Board diversity and systematic risk: evidence from emerging markets

Abstract

Purpose

This study aims to investigate the association between board diversity and systematic risk. The theoretical framework used in this study is based on agency and resource dependency theories.

Design/methodology/approach

Using a panel data set of 788 firms listed in the Morgan Stanley Capital International (MSCI) Emerging Markets index from 2015 to 2020, the authors apply Panel-Corrected Standard Error estimation method to test the three proposed hypotheses and the two-stage least squares method is adopted for the endogenous test.

Findings

The results suggest that board-specific skills diversity (BSSD) and board independence (BIND) have a negative impact on systematic risk. On the other hand, board gender diversity does not affect systematic risk. The findings reinforce the relevance of board diversity for reducing systematic risk and offer valuable insights for policymakers and investors, suggesting that the presence of directors with specific skills and independent directors could reduce firms’ systematic risk.

Research limitations/implications

The study extends the scope of agency and resource dependency theories by suggesting that the BSSD and BIND reduce agency costs and bring critical resources to the firm’s survival.

Practical implications

The findings support policymakers and managers in reducing systematic risk. In addition, the results demonstrate the importance of policies that encourage board diversity and BIND.

Social implications

The study demonstrates how companies can reduce systematic risk through board diversity and BIND.

Originality/value

To the best of our knowledge, this is the first study to investigate the association between board diversity and systematic risk only in emerging markets.

Citation

Daniel-Vasconcelos, V., Crisóstomo, V.L. and Ribeiro, M.d.S. (2023), "Board diversity and systematic risk: evidence from emerging markets", Managerial Finance, Vol. 49 No. 11, pp. 1783-1805. https://doi.org/10.1108/MF-07-2022-0315