Does Corporate Diversity Really Matter in the Plantation Sector? Empirical Evidence from a World Islamic Leading Country and Market Reaction
Abstract
:1. Introduction
2. Theoretical Background and Construct Identification
Demographic and Cognitive Diversity and Firm Performance
3. Hypotheses and Model Development
4. Empirical Design and Method
4.1. Measurement
4.2. Choice of Variables and Empirical Models
4.3. Dependent Variable
Tobin’s Q (Market Perspective)
4.4. Independent Variables
4.5. Control Variables
4.6. Data Collection
4.7. Data Analysis Strategy
4.8. Model Applied
5. Empirical Results
5.1. Descriptive Statistics
5.2. Correlation Matrix
5.3. Cook’s Distance Outliers Test
5.4. Poled OLS, Random Effect, and Fixed Effect
5.5. Interaction Effect
5.6. Summary of the Results
6. Discussion and Findings
6.1. Theoretical Implications and Practical Contributions
6.2. Limitations and the Pathway for Researchers
7. Conclusions
Acknowledgments
Author Contributions
Conflicts of Interest
Appendix A
Factor “A” (Diversity in BODs) | Factor “B” (Corporate Governance) | Factor “C” (Firm Performance) | Key Findings/Outcomes | Methods/Techniques/Theories/Models | Author Name/Year |
---|---|---|---|---|---|
Demographic Diversity | Conceptual | ROA & ROE | There is inconsistency in previous results. | Develop a conceptual framework | Hassan et al. (2015c) |
Women on Boards | Positive | Market capitalization | Women participation enhance firm performance | Regression, Correlation | Hassan et al. (2016) |
Ethnic diversity | Negative | Market capitalization | Ethnic diversity is negatively associated with market performance | Regression, Correlation | Hassan et al. (2015a) |
Demographic Diversity (Gender Diversity, Ethnic diversity, Age profile of board members) | Age has positive impact | Tobin’s Q | Demographic diversity at board level does have a relationship with market value. | Panel Data | Hassan et al. (2015b) |
Corporate governance mechanism | Mechanism | Ownership & Control | Effective corporate governance mechanism is the best practice to reduce the ownership and control problems in the organisations | Linear Regression | Hassan and Marimuthu (2015) |
Gender Diversity | Positive | Firm value | Women participation does have a relationship with increasing market value. | ANOVA, Linear Regression | Hassan and Marimuthu (2014) |
Gender Diversity among BODs | Positive impact | Average effect is positive. | - Gender diversity in US firms, females have a significant impact on firm inputs & outcomes of firms. - Gender quotas for BODs can reduce the firm value. | - The source of data from annual reports. - Agent Theory - Statistical tools used for empirical analysis. | Adams and Ferreira (2009) |
Gender Diversity among TMTs | Positive impact | The effect is positive. | - Gender diversity in Top Mgt. Effects Agency Cost. - Greater percentage of females in top management of companies, lower agency cost, - companies those have less competitive market showed the negative relation of diversity & agency cost. | - The source of data from annual reports. - Univariate/Regression analysis used - Ratio formula, Weighted moving average | Jurkus et al. (2011) |
Gender Diversity among BODs | Good Governance | Positive | Diversity resolves problem and issues and a case of good governance. | Comparison of different studies. | Fitzsimmons (2012) |
Gender Diversity among BODs | Positive impact on Governance | High Performance | Companies with a higher proportion of women in top mgt. Perform better. | Questionnaire or survey method used. | McKinsey & Company Report (2007) |
