HOW DOES BOARD DIVERSITY IMPACT PROFITABILITY THROUGH FINANCING DECISIONS? EVIDENCE FROM OIL AND GAS INDUSTRY

This paper examines the relationship between board diversity and profitability, related to financing decisions in companies operating in the extraction of crude petroleum and natural gas industry. Specifically, the study is based on 31 companies with subsidiaries in the United Kingdom, over the period 2006-2014. The analysis is realised based on statistics and regressions, employing the gender and age of every board member, as board diversity proxies, return on assets as a performance indicator, and gearing and solvency ratios as proxies for financing decisions. Results indicate an indirect relationship between every gender and profitability. Moreover, regarding the age of the board members, results highlight that only the members from age groups 36-45 and 56-65 have a positive influence on corporate performance, while the members of different ages diminish profitability. By also referring to financing decisions, results indicate that more impact on performance comes from young board members (of 36-45 age group), who tend to avoid debt. This research yields significant insights into the association between board diversity and profitability. First, there is no evidence for better performance in case more females or more males are in the Board of Directors. On the contrary, fewer board members would improve the returns of the companies. Secondly, the most effective board members are either the middle-aged ones or those who are close to retirement. Both categories may be associated with individuals who understand the current conditions and undertake adequate decisions or those with most professional experience. The findings of this study suggest that, in order to achieve sustainable performance, the board dimension should be minimised while its members should be flexible and experienced.