implemented a law where
requires that at least 40% of the directors need to be female (Carter, D’Souza,
Simkins, and Simpson 2010).
Studies about diversity have been conducted in both society and
workplace. Some show that a gender or ethnically diverse board of directors has
a positive impact on firm performance, and others show a negative relation with
performance (Carter et al. 2010). Fewer studies were made in nationality
diversity in relation to workplace, but several were made about society. All of
them showed a positive effect on team performance. Regarding the workplace,
almost no studies have been conducted, the exception is the study conducted by
Marimuthu in 2009 about Ethnic and gender in Boards of Directors in Malaysia
firms and the study of Singh in 2007 that shows ethnic diversity on top corporate
boards. Both studies found a positive relation between diversity and firm
performance.
Recent theoretical discussion on diversity diverges in two sides. In one
side it considers diversity to be of value in its own right and a tool to decrease
discrimination. The other side considers diversity as a valuable tool to the
company by introducing different points of view and strategies (Thomas and Ely,
1996). As the time goes on, it starts to be easier to empirically examine these
I.F. Da Silva Rodrigues 4
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
theories and its effects on firm performance. It is safe to assume that today,
directors, managers and employees are aware of diversity importance in the
workplace. However, they may not be aware when this one will benefit or harm
team performance.
1.2 Problem Discussion
Researchers diverge about the meaningful of board of directors. Some
believe that this one only fulfill a legal obligation, others believe that the board of
directors have an active and decisive role in the management of the firm (Adams,
Hermalin and Weisbach, 2010). Agency theory seems to support the theory to
the ones that believe that the primarily function of the board is to monitor and
control top managements. If, on the other hand, one believes that the function of
the board is to make decisions of control and to encourage managements to go
after opportunities that can increase shareholders’ value, then the resource
dependence theory is the one that apply the most.
Human and social capital theories are very close to resource dependence
theory. These theories suggest that a board can maximize its social and human
capital by careful select the member of the board. Nationality diversity can have
a positive or negative impact according to these theories. By increasing
nationality diversity a more differentiated social and human capital might be
gained and increased, when compared to a homogeneous board. However, there
might be other ways, and probably more efficiently, to reach this level of human
capital. One of this ways is the selection of the members by their backgrounds,
experience and competences.
Social psychological theories suggest that an increased on board diversity
could result in more diverse opinions, more critical thinking and more conflicts
affecting negatively the firm performance (Carter et al, 2010). Divergent thinking
is encouraged since this can produce more innovation and creativity solutions.
Some researchers argue that a different generation passes through different
economical, technological and political trends which will influence, in different
ways, their perspectives, ideas and attitudes. The same holds for different
nationalities since different countries give different education and society is
exposed to different problems and ways to think. Therefore some researchers
concluded that firms with variety skills, knowledge and experience among their
members may benefit from complementarities that can promote the
development.
The similarity-attraction theory opposes this notion of diversity. This
theory states that individuals are more likely to associate with other individuals
that share the same believes, backgrounds or experienced similar historical
events and simultaneously reached similar stages in private lives. Thus, this
theory clear speaks against the increase of nationality diversity on the board
since this would decrease firm performance.
I.F. Da Silva Rodrigues 5
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Excessive diversity can have a negative impact on performance due to
conflicts and miscommunication (Murphy and McIntyre, 2007). Carter et al
(2010) also stated that the effect of diversity on performance depends on
context. Complex and ambiguous tasks may benefit from higher diversity. Also,
small and young firms have more to benefit from diversity than mature and
older firms (Hillman, Withers and Collins, 2009). Firms have different needs
during their life cycles; therefore board composition should be adjusted to fulfill
these needs.
There might be a complex relationship between diversity and firm
performance (Ely, 2004). Although one cannot completely state how nationality
diversity affects performance. It is obvious that nationality can be an indicator
for experience, competence or skills. Since there are not sufficient studies about
nationality diversity I cannot firmly state the relationship between nationality
diversity on the boards of directors and firm performance. Therefore it is my
belief that this characteristic needs more attention.
1.3 Problem Formulation and Purpose
The purpose of this thesis is to contribute to the answer that corporate
governance researchers are chasing for decades: ‘how to optimize board
composition in order to maximize firm performance’. I hope to determine
whether nationality diversity on the board has a significant, negative or no
significant effect on firm performance. The problem of this thesis is formulated
as follows: How does nationality diversity on the board of directors affect firm
performance?
1.4 Thesis Structure
This thesis is structured into five chapters. The first chapter has introduced
the background, problem discussion and purpose of the thesis. Chapter two is
divided in two subchapters. The first one describes the theory framework used
to support this study. The second sub-chapter describes previous research
whether I try to explain each characteristic already known as having an impact.
Chapter three presents the hypothesis and discusses the way the data was
collected and analyzed. The chapter four will describe the results and analysis of
the findings in the context of the theories and knowledge presented in chapter
two. The last chapter presents a conclusion for this study and some suggestions
for future researches.
I.F. Da Silva Rodrigues 6
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
2. Theory
Research in corporate governance and board composition has a short history
of three decades. This chapter reviews literature relating to board of directors
and firm performance. First section will review and summarize popular
perspectives theories relating to boards’ effect on firm performance. Multiple
frameworks have been used to explain this effect such as agency theory,
stewardship theory. Recently has been an attempting to include environmental
factors as well through resource dependence theory, or progressing to a multiframework approach. . Independence, board size, board tenure, age and gender
diversity are already known as some of the characteristics that affect firm
performance and thereby they will be described in the second section.
2.1 Theoretical Framework
In corporate governance research, several theories have been used to study
the relationship between board composition and firm performance. The existing
literature has primarily focused on the characteristics of the boards in affecting
firm performance (e.g. (Fama and Jensen, 1983), (Davis, Schoorman and
Donaldson, 1997), (Muth and Donaldson 1998)). However in the meanwhile,
some researchers have paid attention to other issues that also affect firm
performance such as ownership (Kapopoulos and Lazaretou 2007), CEO
turnover and compensation (Lausten 2002). This section reviews some of the
major theoretical perspectives of boards and governance mechanisms that are
considered relevant for this study: agency theory, stewardship theory, resource
dependence theory, human capital and social capital theories and social
psychological and organizational behavior theories.
2.1.1 Agency Theory
This view explains the relationship between ownership (principal) and
management (agent) in business. Agency theory is concerned with resolving
problems that can exist due this relationship. Alchian and Demsetz (1972) were
the first to argue that “monitoring the performance of individual work effort is
always a cost to the firm and that organizational inefficiencies are created when
the flow of information on individual performance is decreased or blocked”.
Jesen and Meckling (1976) and Eisenhardt (1989) are some researchers that
study the costs associated with resolving conflict between the owners and the
agents.
The fundamental premise of this theory is that the agent act out of selfinterest and is self-centred, giving less attention to shareholder’s interests. The
problem arises when principal and agent diverge in their goals, and the principal
is unable to verify what the agent is actually doing due to the difficult of the
process and its expensive cost. The agent who possesses superior knowledge
and expertise about the firm are in a position to pursue self-interests rather than
owners’ interests ( (Fama and Jensen, 1983), (Fama, 1980)).This pursuit of selfI.F. Da Silva Rodrigues 7
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
interests increases thefirm’s costs by adding to firm costs such as costs of
structuring contracts, costs of monitoring, costs of controlling agent’s behavior,
and some losses incurred due to sub-optimal decisions taking by agents. In
essence, the managers cannot be trusted and therefore there is a need for strict
monitoring of management by the boards in order to protect owners’ interests.
Further, in a large corporation with dispersed ownership, small shareholders do
not have enough payoff to spend in monitoring the managers/agents. Eisenhardt
(1989) explains that agency problem arrives in two ways. The first one is when
principal and agent have different goals and the second one when it is difficult or
expensive for the principal to verify what the agent is doing. Therefore, the
monitoring of management activities is seen as a duty of the board in order to
minimize agency problems and thatcsuperior organizational performance can be
achieve.
The main concern of agency theory as proposed by Jesen and Meckling
(1976) is “how to write contracts in which an agent’s performance can be
measured and incentivized” so they would act with the principal’s interests in
mind. Fama and Jensen (1983, p.302) refer to such contracts as “internal rules of
the game which specify the rights of each agent in the organization, performance
criteria on which agents are evaluated and the payoff functions they face”.
However, some events or circumstances cannot be predictable; thereby some
funds can be allocated by manager’s choice. The inability (or difficulty) to write
perfect contracts leads to increase managerial discretion which drifts the same
agency problem. Further, the costs associated with monitoring reduce the value
of the firm.
A second agency problem can emerge when principal and agent have
different attitudes towards risk and therefore they may be inclined to take
different actions. For example, an executive might not risk financing a long term
research and development initiative that may actually be a strategic move for
sustainable growth of the firm because it may decrease profits in short term.
