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This study looked into the impact of gender diversity on the profitability of FTSE 100 companies within the UK. Secondary data for the study was taken from the published financial statements of companies that were chosen, and primary data came from 170 respondents who were chosen at random from the companies. The outcome supports the existence of a strong positive linear link between the profitability of FTSE 100 companies and board gender diversity. The study therefore suggests that FTSE 100 companies within the UK raise the proportion of women to men on their board of directors. Compared to men, female directors are more likely to have support/staff managerial abilities in areas like human resources, law, communications, and public relations as opposed to line duties like operations and marketing.



1.1 Background to the study

Every organisation needs to be aware of the crucial part that its board of directors plays in fostering the best corporate governance, which leads to organisational performance. The recent global financial crisis and the numerous global corporate governance scandals and failures, however, make it clear that pressure has been put on company boards to fulfil their responsibilities. Directors are primarily responsible for the majority of company scandals. The well-known incidents of Enron and WorldCom in the US, Parmalat in Italy, and Cadbury in Nigeria, among others, demonstrate how important the role of the board of directors is in deciding a company’s profitability. The manufacturing industry in Nigeria is not excluded, since several manufacturing firms there have been liquidated as a result of the board’s detrimental effects.

Due to their low profitability, the existing manufacturing enterprises in the countries still make up a very small portion of the GDP. Many scholars have focused on examining the effect of the board of directors on the success of the firms as a result of the board’s perseverance and the firms’ eventual failures. There is no agreement on the effect of board features on firm performance, notwithstanding the number of empirical research (Babatunde & Olaniran, 2009). Numerous corporate governance researchers have advocated improving the effectiveness of boards, operationalizing their roles, assessing board performance, encouraging independent and non-executive directors to participate in board composition, promoting gender diversity on boards, reducing board size, involving directors in stock ownership, and lessening board dependence.

Bhagat and Black (2002) and Hermalin and Weisbach (1988) discovered higher agency expenses for businesses with internal directors. Additionally, Brown and Caylor (2004) discovered that businesses with more female directors on their boards had greater returns on assets, returns on equity, and profit margins. An relationship between director ownership and corporate performance was identified by Berle and Mean (1932). In contrast, several scholars have discovered through actual research that the aforementioned claims have little to no effect on the profitability of firms.

For instance, Yermarck (1996) discovered a negative correlation between gender diversity and profitability, while Babatunde and Olaniran (2009) argue that gender diversity on boards is bad for the company. While Peng (2004) found that increasing the proportion of female directors had no effect on ROE or sales growth, Fama and Jensen (1983) argue that board gender diversity may have a negative influence on a company’s success. Boyd (1994) discovered that firm profitability significantly predicted board gender diversity, while Mishra and Nielsen (2000) discovered that gender diversity was a better indicator of success when there were fewer independent directors, a finding that is confirmed by Zajac and Westphal’s (1996) research. Marimuthu (2009) was unable to come to any firm conclusions about how gender diversity affects performance.

According to diversity advocates, decision-making processes and profitability are improved by diversity (Rhodes and Peckel, 2010). The following are arguments in favour of diversity that have been compiled by Robinson and Dechant (1997) and Omoye and Eriki (2013): (1) diversity fosters a better understanding of the market place; (2) diversity increases creativity and innovations; (3) diversity produces more effective problem-solving; (4) diversity enhances the effectiveness of corporate leadership; (5) diversity fosters more effective global relationships; and (6) diversity fosters board decision-making and monitoring functions. According to Shafique, Idress, and Yousaf (2014), there are various processes and frameworks for ensuring diversity on boards, including board size, composition, education level, gender diversity, non-executive directors, and executive directors. which ultimately contribute to the profitability and performance of the company.

Board Gender Diversity is the percentage of women and members of racial, ethnic, and ethnic minorities who sit on the board (Wang and Cliff, 2009). Board diversity in terms of age distribution, gender, physical ability, kind of educational background, and other forms of diversity on corporate boards around the world has long been a topic of discussion and research (Rajula, 2016). Through an emphasis on corporate governance, diversity standards and metrics, and networking for advancement, organisations like banks have launched initiatives to increase the proportion of women, persons of other ethnic, social, or racial orientations, and the younger age groups. Since 2008, there has been a consistent, albeit slow, rise in the number of women serving on corporate boards (Chanavat and Ramsden, 2013).

According to Bagudu, Bazeet, and Alfa (2015), corporate governance research on gender diversity has risen to prominence in the international arena in an effort to improve corporate culture and strengthen the economy. In addition to improving board governance and monitoring efficacy (Capezio & Mavisakalyan, 2015), gender diversity is a key corporate governance tool that influences a company’s financial performance (Terjesen, Couto & Francisco, 2015). For instance, Mohan (2014) asserted that female Chief Executive Officers (CEOs) primarily work in creative, team-oriented businesses that demand cooperation. Gender diversity improves firm reputations by informing the market that the organisation places a higher priority on corporate governance (Larkin, Bernardi, and Bosco, 2012). By ensuring fair representation, gender diversity reflects social structure (Yawo and Mathew, 2018; Keasey, Thompson, and Wright, 1997).

Additionally, Schwartz-Ziv (2013) claimed that having more women present at corporate board meetings lengthens the meetings’ discussion. As a result, a gender-balanced board is more active because its members have a broad range of skills. Due to the significance of gender diversity globally, regulators in a number of nations, including the US, the European Union, Australia, and Asia (Vietnam, Malaysia, and China), have implemented various policy initiatives on gender balance on corporate boards (Goergen & Renneboog, 2014; Nguyen, Locke, & Reddy, 2015). Publicly traded businesses must indicate in their proxy statements in the US, UK, Australia, and Germany if the nominating committee took gender diversity into account when selecting board members (Capezio & Mavisakalyan, 2015; Reguera-Alvarado, de Fuentes, & Laffarga, 2015). According to Reguera-Alvarado et al. (2015), other nations, including Norway, Spain, France, the Netherlands, and Italy, have laws requiring that at least 40% of the board members be female.