Demographic diversity in TMTs | Not discussed | High Performance | - Diversity at a high level can raise conflicts & performance gain results. - Improved the decision-making and performance. | - Upper echelon theory - a longitudinal study. - Demographic Characteristics. -Homogeneity & Heterogeneity. | Carson et al. (2004) |
Workforce Diversity (Racial) | Not discussed | Positive Impact | - Diversity is positive factor - The minority is friendly and significantly impact on results. - Diversity is economic benefits Competitive advantage & stakeholder profitability | - Cultural diversity - Financial Performance through - ROS - ROE - ROA - ROI | Von Bergen et al. (2005) |
Workforce Diversity (Racial) | Not discussed | Positive Impact | - Diversity Driver Model” which is based on BEM. - Diversity Model has used to manage diversity and for improvement. | - Diversity Driver Model used - Self- assessment approach | Farrer (2004) |
Demographic Diversity (Ethnic diversity and Gender diversity) | Not discussed | Positive Impact | BOD diversity has a significant impact on financial performance; TMT’s Diversity does not any impact on financial performance. | - Agency theory - Stewardship theory - ROE - Ratio tool - Non-probability sampling | Marimuthu and Kolandaisamy (2009a) |
Diversity in TMTs | Not discussed | Positive Impact | Demographic diversity of senior management teams is positively | - Partial correlation analysis - Upper Echelon Theory | Nishii et al. (2007) |
Diversity among BODs | Not discussed | Significant Impact | - Gender diversity has a positive influence on firm financial performance. - Women directorship may affect firm performance. | - ROA - OLS regression analysis - Random Sampling | Julizaerma and Mohamad Sori (2012) |
Diversity (Gender) | Good Governance | Positive | Gender of the CEO matters regarding firm performance. | - ROA - T-test | Khan and Paulo Vieito (2013) |
Diversity in BODs (Gender, Ethnic, Nationality) | Good Governance | Positive | Gender diversity was negatively linked with firm performance while board nationality and board ethnicity were positive in firm performance | - Resource dependency theory - Agency theory - Generalized Least Square (GLS) Fixed-Effect and Random-Effect models | Ujunwa et al. (2012) |
Diversity in BODs (Gender, Ethnic, Nationality) | Good Governance | Positive Impact | Personal characteristics BODs may affect corporate performance | - Resource dependency theory - EPS, ROA | Cheng et al. (2010) |
Appendix B
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Variable | Acronym | Measurement |
---|---|---|
Dependent Variables | ||
TOBIN’S Q | Tobin’s Q | Ratio: “BV Total Assets -BV of Equity + MV of Equity/BV of Total Asset” where BV = Book Value; MV = Market value |
Independent Variables | ||
Gender Diversity | GENDIV | Ratio: Total number of females (Muslim and Non-Muslim women)/Total board members [Gender diversity] |
Ethnic Diversity | ETHNDIV | Ratio: Total Non-Bumiputera (Non-Malay)/Total board members [Ethnic diversity] |
Ethnic Women | ETHNFER | Ratio: Total number of ethnic females/Total board members [Ethnic Women Ratio] |
Age Profile | AGEP | “By studying the birth year of board members and average age of board members” [Age Profile Diversity] |
Foreign Participation | FPR | Ratio: “Number of foreign members/Total board members” (Number of Foreign Directors Nationality) [Foreign Participation] |