The solution to either of these agency problems is to ensure that
principals and agents act in the best interests of the shareholders. In order to
accomplish this, scholars have suggested various governance mechanisms.
Agency theory thus provides a basis for firm governance through the use of
internal and external mechanisms (Weir, Laing and McKnight 2002). The
governance mechanisms are designed to “protect shareholder interests,
minimize agency costs and ensure agent-principal interest alignment” (Davis,
Schoorman and Donaldson 1997).
There are several governance mechanisms, although the most used ones
are board of directors and compensation. These mechanisms are used to align
the interest of both the agent and the principal. This alignment can be done by
increasing the amount and quality of information available to principals and
making senior executives part owners of the firm through their compensation
packages (Davis, Schoorman and Donaldson 1997). This type of mechanism is
more appealing when the agent has a significant informational advantage and
monitoring is difficult. Fama (1980) considers the board a low cost mechanism of
I.F. Da Silva Rodrigues 8
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
management when compared to other such as takeovers. The literature on board
focused mainly on issues such as board size, independent directors, etc. (
(Dalton, Daily and Ellstrand, et al. 1998) (Coles and Hesterly 2000) (Coles and
Daniel 2008)). Researchers have relied on agency theory to examine the role of
boards in affecting firm performance.
2.1.2 Stewardship Theory
Unlike agency theory that assumes that principals and agents diverge in
their interests/goals and that agents are self-serving and self-centred,
stewardship theory assumes that managers are stewards whose behaviors are in
line with the objectives of their principals, which makes monitoring redundant
(Donaldson and Davis, 1994, Donaldson and Davis, 1991, Davis, 1997).
Donaldson and Davis (1991, p. 51) observe, “organizational role-holders are
conceived as being motivated by a need to achieve, to gain intrinsic satisfaction
through successfully performing inherently challenging work, to exercise
responsibility and authority, and thereby to gain recognition from peers and
bosses”.
The stewardship perspective views managers as loyal to the company and
interested in achieving high performance. The main reason is their desire to
perform excellently. Specifically, managers are conceives as being motivated by a
need to achieve, to gain intrinsic satisfaction through successfully performing
inherently challenging work, to exercise responsibility and authority, and
thereby to gain recognition from peers and bosses. Davis, Schoorman and
Donaldson (1997) set how stewards derive a greater utility from satisfying
organizational goals than through self-serving behavior. Stewardship theory
suggests that more autonomy should be given to managers based on trust, which
minimize the costs of monitoring. Donaldson e Davis (1991, p.51) affirm in their
study that when managers had served a firm for a considerable period there is a
“merging of individual ego and the corporation”.
These concepts have been well documented throughout the work of
scholars. Davis, Schoorman e Donaldson (1997) suggest that mangers identify
with the firm and it leads to personalization of success or failure of the firm.
Daily e Dalton (2003) argue that managers and directors are also interested to
protect their reputation as expert decision makers. As a result, managers tend to
operate the firm in order to maximize financial performance, including
shareholder returns. This perspective links superior performance with
independence of the board, since inside directors have a better understand of the
business and are better placed to govern than outside directors, making
therefore superior decisions (Donaldsone Davis, 1991).
The theory argues that an organization demand a structure that allows
harmonization to be achieved most efficiently between managers and owners. In
a leadership firm, this situation is reached more promptly if the CEO is also the
chairman of the board. Since the CEO exercises complete authority over the firm,
I.F. Da Silva Rodrigues 9
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
this type of leadership will assist them to reach superior performance. In this
situation, power and authority are concentrated in a single person and therefore
the expectations about corporate leadership are clearer and more consistent.
Thus, there is no room for uncertainty given the company opportunity to enjoy
the benefits of an unity and strong of direction.
Several studies support the view that insider directors make superior
decision. Donaldson (1998) compared both agency and stewardship theory and
found support for stewardship theory being a good model of reality. Bhagat and
Black (1999) found that boards with a large number of outside directors,
perform worse than the ones who have less outside directors. Therefore, in the
literature there is both conceptually (Davis, Schoorman e Donaldson 1997)and
empirically support for the stewardship theory (Bhagat and Black, 1999).
2.1.3 Resource Dependence Theory
Resource Dependence Theory try to explain how external sources can
affect the organization’s behavior, concretely, it provides a theoretical
foundation for the role of the board of directors as a resource to the firm (
(Johnson, Daily e Ellstrand 1996), (Hillman, Canella e Paetzold, 2000)).
In 1978, Pfeffer e Salancik (1978) introduced resource dependence
theory based on the notion that environments are the source of scarce resources
and organizations are dependent on these finite resources for survival.
According to this theory, the board of directors is seen as a tool “to manage
external dependency, reduce environmental uncertainty and reduce transaction
costs associated with environmental independency by linking the organization
with this external environmental” (Lynall, Golden e Hillman 2003).
According to this theory, boards are considered as a link between the firm
and the external resources that a firm needs from the external environment for
superior performance. Outsider’s directors help in gaining access to resources
that are important to firm’s success (Johnson, Daily e Ellstrand 1996). These
directors “bring resources to the firm, such as information, skill, access to key
constituents (e.g. suppliers, buyers, public policy decision makers, social groups)
and legitimacy” (Hillman, Canella e Paetzold, 2000). Therefore, the board
composition should be adjusted overtime considering the different needs that a
firm passes through the time (Hillman, Canella e Paetzold, 2000). Small firms and
new firms may also benefit from the resources the board provides in comparison
with large and more mature firms (Hillman, Canella e Paetzold, 2000).
Board member possess outside links and networks that may positively
benefit the development of business and long-term prospects. In an earlier study,
Pfeffer (1972) showed that the board size and background of outside directors
are important to managing an organization’s needs for capital and the regulatory
environment. Pearce II e Zahra (1992) find that in the presence of a higher
uncertainty environment, board size ad outside directors is associated with more
I.F. Da Silva Rodrigues 10
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
efficient and can create a more effective strategy development and its execution.
Carpenter and Westphal (2001) contribute to this theory showing how the social
context of external ties helps business. Thus, boards serve as a protection against
environment uncertainty and as a link between the firm and external resources.
Resource dependence theory also helps to have access to financial
resources. Mizruchi e Stearns (1988) find that firms with solvency problems are
likely to appoint representatives to the financial institutes to their boards. They
also found an association between firms borrowing strategy and type of financial
representation on board as such relationships provide both parties with an
opportunity to co-opt each other on a continuous. Due to different backgrounds,
skills, experiences and/or social networks that nationality may provide,
nationality diversity has the potential to increase board performance.
2.1.4 Human Capital and Social Capital Theories
Human capital is defined as a measure of economic value of an employee’s
skill set. The costs of learning the job are a vary component of net advantage and
have led economists (Becker and Mincer) to claim that human capital add value
to an organization (Becker, 1994). According to human capital theory, diversity
will affect the performance of the board as a result of a diverse and unique
human capital (Carter, et al. 2010). However, this impact can be both positive
and negative dependent on the firm’s internal and external circumstances (ibid).
Social capital is defined as the expected collective or economic benefits
derived from the preferential treatment and cooperation between individuals
and groups. This is created when individuals/organizations interact (Singh
2007). Economic actions are informed, influences and enable by social
connections (Lynall, Golden e Hillman 2003). A network with several areas
unconnected and extensive will provide more and better diverse information
(Singh 2007). Lynall, Golden e Hillman, in their study in 2003, found that
demographic similarities among directors would reflect the inter-organizational
network. If a firm has directors that varies demographically, and therefore more
likely to have different networks, the firm will have a high total social capital
(Singh 2007). Thus, (Murphy e McIntyre 2007) conclude that the board social
capital becomes important to the functioning of the board.
As we have seen, human capital and social capital theories are really close
to resource dependence theory (Singh 2007). Both Human and social capital
affects board expertise and therefore the board performance. As Murphy e
McIntyre said in their study in 2007, board performance affects firm
performance. Nationality diversity will influence the boards social capital in a
positively way by extending it. Also, Nationality diversity can positively affect
board performance by expanding the human capital. Individuals from different
nationalities may also hold different human capital and therefore increase the
human capital of the board.
I.F. Da Silva Rodrigues 11
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Hillman, Withers e Collins (2009) and Carter et al. (2010) found that an
individual human and social may be more beneficial for some firms than others.
The construction of an effective board may depends on the situation by itself and
other number of moderating factors should also be taken into account when
forming a board (Murphy e McIntyre 2007). According to Murphy and McIntyren
there are some factors to take into account when selecting a board such as firm
size, stage of firm development, company life cycle, product competitive
pressure, effects of globalization, mergers and acquisitions and corporate crisis.
Unfortunately, environmental factors have received little research attention so
far (ibid) which makes it difficult to draw any conclusion from the effect of them.
