Board demographic diversity, firm performance and strategic change: A test of moderation

Abstract

Purpose

The purpose of this study is to examine the effect of boards’ demographic diversity on firms’ strategic change and the interaction effect of firm performance.

Design/methodology/approach

This paper used secondary data derived from publicly listed firms in Kenya during 2002-2010 and analyzed the data using fixed effects regression model to test the effect of board demographic and strategic change, while moderated regression analysis was used to test the moderating effect of firm performance.

Findings

The results partially supported board demographic diversity–strategic change hypothesis. In particular, results indicate that age diversity produces less strategic change, while functional diversity is associated with greater levels of strategic change. The moderated regression results do not support our general logic that high firm performance enhances board demographic diversity–strategic change relationship. In effect, the results reveal that at high level of firm performance, board demographic diversity produces less strategic change.

Originality/value

Despite few studies that have examined board demographic diversity and firm performance, this paper introduces strategic change as an outcome variable. This paper also explores the moderating role of firm performance in board demographic diversity–strategic change relationship, and finally, the study uses Kenyan dataset which in itself is unique because most governance and strategy research uses data from developed countries.

Citation

Kipkirong Tarus, D. and Aime, F. (2014), "Board demographic diversity, firm performance and strategic change: A test of moderation", Management Research Review, Vol. 37 No. 12, pp. 1110-1136. https://doi.org/10.1108/MRR-03-2013-0056