Board diversity, corporate governance, corporate performance, and executive pay

Departing from previous studies, this paper investigates the impact of corporate board diversity on corporate performance and executive pay within the context of Middle East and North African countries. Our sample includes a balanced panel of 600 firm-year observations, consisting of 100 individual firms drawn from five Middle Eastern countries (Egypt, Jordan, Oman, Saudi Arabia, and United Arab of Emirates) over the 2009-2014 period. The findings are three-fold. First, board diversity, as measured by director gender and nationality, has a positive effect on corporate financial performance. Second, the relationship between board diversity and corporate performance is stronger in better governed firms than their poorly governed counterparts. Finally, board diversity, as measured by director gender, ethnicity, and nationality, enhances the pay-for-performance sensitivity but not the actual executive pay. Our results suggest that decisions about board diversity are not merely influenced by moral values; they arise because of the cost-benefit considerations of what diversity can bring to the firm. The findings are robust to controlling for different alternatives of board diversity measures, corporate governance proxies, corporate outcomes, and types of endogeneities.