2.1.5 Social Psychological and Organizational Behavior Theories
Social psychological theory deals with the factors that lead a person to
behave in a given way in the presence of others. Carter et al (2010) summarizes
how these findings affect board performance. Carter et al found that
demographic differences lower the social cohesion between groups. Also, social
barriers reduce the probability of a minor point of view to have influence in the
group decision and increase the influence in majority point of views. Therefore, a
high level of diversity generated more different viewpoints and critical thinking
which lead to more time consuming and less effective on the decision process.
Carter et al states that the “efficiency of the probably depends
significantly on psychological process and board demographic”, and that these
processes are likely to have many conflicting and complex effects on processes
that affect board performance. However, there are some positive effects from
board diversity. Research suggests that minority groups may encourage
divergent thinking in the decision, producing more creativity and innovation. As
a conclusion, Carter found that board diversity might affect firm performance
both positively and negatively.
Organizational behavior is the study of the way people interact within
groups. Due to the lack of researches in this area, Murphy and McIntyre (2007)
based on this theory for guidance on their study about board composition. They
defined board of directors “as a team of individuals that participates in the
development and selection of ideas for the development of the firm”. By defining
the board as a team they mean a group that handle complex issues under
potentially ambiguous activities and role situation. And in this perspective we
consider diversity more than just demographic differences. We also count skills,
experiences and values as diversity.
There are other theories relevant when talking about board composition.
For instances, Murphy and McIntyre argue that the similarity-attraction theory is
another area that should be paid attention. This theory suggest that people who
are similar, i.e. have similar view, are more likely to like each other and therefore
less likely to create conflicts. Another theory also relevant for the study of board
composition may be the information and decision making theory, which states
I.F. Da Silva Rodrigues 12
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
that diverse groups tend to be more effective than teams with lack on
demographic diversity and with similar views.
In situations where the circumstance is complex and ambiguous, the
degree of diverse experiences has also been found to improve performance.
However, excessive diversity affects negatively the performance due to the
higher possibility of conflicts and miscommunication. Just as Carter concluded,
diversity may have positive or negative effects on group performance, depending
on the context.
2.2
Previous Research
Stakeholder’s companies know that individual board members can add or
destroy shareholder value (Yermack, 2006). Therefore there is a special
attention when selection the optimal board. And therefore it is not easily solved.
There are several characteristics that can affect the firm performance. Directors’
skills, experiences, competences, backgrounds, connections and values are some
of them. However, environmental factors can also affect the firm performance,
such as size and life of stage of the firm. During the recent decades, researchers
have been trying to determine the optimal board composition by studying
several aspects. During this subsection I will present some of the characteristics
that were already studied such as board size, independence, tenure, and
diversity (age, gender and ethnic). The stated goal is to improve the theoretical
framework but also to find some suggestions for board compositions and
increase firm performance.
2.2.1 Board Independence
In the literature, principal during the 80s/90s, board composition was
often used to describe board independence. This refers to board composition as
the independence of the board of directors from the company itself, i.e. if the
director had been currently or not an employed directly. The most commonly
used measurement for board independence is the ratio between outside and
inside directors.
Dalton et al. (1998) found in their study that effective boards were
composed by a large proportion of outsiders’ directors. According to Jesen &
Meckling (1976) agents act according to their own interests an not in favor of the
shareholders. Consequently, monitoring and bonding are needed to compensate
this behavior. One method of monitoring can be the separation of ownership and
control. This method can be achieved by having more outsiders on the board
rather than inside directors.
An alternative view to agency theory described above is stewardship
theory; this says that managers when left on their own will act as responsible
stewards of the assets. This theory is based on the assumption that an individual
I.F. Da Silva Rodrigues 13
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
chooses pro-organizational behavior. Stewardship theory defends that control
should be on the inside directors and not on the outside as agency theory
defends (Dalton et al, 1998). Thus, the CEO should hold the chair.
Prior Dalton et al (1998) there were some evidences that support agency
theory, stewardship theory and some of them neither one. Consequently, Dalton
et al (1998) used a meta-analytical method to study this subject. In their study,
they used five indicators, inside director proportion, outside director proportion,
affiliated director proportion, independent proportion and board leadership
structure. The study had into account 159 samples with 40,160 total ‘n’ sizes for
the first four indicators. The last indicator had into account 69 samples with a
total of 12,915 ‘n’ sizes. The study was controlled for firm size (small or large)
and type of performance (market-based or accounting-based).
None of these indicators of board independence had any significant effect
on firm performance. The results showed that neither firm size nor type of
performance based indicator affected the relationship. The conclusion was that
were no evidence that either support theory, agency or stewardship. Hermalin &
Weisbach (2003) found the same conclusion in their research survey. In this
study they conclude that board independence were not correlated with firm
performance, when measures as a proportion of outside directors.
Dalton, et al. (1999) a year after the previous study decide to study the
idea that a board may need both insiders and outsiders, since a board should
fulfill different tasks as exercising control, providing resources and advising
management. They argued that the different types of directors should not be
complementary or substitutable. For example, an insider director could be more
skilled in providing firm advises to the CEO, but on the other hand his career
evolution depends on the CEO so, consequently he lose control of the CEO. An
insider director is skilled in providing firm advices to the CEO, but he may also
have a lack independence from the CEO. An outside director, although he may be
less skilled in firm advises, he has a high independence, which is a criteria when
exercising control.
Whether board independence is important to board composition is not
clear today, but overall it seems that there is no significant relationship between
board independence and firm performance.
2.2.2 Board Size
Board size and firm performance are one of the focuses of board
composition. Board size is defined as the number of members of a board. The
discussion of the right number a board should have to performance at its best
has been a matter of continuing debate (Jesen, 1993; Yermack, 1996; Dalton,
daily, Johnson & Ellstrand, 1999; Hemalin & Weisbach 2003).
Arguments have been presented on why small boards might be more
effective than large boards. Some researchers have been in favor of smaller
I.F. Da Silva Rodrigues 14
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
boards as Lipton & Lorsh (1992), Jensen (1993) and Yermack (1996). They
defend that larger groups face problems of social loafing and free riding. Dalton
et al (1999) suggest that when the size of the group increases, individuals tend to
put less effort. Having smaller groups may facilitate group cohesiveness. Jensen
1993 endorsed small boards because of efficiency in decisions making due to
greater coordination and lesser communication problems. Also, other
researchers as Yermark and Eisenbers for instances, found an association
between small groups and higher firm value.
In this line of thinking, Blue Ribbson Comission (NAVD, 1995) stated that
a board should be small enough to have thorough discussion, yet large enough to
bring variety of issues to the table. Large boards are known to be associated with
problems of communication and cohesiveness and develop conflicts. Another
argument is that small boards have more ability to initiate strategic actions than
large groups, where this initiative can be inhibited. Regarding performance
assessment of top management, small groups are easier to manipulate than large
ones.
Pfeffer (1972), Klein (1998), Adam & Mchran (2003) are some of the
researchers that support large boards. They defend that large boards provide
greater monitoring and advice. For instances, Klein argues that CEO’s need for
advice will increase with complexity of the organization, i.e. firms operating in
diverse segments have greater need for advice. However, Singh and Harianto
found that the improvement in board performance is due to a reduction in CEO
domination within the board and thereby making it difficult to adopt golden
parachute contracts that might not be in the shareholder’s interest. In a research
survey conducted by Hemalin and Weisbach (2003), board size is found to have a
negative relationship with firm performance, i.e. firms with small boards tend to
perform better than with large boards. Also, a study conducted by Eisenberg et al
(1998) found that the optimum board size varies with firm size.
Other theories suggest the opposite, i.e. large boards tend to be more
effective than small boards. This idea is supported by the resource dependence
theory. Kiel and Nicholson (2003) supported this argument by contradicting the
finding of Yermack (1996). After controlling for firm size, they found that board
size is positively correlated when using Tobin’s Q as an indicator for firm
performance and it has no correlation with return on assets (ROA). Coles, Daniel
and Naveen (2008) found that the correlation between board size and
performance is represented by a U shape with small or large board being
optimal. However this finding was turned out to be due to small and “simple”
firms having a negative relationship between board size and firm performance
and large and more “complex” firms having a positive one. This relationship was
due to CEOs of large and diversified firms require more advice from the board of
directors and therefore require also a larger board. However, there are other
factors that influence board size such as managerial ownership, firm age,
business segments and takeover defense mechanism.
As can be seen from the above discussion, literature about board size
shows mixed results. Some see a positive relationship between size and
I.F. Da Silva Rodrigues 15
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
performance, and others the opposite. Dalton et al (1999) conducted a metaanalytical study of board size in relationship with firm performance. The results
were that there was a non-zero, positive, true population relationship between
board size and firm performance. This relationship was also found to be stronger
in small firms than in large firms.
