Abstract
Purpose - Diversity in boards has gained attention as a reflection of societal imbalances. The purpose of this paper is to investigate the impact of diversity in terms of both gender and nationality in management boards of small and medium-sized enterprises (SMEs) on firm performance from an upper echelons perspective. We also examine how board-specific characteristics influence the structural makeup of boards in gender and nationality diversity terms.
Methodology - We focus on the UK because of its individualistic society and flexible labour market, and assess 309 SMEs in the manufacturing industry over 2009-2019. A 3-stage least squares (3SLS) estimator is used to analyse the data, the Shannon index to measure board diversity, return on assets as proxy for firm performance, and owner-manager presence, board member age and tenure are the board-specific characteristics of primary interest.
Findings - Both gender and nationality diversity contribute to firm performance and represent distinct upper echelon characteristics that change the cognitive and psychological dynamics of boards. Firms with larger boards do not perform better, but diverse boards reduce the narrowing view of CEOs. Yet the presence of owner-managers, despite their performance-enhancing contribution, holds firms back from benefitting from diversity as a strategic choice.
Originality/value - This study extends the upper echelons theory to include board diversity as an important aspect that should become more central in upper echelon thinking when understanding firm performance. Our findings suggest that theoretical developments in search of understanding firm behaviour must proceed by accounting for diversity and not simply focusing on decision-making styles.
Methodology - We focus on the UK because of its individualistic society and flexible labour market, and assess 309 SMEs in the manufacturing industry over 2009-2019. A 3-stage least squares (3SLS) estimator is used to analyse the data, the Shannon index to measure board diversity, return on assets as proxy for firm performance, and owner-manager presence, board member age and tenure are the board-specific characteristics of primary interest.
Findings - Both gender and nationality diversity contribute to firm performance and represent distinct upper echelon characteristics that change the cognitive and psychological dynamics of boards. Firms with larger boards do not perform better, but diverse boards reduce the narrowing view of CEOs. Yet the presence of owner-managers, despite their performance-enhancing contribution, holds firms back from benefitting from diversity as a strategic choice.
Originality/value - This study extends the upper echelons theory to include board diversity as an important aspect that should become more central in upper echelon thinking when understanding firm performance. Our findings suggest that theoretical developments in search of understanding firm behaviour must proceed by accounting for diversity and not simply focusing on decision-making styles.
| Original language | English |
|---|---|
| Pages (from-to) | (In-press) |
| Journal | International Journal of Entrepreneurial Behaviour and Research |
| Volume | (In-press) |
| Early online date | 6 Dec 2022 |
| DOIs | |
| Publication status | E-pub ahead of print - 6 Dec 2022 |
Keywords
- SMEs
- upper echelons
- top management teams
- board diversity
- gender diversity
- nationality diversity
- firm performance