Gender Diversity × Ethnic Diversity | GENDIV × ETHNDIV | Gender Diversity Ratio × Ethnic Diversity Ratio [Gender Diversity × Ethnic Diversity] (Interactive Approach) |
Gender Diversity × Foreign Participation | GENDIV × FPR | Gender Diversity Ratio × Foreign Participation Ratio [Gender Diversity × Foreign Participation Ratio] (Interactive Approach) |
Education Diversity | EDUDIVTECH | Ratio: “Total number of board members with Technical Education/Total Board members” [Education Diversity-Technical] |
Experience Diversity | EXPDIVTECH | Ratio: “Total number of board members with Technical Experience/Total Board members” [Experience Diversity-Technical] |
Tenure Diversity | TNDIV | “Top level management tenure can be calculated by subtracting from the base year (2013) the year in which the executive joined the top-level management” (Number of Years spent in Board) [Tenure Diversity] |
Control Variables | ||
Firm Age | FAGE | “Number of years since incorporation” [Firm Age] |
Firm Size | FSIZE | Log of total assets [Firm Size] |
Financial Leverage | FINLEV | Total Debt/Total Asset [Financial leverage] |
Business Risk | BR | “The standard deviation of operating income/mean of operating income” [Business Risk] |
Growth opportunity | GROWTHOPPT | Sales0/Sales−1 [Δ Sales] |
Variables | Abbreviations | Mean | Std. Dev. | Min | Max | Skewness | Kurtosis | ||
---|---|---|---|---|---|---|---|---|---|
Statistic | Std. Error | Statistic | Std. Error | ||||||
Number of Females | FEM | 0.699 | 0.796 | 0 | 3 | 0.879 | 0.098 | −0.017 | 0.195 |
Gender Diversity | GENDIV | 0.089 | 0.100 | 0 | 0.43 | 0.754 | 0.098 | −0.46 | 0.195 |
Bumiputera | BUMI | 3.510 | 2.776 | 0 | 12 | 0.775 | 0.098 | −0.275 | 0.195 |
Non-Bumiputera | NONBUMI | 4.360 | 2.556 | 0 | 12 | 0.217 | 0.098 | −0.435 | 0.195 |
Ethnic Diversity | ETHNDIV | 0.565 | 0.305 | 0 | 1 | −0.336 | 0.098 | −1.127 | 0.195 |
Ethnic Female | ETHNFE | 0.363 | 0.584 | 0 | 3 | 1.419 | 0.098 | 1.239 | 0.195 |
Ethnic Women Ratio | ETHNFER | 0.048 | 0.080 | 0 | 0.43 | 1.592 | 0.098 | 1.961 | 0.195 |
Age Profile | AGEP | 57.615 | 4.756 | 44.88 | 71.5 | 0.554 | 0.098 | 0.144 | 0.195 |
Foreign Participation | FP | 0.594 | 1.270 | 0 | 8 | 2.966 | 0.098 | 10.182 | 0.195 |
Foreign Participation Ratio | FPR | 0.073 | 0.144 | 0 | 0.73 | 2.27 | 0.098 | 4.815 | 0.195 |
Gender Diversity × Ethnic Diversity | GENDIV × ETHNDIV | 0.047 | 0.065 | 0 | 0.31 | 1.462 | 0.098 | 1.66 | 0.195 |
Gender Diversity × Foreign Participation | GENDIV × FPR | 0.005 | 0.017 | 0 | 0.16 | 4.825 | 0.098 | 31.738 | 0.195 |
Technical Education (Members) | TEC EDU MEMB | 1.778 | 1.504 | 0 | 7 | 0.91 | 0.098 | 0.572 | 0.195 |
Non-Technical Education (Members) | NONTEC EDU MEMB | 6.139 | 2.158 | 1 | 14 | 0.451 | 0.098 | 0.248 | 0.195 |
Technical Education Ratio | EDUDIV TECH | 0.224 | 0.178 | 0 | 0.86 | 0.63 | 0.098 | −0.074 | 0.195 |
Technical Experience (Members) | TEC EXP MEMB | 1.744 | 1.454 | 0 | 9 | 1.309 | 0.098 | 3.575 | 0.195 |
Non-Technical Experience (Members) | NONTEC EXP MEMB | 6.173 | 2.366 | 1 | 14 | 0.558 | 0.098 | 0.278 | 0.195 |
Technical Experience Ratio | EXPDIV TECH | 0.226 | 0.179 | 0 | 0.9 | 0.837 | 0.098 | 0.638 | 0.195 |
Tenure Diversity | TNDIV | 7.804 | 4.635 | 0.5 | 25.25 | 1.032 | 0.098 | 1.044 | 0.195 |
Board Size | BSIZE | 7.848 | 2.017 | 4 | 14 | 0.614 | 0.098 | 0.15 | 0.195 |
Firm Age | FAGE | 30.271 | 21.166 | 1 | 103.8 | 1.559 | 0.098 | 2.628 | 0.195 |
Firm Size | FSIZE | 13.990 | 1.661 | 4.95 | 18.41 | −0.359 | 0.098 | 4.363 | 0.195 |