2.2.3 Board Tenure
The issue of tenure, i.e. the length of time a member has served on a
board, is another board diversity dimension. Vafeas (2003) examined how the
length of board tenure relates to director independence, suggesting that this is
an additional determinant of director quality. However, like the other
dimensions this one also has two different views. Vafeas (ibid), for instances,
suggest that long term director occupation is associated with higher competence,
experience and commitment due to their knowledge of the firm and its business
environment. On the other hand, an extended tenure can isolate the group from
key information sources, more creative and efficient ideas and also reduces
intra-group communication.
Although Vafeas (ibid), McIntyre et al, (2007) and Chamberlain (2010)
found a positive correlation between board tenure and firm performance, the
effect is non-linear. In the beginning while the director is learning the ropes the
effect increases, after which it flattens out and later decreases. Chamberlain
(ibid) argues that the accumulated learning and power effects seen in director
with high tenure enables directors to be more effective. The decrease of firm
performance in long run s proposed by Vafeas (2003) to be due to the fact that
long term directors tend to be more friendly managers and therefore less likely
to monitor them, affecting the quality of monitoring and thus firm performance.
Researchers as Fiegener, Nielsen and Sisson (1996) came to a slightly
different conclusion. They found a positive and significant linear relationship
between outside director tenure and firm performance in their study about
commercial banks. It can pass several years before an outsider become effective.
Also, long term outside directors tend to have a greater influence on the board.
They also suggest that long-term directors are less likely to cede the pressure in
the group. The objectivity in their opinions makes them to be more effective in
their role.
There seems to be a positive relationship between director tenure and
firm performance. The question is whether this relationship is linear or “U”shape. Fiegener et al (ibid), McIntyre et al (2007) and Chamberlain (2010)
advised that directors should have a long stay on the board, and that outsider
directors should stay only for a short time on the board. The goal is to maintain
both board experience and organizational memory while making sure that the
board is cognitively diverse.
I.F. Da Silva Rodrigues 16
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
2.2.4 Diversity
The definition of diversity is unclear due to the multiplicity of meanings in
literature. Generally, diversity is referred to policies and practices that seek to
include people, who are considered in some way different from traditional
members (Herring 2009). Herring define traditional member as people with
similar backgrounds in terms of race or gender. Milliken and Martins (1996)
categorized, in their study, diversity into observable (demographic) and nonobservable (cognitive) dimensions. In the demographic category are included
age, ethnic background and gender. In cognitive are consider education,
functional background, technical abilities, tenure in the organization and
personally characteristics or value. Due to the theme of this study, I will mainly
focus on the demographic dimension, using only tenure as a cognitive diversity
for a control variable.
2.2.5 Gender Diversity
Robinson and Dechant (1997) postulate that diversity promotes a better
understanding of market place, increase creativity, produces more effective
problem solving and leadership and promotes effective global relationships.
Board gender diversity is essential because it presents a diversity of ideas in the
boardroom. It is part of the boarder concept of board diversity (Milliken and
Martins, 1996), which suggests that boards should reflect the structure of the
society.
Simpson et al, (2010) as well as Letendre (2204) examined the theoretical
reasons why the presence of women on boards may add value. Letendre (2004)
brings up the idea of ‘value in diversity’ and suggests that female board members
will bring diverse viewpoints to the boardroom and will provoke lively
boardroom discussions. Women are not substitutes for men directors of equal
ability and qualifications; however, women may have unique attributes that may
increase performance of the board and ultimately performance of a company
(Simpson et al 2010). Generally, they are younger then their man counterpart
and therefore bring benefits to the board. Some of these benefits include better
communication and new ideas (Milliken and Martins 2009). The fact that women
have been excluded from the traditional development paths of corporate
directorships, it makes them far more likely to hold value, unique, and rare
information.
Another reason to include women in the board is that women are usually a
minority on the board and therefore more of an outsider, less beholden to
management and hence serve as better monitor of managers (Simpson et al,
2010). This theory is supported by Adam and Ferreira, (2009). They found that
women directors increase the ability of the board to monitor CEO performance.
Stephenson (2004) discussed the findings of the Canadian conference board.
Using as a sample Canadian companies with more than two women on the board
I.F. Da Silva Rodrigues 17
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
between 1955 and 2001, he was able to conclude that boards with more women
surpass all-male directors in their attention to audit and risk oversight and
control. This could be due to women be more likely to question the conventional
wisdom and to speak up concerned about an issue or a particular managerial
decision through more questioning and open discussion.
Even if gender diversity may cause some disagreement, Latendre (2004)
suggest that such disagreement is beneficial for the company as it leads to better
board dynamics and decision-making. Therefore, board gender diversity is
beneficial as women bring along qualities that were previously absent on the
board. The qualities that women possess are indicative of existing differences
between the genders.
2.2.6 Age Diversity
Age diversity can be considered a part of human capital. According to
some researchers such as Peterson and Spiker (2005), Avery, Mckay and Wilson
(2007), age diversity may increase capabilities and resources possessed by a
firm that are unique, leading to a sustained competitive advantage.
Hambrick and Mason (1984) suggest that youthful managers are more
inclined to undertake risky strategies, and firms with young managers will
experience higher growth than their counterparts with older managers. This can
be explain by the fact that older managers are more risk averse (Barker and
Mueller 2002), while younger managers tend to have higher ability to process
new ideas, lower willingness to accept status quo, and less interest in career
stability (Cheng et al. 2010). Younger people also tend to be more flexible, have
more energy and are mostly better educated. Therefore the diversity could
increase firm performance because it increases the creativity and the problem
solving capability of a team (Li, Shu, Lam and Liao, 2011 p.248-252).
Some researchers provide evidence that older CEO or board chairman is
positively associated with higher financial performance. For instances, Cheng et
al. (2010) indicate in their study that older chairmen in China have significant
impacts on some performance measures such as ROA, cumulative returns and
abnormal returns. This could be due to richer experiences and practices that
come with age. Older members have obtained experience in a specific industry,
because of the several years as a worker. And, also they have a higher sense of
responsibility.
There still are a limited number of studies in that investigate the impact of
this diversity on firm performance. Also, they report different results. For
instances, Kilduff et al (2000) indicate a positive association; and Ararat et al
(2010) found that there is indeed an impact when looking for ROE in Turkish
firms, but not in Tobin’s Q. On the other hand, Randoy et al (2006) and Eklund et
al (2009) found no significant impact on average age of board members in
Tobin’s Q in Nordic and Swedish markets.
I.F. Da Silva Rodrigues 18
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
2.2.7 Ethnic Diversity
Diversity of nationality and culture of a team may increase the probability
of cross-cultural communication problem (Lehman and Dufrene, 2008) and
interpersonal conflicts (Cos, Jr., 1991). However, it may also bring competitive
advantages to the firm such as international networks, commitment to
shareholder rights and managerial entrenchment avoidance (Oxelheim and
Randoy, 2003).
As all dimension in diversity, this one also have mixed results. Some
researchers found that there is no impact on firm performance when the board is
more demographically diverse. Rose (2007) found that the proportion of foreign
nationals has no significant link with market performance when based on
Tobin’s Q.
On the other side, some studies indicates a higher Tobin’s Q. For
instances, Oxelheim and Randoy 2003 found that Norwegian and Swedish firms
had a higher Tobin’s Q when the board were composed by Anglo-American
nationalities. In the same line, Ruigrok and Kaczmarek found that nationality
diversity on the board were positively related with firm performance in the UK,
the Netherlands and Switzerland.
Obviously, the presence of demographic heterogeneity in the board tends
to increase firm performance; hence this diversity is suitable for complex and
ambiguous business operations, while homogeneity is more suitable for
decision-making processes, since it is more effective when faced with
unstructured ones (Hambrick and Mason, 1994).
3. Methods
Different approaches have been used in previous studies in order to reach
their goals. Some researchers as Hermalin and Weisbach (2003) preferred a
more literature survey approach, while others such Dalton et al (1998,1999) and
Carter et al (2003) preferred the traditional quantitative approach. Since the
purpose of this study is to find whether nationality diversity on the board of
directors affects firm performance or not, a quantitative approach will be used.
3.1
Hypothesis
Agency Theory is the most often theoretical framework used in studies
related with the board composition, however in this case, agency theory, does
not provide strong support in favor or against nationality diversity on board of
directors. Social psychological and organizational behavior theory is the closest
theory that predicts a positive or negative relation with firm performance
depending on the level of diversity. However, since this theory does not
I.F. Da Silva Rodrigues 19
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
completely fully predict the effect on nationality diversity on firm performance, a
multitheoretical perspective seemed a more suitable way of attacking the
problem. Therefore this study uses the social psychological and organizational
behavior theory, resource dependence theory and social capital and human
capital theories to formulate the hypotheses.
Social psychological and organizational behavior theory indicates that
diversity enhances teamwork, and therefore when a task is complex, innovative
and creativity is in need, and thus affecting the firm performance positively.
