Board diversity and corporate investment efficiency in emerging markets: an explanation based on principal-agent theory and resource dependence theory

ABSTRACT

Using a sample of Chinese listed enterprises over the 2010–2020 period, this study examines and empirically tests the impact of board diversity on inefficient investment. Drawing on principal-agent theory and resource dependence theory, the analysis is conducted within a comprehensive framework. The study provides evidence that board diversity plays a crucial role in mitigating inefficient investment in enterprises by effectively restraining both overinvestment and underinvestment. Mechanism tests indicate that under conditions of high agency costs and high financing constraints, board diversity exerts a stronger inhibitory effect on inefficient investment. Cross-sectional tests show that the impact of board diversity on inefficient investment varies under different ownership properties, firm sizes and levels of marketization. By comprehensively considering multiple characteristics of board diversity, this research fills the research gap and expands the perspectives on inefficient investment in enterprises. It provides valuable insights for shareholders and enterprises on effectively structuring their boards of directors.

KEYWORDS:

• Board diversity
• corporate investment efficiency
• principal-agent theory
• resource dependence theory

JEL CLASSIFICATION:

• M20
• C12

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

All data used in this paper is available from public sources.

Additional information

Funding

Philosophy and Social Science Plan Project of Gansu Province of China [2023YB023].