Financial Leverage | FINLEV | 0.206 | 0.169 | 0 | 0.78 | 0.724 | 0.098 | 0.036 | 0.195 |
Business Risk | BR | −0.286 | 21.703 | −520.75 | 77.64 | −22.121 | 0.098 | 532.993 | 0.195 |
Growth Opportunity | GROWTHOPPT | 11.775 | 28.793 | −70.7 | 364.74 | 6.518 | 0.098 | 67.234 | 0.195 |
Tobin’s Q | TOBIN’s Q | 1.420 | 0.993 | 0.36 | 9.25 | 3.313 | 0.098 | 16.277 | 0.195 |
Variables | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
TOBINQ | 1 | |||||||||||||||
FAGE | −0.142 ** | 1 | ||||||||||||||
FSIZE | −0.134 ** | 0.214 ** | 1 | |||||||||||||
FINLIV | −0.137 ** | −0.090 * | 0.303 ** | 1 | ||||||||||||
BR | −0.029 | 0.039 | 0.036 | 0.029 | 1 | |||||||||||
GROWTHOPT | 0.111 ** | −0.074 | −0.051 | 0.027 | −0.047 | 1 | ||||||||||
FPR | 0.181 ** | 0.173 ** | −0.034 | −0.203 ** | 0.022 | −0.054 | 1 | |||||||||
ETHNFER | −0.027 | 0.017 | −0.211 ** | 0.040 | −0.031 | −0.013 | 0.030 | 1 | ||||||||
GENDIV | 0.094 * | −0.037 | −0.125 ** | −0.009 | −0.010 | 0.031 | −0.070 | 0.668 ** | 1 | |||||||
ETHNDIV | −0.023 | 0.010 | −0.183 ** | −0.155 ** | 0.003 | 0.065 | 0.302 ** | 0.288 ** | −0.095 * | 1 | ||||||
AGEP | −0.082 * | 0.406 ** | 0.275 ** | −0.100 * | 0.057 | −0.086 * | 0.098 * | −0.118 ** | −0.215 ** | 0.029 | 1 | |||||
TNDIV | −0.128 ** | 0.396 ** | 0.053 | −0.038 | 0.026 | −0.064 | 0.240 ** | 0.191 ** | −0.045 | 0.438 ** | 0.491 ** | 1 | ||||
TECHEDUR | 0.009 | −0.098 * | −0.169 ** | −0.118 ** | −0.059 | 0.045 | 0.035 | −0.023 | −0.003 | 0.012 | −0.137 ** | −0.048 | 1 | |||
TECHEXPR | 0.041 | −0.189 ** | −0.216 ** | −0.008 | −0.043 | 0.121 ** | −0.053 | −0.047 | −0.061 | 0.137 ** | −0.220 ** | −0.103 ** | 0.568 ** | 1 | ||
GENDIV × ETHDIV | 0.050 | −0.044 | −0.248 ** | −0.011 | −0.006 | 0.075 | 0.045 | 0.858 ** | 0.782 ** | 0.327 ** | −0.182 ** | 0.134 ** | 0.032 | 0.053 | 1 | |
GENDIV × FPR | 0.243 ** | 0.014 | −0.124 ** | −0.015 | 0.024 | 0.008 | 0.486 ** | 0.381 ** | 0.345 ** | 0.153 ** | −0.108 ** | 0.049 | 0.087 * | 0.042 | 0.457 ** | 1 |
Variables | Pooled OLS (PEM) | Random Effect (REM) | Fixed Effect (FEM) | Fixed Effect with robust s.e. | Panel Corrected Standard Error |
---|---|---|---|---|---|
Constant | 1.876 *** | 1.471 * | 0.869 | 0.869 | 1.876 *** |
(2.99) | (1.77) | (0.83) | (0.92) | (3.69) | |
GENDIV | 1.667 ** | 0.831 | −0.149 | −0.149 | 1.667 *** |
(2.18) | (1.03) | (−0.17) | (−0.25) | (6.19) | |
ETHNDIV | −0.067 | −0.085 | −0.378 | −0.378 | −0.067 |
(−0.36) | (−0.32) | (−0.96) | (−1.00) | (−1.11) | |
ETHNFER | −2.013 ** | 2.091 ** | 3.470 *** | 3.470 ** | −2.013 ** |
(−2.12) | (2.22) | (3.42) | (2.39) | (−2.35) | |
AGEP | 0.010 | 0.011 | 0.001 | 0.002 | 0.010 *** |
(0.99) | (0.85) | (0.12) | (0.11) | (2.84) | |
FPR | 0.855 ** | 0.884 * | 0.039 | 0.039 | 0.855 *** |
(2.52) | (1.94) | (0.07) | (0.06) | (3.97) | |
GENDIV × ETHNDIV | −0.876 | −2.184 | −1.949 | −1.949 * | −0.876 |
(−0.54) | (−1.33) | (−1.09) | (−1.64) | (−1.16) | |
GENDIV × FPR | 13.060 *** | −11.549 *** | −20.326 *** | −20.326 * | 13.060 * |
(4.32) | (−3.46) | (−5.57) | (−1.79) | (1.81) | |
EDUDIV TECH | −0.443 * | −0.171 | −0.278 | −0.278 | −0.443 ** |
(−1.71) | (−0.48) | (−0.61) | (−0.47) | (−2.46) | |
EXPDIV TECH | 0.212 | −0.043 | −0.193 | −0.193 | 0.212 |
(0.79) | (−0.12) | (−0.46) | (−0.26) | (1.12) | |
TNDIV | −0.017 | −0.012 | −0.005 | −0.006 | −0.017 *** |
(−1.46) | (−0.74) | (−0.26) | (−0.28) | (−4.14) | |
FAGE | −0.006 *** | −0.053 | 0.039 ** | 0.039 | −0.006 *** |
(−3.01) | (−1.41) | (2.36) | (2.00) | (−4.42) | |
FSIZE | −0.050 * | −0.028 | −0.0262 | −0.026 | −0.050 * |