Resource dependence theory and human and social capital theories indicate that
by expanding nationality diversity, the board’s aggregated human and social
capital will increase.
In order to study the impact of nationality we used two different indicator
of nationality diversity. Hypothesis one is regarding the different number of
nationalities in the board and it is stated as below:
Hypothesis 1: There is a positive effect in firm performance when nationality
diversity is increased on the board of directors.
However, as stated above, Social psychological and organizational
behavior theory also argue that too much diversity will lead to more conflicts
and therefore will decrease firm performance. I study nationality diversity as a
concentration index since I believe that diversity is important, but is also
important to have someone with who we identify ourselves and share some
experiences. Therefore the hypothesis 2 is stated as:
Hypothesis 2: There is a positive effect on firm performance when the
concentration level of nationality diversity is increased on the board of directors.
A multitheoretical framework seems to better describe the theoretical
arguments for the effect of nationality diversity on the board of directors and its
impact on firm performance. By using these hypotheses, I hope to be able to
contribute to the research of nationality diversity on the board of directors.
3.2
Research Design
This study will use a longitudinal design since Dalton et al (1999),
Hermalin and Weisbach (2003) and Carter et al. (2003) found some potential
endogeneity problems with the board composition variables. For example,
Hermalin and Weisbach found a negative relationship between board
independence and firm performance. In their study of 13year period, they found
that board independence were more likely during specifics periods. Also, it was
found that inside directors were more likely to leave the board and be replaced
by outsiders in periods of poor performance. Considering that it is possible that
the firm performance also affects other characteristics, such as nationality, a
longitudinal research design was used to rule out the endogeneity problem, and
thus increasing validity.
I.F. Da Silva Rodrigues 20
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
3.3
Measurements
The main goal of this thesis is to measure the impact of nationality
diversity on firm performance. In order to measure the impact, two different
measures were used. The first one was a percentage of different nationalities
existent in the board, since I am interested in the spread of director’s nationality.
The second one was a concentration index. The goal is to measure if more similar
nationalities would have a greater impact than several different nationalities.
Firm performance will be measure by ROA and Tobin’s Q. In order to
increase validity it was included both a backward looking accounting-based
indicator and a forward-looking market based indicator. This decision was made
after considering the debate about which indicator should be used to measure
firm performance, referred by Dalton et al (1998). On this way it is also possible
to compare my results with other studies. Through the studies that used both,
and also this one, it was possible to see that both indicators give us different
results. ROA is measured as net income divided by total assets. Tobin’s Q is
measured as total market value divided by total assets.
In order to minimize the risk of studying the wrong cause, some control
variables were added. The average age was added as a control since there are
some studies that concluded that there is a correlation between age and firm
performance. Several studies have also found that board size affects firm
performance; therefore it was included. Further, Tenure was controlled since
previous studies have shown effects upon firm performance (e.g. Yermack 1996).
The proportion of female on the board has also been controlled since there are
studies that have found a correlation with firm performance. Board
independence was controlled since there stills an open discussion about its
impact on firm performance.
3.4
Longitudinal Design
Data has been collected for the years 2000 to 2012. The decision of only
used each second year as a sample was based in the findings of McIntyre et al
(2007). In their study it was found that the average tenure of a director is
approximately eight years. Therefore there is a minor change between one year
and the next one in board composition.
There are three criteria that are essential to establish a casual ordering
between two variables. The first one is says that the variable should be
statistically associated. This criterion was assured by using a regression. The
second one is about heteroskedasticity and it was controlled by the use of
variable already known significant, described above as control variables. And
finally, the third one says that the cause must either precede or be simultaneous
with the effect. The annual general meeting is normally in the Q2 of the actual
year. In this meeting several decisions are made such as the board composition,
therefore I could control for the last criterion. Moreover, by using ROA and
I.F. Da Silva Rodrigues 21
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Tobin’s it was possible to create two different timings of measurement of the
dependent variable. By taking into consideration that ROA is measured by net
income for the year divided by total asset at the end of the year, ROA will have
timing around Q3. On another hand, since Tobin’s Q is measured by the market
capitalization on the 31st of December divided but the total assets, Tobin’s Q has
a timing of the end of the year.
3.5
Data Sources, Sampling and data collection
The data for this study comes from multiple sources of secondary data.
The base data comes from the BoardEx database, which contains biographical
information of the board members and senior executives around the world.
From this database I was able to download the characteristics needed for my
study. All the characteristics were retrieved from annual reports. In addition, the
data on firm performance was collected from Wharton Research Data Services
(WRDS).
The sample consists of firms listed in the S&P500. S&P500 was used since
being in the top firm of the country makes the firm more likely to employ skilled
and competent individuals on the board of directors, and also, due to its
internationalization, more likely to have diversity in the board. These firms have
good access to capital and other resources necessary not only for survival but
also for improving their performance and competitive position.
In this study I collected board size, board independence, board tenure,
age and nationality of each director of the board, net income, market
capitalization and total assets for each firm. The sample was collected between
2000 and 2012. Since not all the firms were listed at the same time, some data
was not found, therefore dropped out. All data is expressed in dollars or
numbers.
The dependent measure is measured by ROA and Tobin’s Q. ROA was
calculated by dividing net income for total asset. Tobin’s Q was calculated using
the market capitalization and divided by total assets. Regarding the control
variables, independence was calculated as the number of independent board
members existing in the board. Board size was retrieved from the annual report
as is measured as number. Board tenure is an average of the time each director
was on the board. Gender was calculated as a percentage of female members on
the board. Age diversity was measured as an average of director’s age.
Nationality diversity was calculated in two distinguish way. The first one, I
calculate a percentage of different nationalities existent in the board. The second
one was a concentration index of the nationalities in the board.
I.F. Da Silva Rodrigues 22
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
3.6
Method of Data Analysis
A simple liner regression was used to test the hypothesis. Regression is
used since I want not only to describe but also explain my variables. Considering
that I was only interested in test whether my independent variable “Nationality
diversity” has an impact on the dependent variable ROA or Tobin’s Q, a simple
regression seemed the most appropriate method. In my opinion testing for one
factor while controlling to other factors already known as significant, can still be
of value.
A cross validation was conducted by studying the adjusted R square.
When determining the effect of the independent variables, “Nationality diversity”
upon our dependent variable, “firm performance” which is measured by ROA and
Tobin’s Q, I begin with the question whether they are a significant correlation
between them. The importance of the independence variable can be change by
the inclusion, or exclusion, of external variables (Garson, 2011). Therefore, it is
important to control for other variables already known that affects the
dependent variable. Thus, in this study we are controlling for size, independence,
gender, age and board tenure.
4. Results and Analysis
In this chapter I will present the results and analysis related with the
hypothesis. First I will present the hypothesis and the effect on each indicator for
firm performance. Then, I will analyze the results of each hypothesis and finally I
will draw a conclusion about the findings.
4.1
Hypothesis 1
Hypothesis 1 is stated as: There is a positive effect in firm performance
when nationality diversity is increased on the board of directors. Firm
performance will be testes with two indicators: ROA and Tobin’s Q.
4.1.1 Effects on ROA
A simple linear regression was run. Nationality diversity was taken as an
independent variable and ROA as a dependent variable. I analyzed a total sample
of 2022 measurements. The results can be seen in the table 1. I find an R square
of 0.0363, a beta of .2020 and a significance of 0.000. Therefore we can say there
is a significant positive relationship between ROA and Nationality Diversity with
a 95% confidence interval.
I.F. Da Silva Rodrigues 23
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Table 1 – Nationality Diversity and ROA
There are other criteria that must be fulfilled in order to be able to
generalize these findings to the population. The dependent and independent
variable is of ratio scale and the independent variable has a non-zero variance.
Since the Durbin-Watson test is 1.947, I can conclude that the residuals are
uncorrelated. It is also possible to conclude that there is no auto-correlation
between the samples. All of the values of the outcome variable ROA are also
independent. A check between the dependent variable and independent variable
was made through a Pearson correlation analysis. The check was made to find
out if the effect was caused by an external variable or by the variable itself. The
results showed that there is no significant correlation between Nationality and
Age, tenure or gender. There is however a significant relationship with size and
independence of the value of -0.2211 and -0.1739, respectively. Although this is
a small correlation, I run a simple linear regression with the independent
variable independent and size and dependent variable ROA. The idea was to see
if this could be the cause for Nationality diversity affect ROA. The result from this
analyze showed that there is no significant relationship and that the correlation
between Nationality and size does not affect the outcome of the original
analyses. With independence as a dependent variable and ROA as an
independent variable, the regression showed a R-square of 0.0001 and a
significance of 0.651. The same conclusion holds when I ran size as a dependent
variable and ROA as an independent one.
