Staff Papers
Published Date: 01 April 2012

Is Board Diversity Important for Firm Performance and Board Independence? - An exploratory study of Singapore Listed Companies

MAS Staff Paper No. 52, April 2012 - By Pei Sai Fan


Following the 1997 Asian financial crisis and the spate of corporate frauds and accounting scandals such as Enron, WorldCom, Parmalat, Satyam and China Aviation Oil (Singapore), there has been considerable research about the effectiveness of the board of directors in the corporate governance of firms. There are strong conceptual and business propositions for greater board diversity. In the corporate world, there has been anecdotal evidence from some large corporations such as IBM, Ford Motor, Nortel, Lucent, Sara Lee, Texaco, and DuPont that diversity at every level of the work force to the board of directors of firms have been cited as an imperative for business success.

This research examines whether there is empirical evidence to support the positive relationship between board diversity and both firm performance and board independence. The research has an Asian focus and uses data from firms listed in Singapore. Evidence is found to support the positive relationship between board diversity and financial performance and board independence.  The research found diversity in gender, ethnicity and discipline of study of board members showing a positive association with TOBIN Q, a market-based measure of firm performance. It also found diversity in tenure of directorship and the discipline of study of board members had a positive association with board independence.