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Older boards are better boards, so beware of diversity targets

Published online by Cambridge University Press:  27 December 2019

Elizabeth Prior Jonson Open the ORCID record for Elizabeth Prior Jonson [Opens in a new window] ,
Linda McGuire ,
Sharif Rasel Open the ORCID record for Sharif Rasel [Opens in a new window]  and
Brian Cooper
Elizabeth Prior Jonson*
Affiliation:
Department of Management, Monash Business School, Monash University, Victoria3800, Australia
Linda McGuire
Affiliation:
Department of Management, Monash Business School, Monash University, Victoria3800, Australia
Sharif Rasel
Affiliation:
Department of Management, Monash Business School, Monash University, Victoria3800, Australia
Brian Cooper
Affiliation:
Department of Management, Monash Business School, Monash University, Victoria3800, Australia
*
*Corresponding author. Email: [email protected]
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Abstract

This study examined 130 Australian companies from the ASX 500 All Ordinaries between 2011 and 2015. We performed regression analysis on the effects of age of the board (mean age and age diversity) upon financial performance (measured by ROA and Tobin's Q). Controlling for board size, firm size and industry sector, we found that the average age of board members is positively associated with firm performance as measured by ROA. Boards with an older average age of directors perform better than boards with a younger average age. There was no significant relationship between age diversity as measured by the within-board standard deviation on the two performance measures. The primary focus of our study was age. However, an interesting concomitant finding is that the focus on increasing female representation on boards will lower the average age of a board (as female directors tend to be significantly younger than their male counterparts) and this may have an adverse impact on financial performance.

Keywords

agediversitycorporate governance and financial performance
Type
Research Article
Information
Journal of Management & Organization , Volume 26 , Issue 1 , January 2020 , pp. 15 - 28
Copyright
Copyright © Cambridge University Press and Australian and New Zealand Academy of Management 2019

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