4.1.2 Effects on Tobin’s Q
As told above, in order to increase validity, Tobin’s Q was also used as a
dependent variable. The same structure was applied. I ran a simple linear
regression with Tobin’s Q as a dependent variable and Nationality as an
independent variable. The same sample was used. As it can be seen in the table
below (table 2) the R-square is 0,1681 and the coefficient is 3,991. The
significance level shows that there is a positive significant relationship between
Nationality Diversity and Tobin’s Q.
Table 2 - Nationality Diversity and Tobin's Q
The same controls were made for Tobin’s Q as they were made for ROA.
The Durbin-Watson is 1.07187. There were no heteroskedasticity or sign of nonlinearity. Nationality Diversity was checked against the external control. The
same two correlations were found. After running a simple linear regression were
I.F. Da Silva Rodrigues 24
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
independence and size were treated as a dependent variable and Nationality as a
dependent variable, I was able to conclude that there is a negative correlation
between size and Nationality diversity. Therefore it is not possible to generalize
these findings onto the population.
4.1.3 Analysis of Hypothesis 1
When the firm performance is measured by ROA, nationality diversity
does significantly and positively affects it with R-square of 0.0363 and an
adjusted R-square of 0,0334which means that nationality can explain firm return
to approximately 3%. I found a similar result when I tested firm performance
with Tobin’s Q. Nationality in this model can explain firm return to
approximately 16%. However when used Tobin’s Q these findings cannot be
generalized onto population as seen above.
4.2
Hypothesis 2
Hypothesis 2 is stated as: There is a positive effect on firm performance
when the concentration level of nationality diversity is increased on the board of
directors. Firm performance will be testes with two indicators: ROA and
Tobin’sQ.
4.2.1 Effects on ROA
I wanted to check not only the number of nationalities but also the
concentration index of nationality diversity. In order to do it I run a simple
regression with Nationality diversity index as an independent variable, ROA as a
dependent variable and Size, independence, tenure, gender and age as control
variables. The regression showed up with a R-square of 0.0269 and a coefficient
of minus 0.1038. With these results it was possible to conclude that there is a
negative and significant relationship between Nationality diversity index and
ROA.
Table 3 - Nationality Diversity Index and ROA
Similarly to the analysis in hypothesis 1, I run a Durbin-Watson test that
gave me a result of 1.539. Nationality diversity index was also checked against
external control variables. Similar to what was described above, here also
independence and size has a correlation with Nationality diversity index. The
correlation between these two variables and nationality is –0,0951 and -0,1114
I.F. Da Silva Rodrigues 25
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
respectively. This result was also checked with a simple linear regression.
Although there is a correlation between size and independence, this one seems
to be insignificant and therefore does not affect the outcome for the original
analyze.
4.2.2 Effects on Tobin’s Q
I run a simple regression with Nationality diversity index as an
independent variable, Tobin’s Q as a dependent variable and Size, independence,
tenure, gender and age as control variables. The regression showed a R-square of
0.1630, a coefficient of minus 2.023. I could therefore conclude that there is a
negative relationship between Nationality diversity index and ROA with a 95%
confidence interval.
Table 4 - Nationality Diversity Index and Tobin's Q
In order to generalize the findings I also conducted the same controls
done in the first hypothesis. The Durbin-Watson is 1.064, showing no sign of
autocorrelation. Similar to above a check for external control was found. The
same results expressed for ROA were found.
4.2.3 Analysis of Hypothesis 2
Nationality diversity index has a negative and significant relation with
firm performance when measured as ROA. Nationality diversity index can
explain the model by approximately 3%. When used Tobin’s Q instead of ROA,
Nationality diversity index can explain around 16% of firm return. Since both
variables, independence and size, when tested against ROA and Tobin’s Q were
showed not significant, we can extend this findings onto the population.
4.3
Validity of Results, ROA vs. Tobin’s Q as metric
This thesis is concerned with the specific concept of firm performance. In
order to increase validity both ROA and Tobin’s Q were used to measured firm
performance. As we could see there is different values depending in which
measure we use. The same happens when I used a different way to measure
nationality. I conducted a correlation analysis between ROA and Tobin’s Q to se
how they were related. ROA and Tobin’s Q has a correlation of 0,3399 and a
significance of 0,000. I can conclude that nationality has a strong significant
positive correlation within the 9% confidence interval.
I.F. Da Silva Rodrigues 26
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
ROA shows the financial performance for the year, while Tobin’s Q shows
the markets expectations for results. Taking into account our results and former
studies, I argue that ROA and Tobin's Q are good indicators of firm performance.
5. Conclusions and implications
In this chapter of the thesis I tried to present my conclusions from the
data and analysis performed. Also, I try to discuss some of the implication upon
firm performance. In the end I will describe some limitation of the research and
some suggestions that can be useful for future research in this field.
5.1
Main Conclusions
Nationality diversity is significant and positively correlated with firm
performance. However, Nationality diversity has a negative impact when
measured as a concentration index and a positive one when measured as the
number of nationalities existent in the board. Both effects are found to be linear.
When measure Nationality diversity as the number of nationalities in the board,
it was proven that there is no effect in Tobin’s Q, since this could not be
generalized onto the population.
ROA and Tobin’s Q measure two different aspects of the firm. ROA
measures what the firm performs and not the market value performance. On the
other hand, Tobin’s Q is a better indicator of firm value. Since this two indicator
are correlated it is safe to conclude that the market’s value of a firm is mostly
based on its performance. I believe that resource dependence theory together
with Social Psychological and Organizational Behavior Theories are relevant to
explain the effects of nationality diversity on firm performance.
The intention of this thesis is to contribute for the knowledge of the effect
of nationality diversity in the board of directors upon firm performance, which in
pratice can assit decision makers and nominating comittees in how to effectively
utilise nationality diversity when selecting board members. I was interested to
see if there was any relation between nationality diversity and firm performance,
and if so, if this one would be positive or negative. The research was stated as:
Does Nationality diversity on board of directors affects firm performance? In my
viewand with the support of the empirical results presented in this thesis, it is
possible to conclude that there is a significant relationship between Nationality
diversity on the board of directors and firm performance. If this one is positive
or negative depends if we are looking to the variavle nationality diversity as a
number of diferente nationalities or a concentration index.
I.F. Da Silva Rodrigues 27
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
5.2
Implications for Board Composition
The findings of this study are measured in a group sample and not in an
individual level. Therefore, one needs to be careful when applying them on an
individual level. When considering the choice of a new member there are several
criteria to have into account, therefore applying this findings upon a specific
board nomination can have the opposite effect than shown in this study.
However it is important to be aware of the results of this study; that nationality
diversity on the board of directors positively and significantly affects firm
performance, but a higher concentration of the same nationality has a negative
and significant impact on firm performance. The choice of a new member should
take into account that nationality should also be balanced with other factors,
such as background and experience.
5.3
Future Research
During this research I faced up with some limitations; some due to lack of
time and others due to the sample. Regarding the lack of time, I would advise
future research on this field to control also for industry category since it is well
known that different industries performs in different waves. Also, if a company
has business outside its country it is more likely to have someone from that
country in their board and therefore it should be controlled for as well.
Regarding the sample, this study was performed under a sample of the S&P500
because it was the only data available for nationalities in the board. However I
recommend researching this effect in Europe since it is more likely to have
mixed nationalities in Europe rather than in the US due to geography.
