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Abstract
Recent research in corporate governance has focused primarily upon minimization of agency costs in the shareholder-management relationship. Particularly, a number of studies in developed countries have carried out to investigate the effect of corporate governance on firm performance. Board characteristics play an important role in organizations to improve their corporate governance and firm performance. This paper will investigate a complimentary perspective, which is a diversity dimension at top-level management based upon upper echelon theory. Diversity comprises on demographic and cognitive dimensions. The objective of this paper is to theoretically examine and explain the effect of diversity on board of directors with regard to firm financial performance. The upper echelon theory contended that demographic and cognitive diversity dimensions at Top Level Management may impact on firm financial performance. This study contributes to potential investors, shareholders, top managements and stakeholders. It provides clear information about how to measure a firm performance. In fact, it also contributes to top managements and helps in reducing the principal-agent problem by considerate the effect of diversity in terms of BODs on firm performance. Based on this study, shareholders, stakeholders, managements and potential investors will know more how the significant roles of diversity are playing in the measurement of firm value.
Keywords: Diversity; Corporate Governance; Performance; BODs (Board of Directors)
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1. INTRODUCTION
The concept of corporate governance is playing an important role in business world. Corporate governance has become the most critical issue all around the world, specially, after global financial crisis that teetered many economies into recession. Corporate governance has received too much concentration due to Adelphia, Enron, WorldCom, and other related high profile scandals. Now days, policy makers are concentrating the issues of corporate governance (Co-operation & Development, 2004). The concept of diversity, demographic diversity and cognitive diversity in business have emerged and matured over the years. Specially, diversity in Board of Directors (BODs) is playing an important role in firm financial performance. Businesses are facing risk and uncertainty, it is hard to forecast and control the intangible or tangible factors which are influencing firm performance (Kuratko & Morris, 2003). Customers are well aware and more demanding for quality of services and delivery. In this dynamic business environment, boards are becoming very important...