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Article

Does Board Cultural Diversity Contributed by Foreign Directors Improve Firm Performance? Evidence from Australia

Department of Finance, Faculty of Business, Economics and Law, Auckland University of Technology, Auckland 1010, New Zealand
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Academic Editor: Thanasis Stengos
J. Risk Financial Manag. 2022, 15(8), 332; https://doi.org/10.3390/jrfm15080332
Received: 27 June 2022 / Revised: 21 July 2022 / Accepted: 22 July 2022 / Published: 27 July 2022
(This article belongs to the Special Issue Contemporary Issues in Corporate Governance and Firm Performance)
Australian firms hire an increasing number of foreign directors who bring various cultural perspectives to their boards’ conversations. We evaluate the effect of board cultural diversity contributed by foreign directors on firm performance for a sample of Australian companies, constituents of ASX200. We employ Hofstede’s six cultural dimensions to estimate board cultural diversity. We document a positive relationship between board cultural diversity and firm performance as measured by Tobin’s q and ROA after controlling for various board and firm characteristics. This suggests that more culturally diverse boards may bring benefits to their firms that outweigh the potential costs of conflict and miscommunication caused by cultural differences. Our finding holds after controlling for firm and time fixed effects, implementing an instrumental variable approach, controlling for a firm’s foreign operations and presence, and using alternative cultural diversity measures. We find that not all aspects of cultural differences matter, and it is the diversity in masculinity, uncertainty avoidance, and long-term orientation dimensions that positively determine firm performance. This finding on the positive effect of board cultural diversity for Australian firms contrasts with the evidence from other countries, highlighting that the value of cultural diversity can differ across countries and over time. View Full-Text
Keywords: cultural diversity; nationality diversity; foreign directors; board of directors; firm performance cultural diversity; nationality diversity; foreign directors; board of directors; firm performance
MDPI and ACS Style

Dodd, O.; Zheng, B. Does Board Cultural Diversity Contributed by Foreign Directors Improve Firm Performance? Evidence from Australia. J. Risk Financial Manag. 2022, 15, 332. https://doi.org/10.3390/jrfm15080332

AMA Style

Dodd O, Zheng B. Does Board Cultural Diversity Contributed by Foreign Directors Improve Firm Performance? Evidence from Australia. Journal of Risk and Financial Management. 2022; 15(8):332. https://doi.org/10.3390/jrfm15080332

Chicago/Turabian Style

Dodd, Olga, and Bowen Zheng. 2022. "Does Board Cultural Diversity Contributed by Foreign Directors Improve Firm Performance? Evidence from Australia" Journal of Risk and Financial Management 15, no. 8: 332. https://doi.org/10.3390/jrfm15080332

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