(−1.88) | (−0.86) | (−0.62) | (−1.02) | (−1.7) | |
FINLEV | −0.590 ** | 0.002 | 0.236 | 0.236 | −0.590 *** |
(−2.34) | (0.01) | (0.87) | (0.7) | (−3.66) | |
BR | −0.001 | −0.0007 | −0.000 | 0.000 | −0.001 ** |
(−0.78) | (−0.67) | (−0.09) | (−0.19) | (−2.12) | |
GROWTHOPPT | 0.003 *** | 0.0001 | −0.000 | 0.000 | 0.003 ** |
(2.60) | (0.21) | (−0.44) | (−0.62) | (2.00) | |
R2 | 0.155 | 0.087 | 0.132 | 0.132 | 0.155 |
Breusch-Pagan LM test | 455.17 (0.000) *** | ||||
Reject Ho (means RE is more appropriate) | |||||
Hausman test | 154.42 (0.000) *** | ||||
Reject Ho (means support FE) | |||||
Observations | 625 | 625 | 625 | 625 | 625 |
Diagnostic Check | |||||
Serial correlation | 6.598 (0.001) *** | ||||
Reject Ho (means auto prob.) | |||||
Heteroskedasticity | 2.7 × 106 (0.000) *** | ||||
Reject Ho (means hetero prob.) | |||||
Multicollinearity, VIF | 2.38 |
Objective: To investigate diversity at top-level management of listed companies with regard to their performance. | Status |
---|---|
Tobin’s Q | |
H1: Gender diversity (Muslim and Non-Muslim women) among the board members (BODs) has a positive impact on firm performance (Tobin’s Q). | Supported (Positive Significant) |
H2: Ethnic diversity among the board members (BODs) has a positive impact on firm performance (Tobin’s Q). | Not Supported (Insignificant) |
H3: Ethnic women participation among the board of directors has a positive impact on firm performance (Tobin’s Q). | Not Supported (Negative Significant) |
H4: The age profile of the board of directors has a positive impact on firm performance (Tobin’s Q). | Supported (Positive Significant) |
H5: Foreign participation among the board of directors has a positive impact on firm performance (Tobin’s Q). | Supported (Positive Significant) |
H6: Gender diversity with ethnic diversity (Gender Diversity × Ethnic Diversity) among board members (BODs) has a positive impact on firm performance (Tobin’s Q). | Not Supported (Insignificant) |
H7: Gender diversity with foreign participation (Gender Diversity × Foreign Participation) among board members (BODs) has a positive impact on firm performance (Tobin’s Q). | Supported (Positive Significant) |
H8: Technical Education diversity among the board of directors has a positive impact on firm performance (Tobin’s Q). | Not Supported (Negative Significant) |
H9: Technical Experience diversity among the board of directors has a positive impact on firm performance (Tobin’s Q). | Not Supported (Insignificant) |
H10: Tenure diversity among the board members has a positive impact on firm performance (Tobin’s Q). | Not Supported (Negative Significant) |
© 2017 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/).
Share and Cite
Hassan, R.; Marimuthu, M. Does Corporate Diversity Really Matter in the Plantation Sector? Empirical Evidence from a World Islamic Leading Country and Market Reaction. Int. J. Financial Stud. 2017, 5, 17. https://doi.org/10.3390/ijfs5030017
Hassan R, Marimuthu M. Does Corporate Diversity Really Matter in the Plantation Sector? Empirical Evidence from a World Islamic Leading Country and Market Reaction. International Journal of Financial Studies. 2017; 5(3):17. https://doi.org/10.3390/ijfs5030017
Chicago/Turabian StyleHassan, Rohail, and Maran Marimuthu. 2017. "Does Corporate Diversity Really Matter in the Plantation Sector? Empirical Evidence from a World Islamic Leading Country and Market Reaction" International Journal of Financial Studies 5, no. 3: 17. https://doi.org/10.3390/ijfs5030017