I.F. Da Silva Rodrigues 28
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Appendix
Figure 1 - Regression: ROA and Nationality Diversity
Figure 2 - Regression: Tobin’s Q and Nationality Diversity
I.F. Da Silva Rodrigues 29
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Figure 3 - Regression: ROA and Nationality Diversity Index
Figure 4 - Regression: Tobin's Q and Nationality Diversity Index
I.F. Da Silva Rodrigues 30
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Figure 5 - Pearson Correlation test: Nationality Diversity
Figure 6 - Pearson Correlation test: Nationality Diversity Index
I.F. Da Silva Rodrigues 31
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Company Name
3M CO
ABBOTT LABORATORIES
ACE LTD
ACTAVIS PLC
ADOBE SYSTEMS INC
AETNA INC
AFLAC INC
AGL RESOURCES INC
AKAMAI TECHNOLOGIES INC
ALCOA INC
ALEXION PHARMACEUTICALS INC
ALLEGHENY TECHNOLOGIES INC
ALLEGIANT TRAVEL CO
ALLERGAN INC
ALLSTATE CORP
ALTERA CORP
ALTRIA GROUP INC
AMAZON.COM INC
AMEREN CORP
AMERICAN ELECTRIC POWER CO INC
AMERICAN EXPRESS CO
AMERICAN INTERNATIONAL GROUP (AIG) INC
AMERICAN TOWER CORP
AMERIPRISE FINANCIAL INC
AMERISOURCEBERGEN CORPORATION
AMETEK INC
AMGEN INC
AMPHENOL CORP
ANADARKO PETROLEUM CORP
AON PLC
APACHE CORP
APARTMENT INVESTMENT & MANAGEMENT CO
(AIMCO)
ARCHER-DANIELS-MIDLAND CO
ASSURANT INC
AT&T INC
AUTONATION INC
AVALONBAY COMMUNITIES INC
AVERY DENNISON CORP
AVON PRODUCTS INC
BAKER HUGHES INC
BALL CORP
BANK OF AMERICA CORP
BANK OF NEW YORK MELLON CORP
BAXTER INTERNATIONAL INC
BB&T CORP
BEMIS CO INC
I.F. Da Silva Rodrigues 32
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
BERKSHIRE HATHAWAY INC
BIOGEN IDEC INC
BLACKROCK INC
BOEING CO
BORGWARNER INC
BOSTON PROPERTIES INC
BOSTON SCIENTIFIC CORP
BRISTOL-MYERS SQUIBB CO
BROADCOM CORP
CABLEVISION SYSTEMS CORP
CABOT OIL & GAS CORP
CAMERON INTERNATIONAL CORP
CAPITAL ONE FINANCIAL CORP
CATERPILLAR INC
CBRE GROUP INC
CBS CORP
CELGENE CORP
CENTERPOINT ENERGY INC
CENTURYLINK INC
CERNER CORP
CF INDUSTRIES HLDGS INC
CH ROBINSON WORLDWIDE INC
CHESAPEAKE ENERGY CORP
CHEVRON CORP
CHIPOTLE MEXICAN GRILL INC
CHUBB CORP
CIGNA CORP
CINCINNATI FINANCIAL CORP
CITIGROUP INC
CITRIX SYSTEMS INC
CME GROUP INC
COCA-COLA CO
COGNIZANT TECHNOLOGY SOLUTIONS CORP
COLGATE-PALMOLIVE CO
COMCAST CORP
COMERICA INC
CONOCOPHILLIPS COMPANY
CONSOL ENERGY INC
CONSOLIDATED EDISON INC
CORNING INC
CR BARD INC
CROWN CASTLE INTERNATIONAL CORP
CSX CORP
CUMMINS INC
CVS CAREMARK CORP
DANAHER CORP
DAVITA HEALTHCARE PARTNERS INC
DELPHI AUTOMOTIVE PLC
DELTA AIR LINES INC
I.F. Da Silva Rodrigues 33
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
DENBURY RESOURCES INC
DENTSPLY INTERNATIONAL INC
DEVON ENERGY CORP
DIAMOND OFFSHORE DRILLING INC
DIRECTV
DISCOVERY COMMUNICATIONS INC
DOLLAR TREE INC
DOMINION RESOURCES INC (VIRGINIA)
DOVER CORP
DOW CHEMICAL CO
DR PEPPER SNAPPLE GROUP INC
DTE ENERGY CO
DUKE ENERGY CORP
DUN & BRADSTREET CORP
E*TRADE FINANCIAL CORP
EASTMAN CHEMICAL CO
EATON CORP PLC
EBAY INC
ECOLAB INC
EDISON INTERNATIONAL
EDWARDS LIFESCIENCES CORP
EI DUPONT DE NEMOURS & CO
ELI LILLY & CO
EMC CORP
ENSCO PLC
ENTERGY CORP
EOG RESOURCES INC
EQT CORP
EQUIFAX INC
EQUITY RESIDENTIAL
ESSEX PROPERTY TRUST INC
EXELON CORP
EXPEDIA INC
EXPEDITORS INTERNATIONAL OF WASHINGTON INC
EXPRESS SCRIPTS HOLDING CO
EXXON MOBIL CORP
FACEBOOK INC
FASTENAL CO
FIDELITY NATIONAL INFORMATION SERVICES INC
FIFTH THIRD BANCORP
FIRST SOLAR INC
FIRSTENERGY CORP
FISERV INC
FLIR SYSTEMS INC
FLOWSERVE CORP
FLUOR CORP
FMC CORP
FMC TECHNOLOGIES INC
FORD MOTOR CO
I.F. Da Silva Rodrigues 34
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
FOSSIL GROUP INC
FREEPORT-MCMORAN COPPER & GOLD INC
FRONTIER COMMUNICATIONS CORP
GANNETT CO INC
GARMIN LTD
GENERAL DYNAMICS CORP
GENERAL ELECTRIC CO
GENERAL GROWTH PROPERTIES INC
GENERAL MOTORS CO
GENUINE PARTS CO
GILEAD SCIENCES INC
GOOGLE INC
HALLIBURTON CO
HARLEY DAVIDSON INC
HASBRO INC
HCP INC
HEALTH CARE REIT INC
HERSHEY CO (THE)
HESS CORP
HONEYWELL INTERNATIONAL INC
HOSPIRA INC
HOST HOTELS & RESORTS INC
HUDSON CITY BANCORP INC
HUMANA INC
HUNTINGTON BANCSHARES INC
ILLINOIS TOOL WORKS INC
INGERSOLL-RAND PLC
INTEGRYS ENERGY GROUP
INTEL CORP
INTERCONTINENTALEXCHANGE INC
INTERNATIONAL BUSINESS MACHINES (IBM) CORP
INTERNATIONAL FLAVORS & FRAGRANCES INC
INTERNATIONAL PAPER CO
INTERPUBLIC GROUP OF COMPANIES INC
INTUITIVE SURGICAL INC
IRON MOUNTAIN INC
JOHNSON & JOHNSON
JPMORGAN CHASE & CO
JUNIPER NETWORKS INC
KANSAS CITY SOUTHERN
KELLOGG CO
KEYCORP
KIMBERLY-CLARK CORP
KIMCO REALTY CORP
KINDER MORGAN INC
KRAFT FOODS GROUP INC
L-3 COMMUNICATIONS HOLDINGS INC
LABORATORY CORP OF AMERICA HLDGS (LABCORP)
LEGGETT & PLATT INC
I.F. Da Silva Rodrigues 35
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
LEUCADIA NATIONAL CORP
LINCOLN NATIONAL CORP
LOCKHEED MARTIN CORP
LORILLARD INC
LYONDELLBASELL INDUSTRIES NV
M&T BANK CORP
MACERICH CO
MARATHON OIL CORP
MARATHON PETROLEUM CORP
MARRIOTT INTERNATIONAL INC
MARSH & MCLENNAN COMPANIES INC
MASCO CORP
MASTERCARD INC
MATTEL INC
MCDONALD'S CORP
MCGRAW HILL FINANCIAL INC
MEAD JOHNSON NUTRITION CO
MEADWESTVACO CORP
MERCK & CO INC
METLIFE INC
MOHAWK INDUSTRIES INC
MOLSON COORS BREWING CO
MONDELEZ INTERNATIONAL INC
MONSANTO CO
MONSTER BEVERAGE CORP
MOODYS CORP
MOTOROLA SOLUTIONS INC
MURPHY OIL CORP
MYLAN INC
NABORS INDUSTRIES LTD
NASDAQ OMX GROUP INC
NATIONAL OILWELL VARCO INC
NETFLIX INC
NEWFIELD EXPLORATION CO
NEWMONT MINING CORP
NEXTERA ENERGY INC
NIELSEN HOLDINGS NV
NISOURCE INC
NOBLE CORPORATION
NOBLE ENERGY INC
NORFOLK SOUTHERN CORP
NORTHEAST UTILITIES
NORTHERN TRUST CORP
NORTHROP GRUMMAN CORP
NRG ENERGY INC
NUCOR CORP
NYSE EURONEXT
OCCIDENTAL PETROLEUM CORP
OMNICOM GROUP INC
I.F. Da Silva Rodrigues 36
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
ONEOK INC
OREILLY AUTOMOTIVE INC
OWENS-ILLINOIS INC
PACCAR INC
PEABODY ENERGY CORP
PENTAIR LTD
PEOPLE'S UNITED FINANCIAL INC
PEPCO HOLDINGS INC (PHI)
PEPSICO INC
PERKINELMER INC
PG&E CORP
PHILIP MORRIS INTERNATIONAL INC
PHILLIPS 66
PINNACLE WEST CAPITAL CORP
PIONEER NATURAL RESOURCES CO
PITNEY BOWES INC
PLUM CREEK TIMBER CO INC
PNC FINANCIAL SERVICES GROUP
PPG INDUSTRIES INC
PPL CORP
PRAXAIR INC
PRICELINE.COM INC
PRINCIPAL FINANCIAL GROUP INC
PROGRESSIVE CORP (OHIO)
PROLOGIS INC
PUBLIC SERVICE ENTERPRISE GROUP INC
PUBLIC STORAGE
PULTEGROUP INC
QEP RESOURCES INC
QUANTA SERVICES INC
QUEST DIAGNOSTICS INC
RANGE RESOURCES CORP
RAYTHEON CO
REGENERON PHARMACEUTICALS INC
REGIONS FINANCIAL CORP
REPUBLIC SERVICES INC
REYNOLDS AMERICAN INC
ROBERT HALF INTERNATIONAL INC
ROPER INDUSTRIES INC
ROWAN COS PLC
RYDER SYSTEM INC
SAFEWAY INC
SANDISK CORP
SCANA CORP
SCHLUMBERGER LIMITED
SCRIPPS NETWORKS INTERACTIVE INC
SEALED AIR CORP
SEMPRA ENERGY CORP
SHERWIN-WILLIAMS CO
I.F. Da Silva Rodrigues 37
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
SIGMA-ALDRICH CORP