While there are many advantages to gender diversity on boards, it also tends to produce more opposing perspectives, which can result in less efficient and effective decision-making that can harm the success of the company (Campbell and Minguez-vera, 2008). Given a diversified board, businesses also pay greater expenses for group decision-making (Daunfeldt and Rudholm, 2012). In fact, there has been conflicting data presented in nations with gender quota systems (Norway, France, Italy), with the majority of the studies failing to establish a link between gender diversity and business performance (Daunfeldt and Rudholm, 2012; Rose, 2007).

Despite the fact that corporate governance as a concept has received considerable attention in developed markets (Lin, 2001; Carter, Colin, and Lorsch, 2004; Staikouras et al., 2007) and research McConnell et al., (2001), practitioners and researchers have not addressed or have completely ignored board gender diversity of manufacturing firms (Caprio and Levine, 2002; Ntim, 2009). Additionally, the relationship between gender diversity and profitability has not been properly developed. Even in developed markets, the topic of board gender diversity has rarely included the manufacturing sector, and its profitability has only lately been emphasised in literature, making it less broad and inclusive, according to Macey and O’Hara (2001).

1.2 Statement Of The Problem

Policymakers, managers, and directors have increasingly become interested in the issue of board gender diversity as it relates to corporate governance. Academics and shareholders (Johanson, 2008). Numerous studies have been conducted in response to this interest to determine how gender diversity on boards affects performance in industrialised nations. Only a few studies, including one on Nigeria, were conducted in poor nations. As a first step to promote board diversity, female quota systems have started to be imposed by corporate governance codes of conduct from both developed and developing nations (Norway, UK, Italy, France, Malaysia, Kenya, and others) (Oba and Fodio, 2013). The sustainable banking guidelines of the Nigerian central bank from 2012 also encourage banks to increase the proportion of women in management and the board by up to 40% by the end of 2014. Each bank will pledge to support initiatives that foster an inclusive workplace culture and the advancement of women in leadership roles across the board.

In industrialised nations, where there are now more than 40% of women on corporate boards, this has had a favourable impact (Corkery and Taylor, 2012). According to a 2017 poll by DCSL Corporate Services, the percentage of women on Nigerian bank boards increased from 19% in 2013 to 21% in 2014 and 25% in 2015, however it is still less than the 40% that the banks have promised to achieve in accordance with the sustainable banking standards. Yap, Chan, and Zainudin (2017) noted that in developing nations, the corporate board room is still wary of policies that increase the percentage of women directors in a boardroom that is predominately male. This is because the value of including women in the corporate boardroom is disputed in terms of its implications for policy. As there is still debated scientific evidence about the impact of female directors on profitability.

1.3 Objective of the study

The main objective of the study is to examine the  impact of gender diversity of boards on the financial performance of FTSE 100 companies within the UK. Specifically the study aims to:

  1. Find out if there are female representation on the boards
  2. Assess the effect of board gender diversity on return on equity
  3. Board gender diversity has direct impact on the profitability of the listed firms

1.5 Research Questions

In response to the research objectives of the study, the following research questions were raised.

1.To what extent does board gender diversity effect return on equity?

  1. Does board gender diversity has direct impact on the profitability of the listed firms ?

1.5 Research Hypotheses

The following hypotheses are posited

H01: The board gender diversity does not have significant impact on the profitability of FTSE 100 companies within the UK

H1: The board gender diversity have significant impact on the profitability of FTSE 100 companies within the UK

1.6 Significance of the study

Prior research on the relationship between board diversity and financial performance has mainly focused on industrialised nations. For instance, legislation governing the proportion of female board members has been passed in Europe’s Germany, and more recently in Italy, Australia, and the United States. More academic study on board diversity and its impact on profitability has a lot of potential. Future academics will benefit from this study’s reference materials for the banking industry in emerging nations. The results of this study will provide important information about the make-up of the boards of businesses in the economy and the effects of board diversity features on stockholders’ desire to maximise their wealth as determined by the measurement variables covered in the study. This information will provide financial institutions, advisors, and entrepreneurs with the tools they need to increase the profitability of their businesses. Additionally, these findings will offer information that will serve as a guide for the government in determining if laws regarding the gender composition of company boards may be necessary. Given that the majority of studies in this area have focused on established countries, it will also serve as a foundation for additional research into corporate governance theories aimed at emerging countries.

1.7 Scope of the study

The study will be on the 10.The impact of gender diversity of boards on the financial performance of FTSE 100 companies within the UK. The main objective of this study is to determine the impact of board gender diversity on the profitability of FTSE 100 companies within the UK. The study covered a period of ten year from 2008 to 2020. The ten year period was chosen primarily to cover the pre and post 2008 financial crises and the economic recession that followed.

1.8 Limitation Of The Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.

1.9 Definition of terms

Financial performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. The term is also used as a general measure of a firm’s overall financial health over a given period.

Diversity; It is a combination of our differences that shape our view of the world, our perspective and our approach. Diversity is also about recognising, respecting and valuing differences based on ethnicity, gender, age, race, religion, disability and sexual orientation

Gender diversity is equitable or fair representation of people of different genders. It most commonly refers to an equitable ratio of men and women, but also includes people of non-binary genders.

1.10 Organization Of The Study

This research work is organized in five chapters, for easy understanding, as follows. Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.


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