SIMON PROPERTY GROUP INC
SNAP-ON INC
SOUTHERN CO
SOUTHWEST AIRLINES CO
SOUTHWESTERN ENERGY CO
SPECTRA ENERGY CORP
ST JUDE MEDICAL INC
STANLEY BLACK & DECKER INC
STARWOOD HOTELS & RESORTS WORLDWIDE INC
STATE STREET CORP
STERICYCLE INC
STRYKER CORP
SUNTRUST BANKS INC
T ROWE PRICE GROUP
TECO ENERGY INC
TENET HEALTHCARE CORP
TERADATA CORP
TESORO CORP
TEXAS INSTRUMENTS INC
TEXTRON INC
THE TRAVELERS COMPANIES INC
THERMO FISHER SCIENTIFIC INC
TIME WARNER CABLE INC
TIME WARNER INC
TORCHMARK CORP
TOTAL SYSTEM SERVICES INC (TSYS)
TRACTOR SUPPLY CO
TRANSOCEAN INC
TRIPADVISOR INC
UNDER ARMOUR INC
UNION PACIFIC CORP
UNITED PARCEL SERVICE (UPS) INC
UNITED STATES STEEL CORP
UNITED TECHNOLOGIES CORP (UTC)
UNITEDHEALTH GROUP INC
UNUM GROUP
US BANCORP
VALERO ENERGY CORP
VENTAS INC
VERISIGN INC
VERIZON COMMUNICATIONS INC
VERTEX PHARMACEUTICALS INC
VF CORP
VIACOM INC
VULCAN MATERIALS CO
WASTE MANAGEMENT INC
WATERS CORP
WELLPOINT INC
I.F. Da Silva Rodrigues 38
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
WELLS FARGO & CO
WESTERN UNION CO
WEYERHAEUSER CO
WHIRLPOOL CORP
WILLIAMS COMPANIES INC
WINDSTREAM HOLDINGS INC
WISCONSIN ENERGY CORP
WW GRAINGER INC
WYNDHAM WORLDWIDE CORP
WYNN RESORTS LTD
XCEL ENERGY INC
XEROX CORP
XL GROUP PLC
XYLEM INC
YAHOO INC
YUM! BRANDS INC
ZIMMER HLDGS INC
ZIONS BANCORP
Figure 7 – List of firms Analyzed
I.F. Da Silva Rodrigues 39
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Bibliography
Alchian, A.A., and H. Demsetz. "Production, information costs, and economic
organization." American Economic Review 62 (1972): 777-795.
Carpenter, M.A., and J.D. Westphal. "The Strategic Context of External Network
ties: Examining the impact of director appointments on board involvement in
strategic decision making." Academy of Management 44, no. 4 (2001): 639-660.
Carter, D.A., F. D'Souza, B.J. Simkins, and W.G. Simpson. "The gender and ethnic
diversity of US boards and board comittes and firm financial performance."
Corporate Governance: An international Review 18, no. 5 (2010): 396-414.
Coles, J.L., and N.D. Daniel. "Boards: Does one Size Fit All?" Journal of Financial
Economics 87, no. 2 (2008): 329-356.
Coles, J.W., and W.S. Hesterly. "Independence of the Chairman and board
Composition: Firm Choice and Shareholder Value." Journal of Management 26,
no. 2 (2000): 195-214.
Daily, C.M., and D.R. Dalton. "Women in the Boardroom: A Business Imperative ."
Journal of Business Strategy 24, no. 3 (2003): 8-9.
Dalton, D.R., C.M. Daily, A.E. Ellstrand, and J.L. Johnson. "Meta-analytic reviews of
board composition, leadership strucutre performance." Strategis Management
Journal, 1998: 269-290.
Dalton, D.R., C.M. Daily, J.L. Johnson, and A.E. Ellstrand. "Number of directors and
financial performance: a meta-analysis." Academy of Management Journal, 1999:
674-686.
Davis, J.H., F.D. Schoorman, and L. Donaldson. "Toward a Stewardship Theory of
Management." Academy of Management Review 22, no. 1 (1997): 20-47.
Donaldson, L., and J.H. Davis. "Boards and Company Performance - Research
Challenges the Conventional Wisdom." Corporate Governance: An International
Review 2, no. 3 (1994): 65-91.
Donaldson, L., and L.H. Davis. "Stewardship Theory or Agency Theory: CEO
governance and shareholder returns." Australian Journal of Management 16, no.
1 (1991): 49-61.
Eisenhardt, K.M. "Agency Theory: An Assessment and Review." Academy of
Management Review 14, no. 1 (1989): 57-74.
Fama, E.F. "Agency Problems and the Theory of the Firm." Journal of Political
Economy 88, no. 2 (1980): 288-307.
Fama, E.F., and M.C. Jensen. "Separation of ownership and Control." Journal of
Law and Economics 26, no. 2 (1983): 301-325.
I.F. Da Silva Rodrigues 40
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Hermalin, B.E., and M.S. Weisbach. "Boards of directors as an endogenously
determined institution: A survey of the economic literature." Economic Policy
Review 9, no. 1 (2003): 7.
Herring, C. "Does diversity oay?: Race, gender, and the business case for
diversity." American Socuological Review 74, no. 2 (2009): 208-224.
Hillman, A.J., A.A. Canella, and R.L. Paetzold. "Resource Dependency Role of
Corporate Directors: Strategic Adaptation of Board Composition in Response to
Environmental Change." Journal of Management Studies 37, no. 2 (2000): 235255.
Hillman, A.J., M.C. Withers, and B.J. Collins. "Resource dependence theory: a
review." Journal of MAnagement 35, no. 6 (2009): 1404-1427.
Jesen, M.C., and W.H. Meckling. "Theory of the firm: Managerial behaviour,
agency cots and ownership structure." Journal of financial Economics 3, no. 4
(1976): 305-360.
Johnson, J.L., C.M. Daily, and A.E. Ellstrand. "Boards of Directors: A Review and
Research Agenda." Journalof Management 22, no. 3 (1996): 409-438.
Kapopoulos, P., and S. Lazaretou. "Corporate Ownership Structure and Firm
Performance: Evidence from Greek Firms." Corporate Governance: An
international Review 15, no. 2 (2007): 144-158.
Lausten, M. "CEO Turnover, Firm Preformance and Corporate Governance:
Empirical Evidence on Danish Firms." International Journal of industrial
organisation 30, no. 4 (2002): 391-414.
Lynall, M.D., B.R. Golden, and A.J. Hillman. "Board composition from adolescence
to maturity: a multitheoretic view." Academy of Management Review 28, no. 3
(2003): 416-431.
Mizruchi, M.S., and L.B. Stearns. "A Longitudinal Study of the Formation of
Interlocking Directorates." Administrative Science Quarterly 33, no. 2 (1988):
194-210.
Murphy, M., and M.L. McIntyre. "Board of directors performance: a group
dynamics perspective." Corporate Governance: the International Journal of
Effective Board Performance 7, no. 2 (2007): 209-224.
Muth, M.M., and L. Donaldson. "Stewardship theory and Board Structure: A
contigency approach." Corporate Governance: An International Review 6, no. 1
(1998): 5-28.
Pearce II, J.A., and S.A. Zahra. "Board Composition from a sTrategic Contigency
Perspective." Journal of Management Studies 29, no. 4 (1992): 411-438.
Pfeffer, J. "Size and Composition of Corporate Boards of Directors: The
organization and its Environment." Administrative Science Quarterly 17, no. 2
(1972): 218-228.
I.F. Da Silva Rodrigues 41
Nationality Diversity on Board of Directors and its Impact on Firm Performance
Fall 2014
Pfeffer, J., and G. Salancik. "The External Control of Organisations, A Resource
Depence Perpective." New Yor: Harper and Row, 1978: 39-61.
Singh, V. "Ethnic diversity on top corporate boards: a resource dependency
perspective." International Journal of Human Resource Management 18, no. 12
(2007): 2128-2146.
Weir, C., D. Laing, and P.J. McKnight. "Internal and External Governance
Mechanisms: their Impact on the Performance of Large UK Public Companies."
Journal of Business Finance & Accounting 29, no. 5&6 (2002): 579-611.
I.F. Da Silva Rodrigues 42