The Influence of Diversity Among Board Members on a Company´s Financial Health



Year of publication 2017
Type Article in Proceedings
Conference Proceedings of the 18th European Conference on Knowledge Management (ECKM 2017)
MU Faculty or unit

Faculty of Economics and Administration

Field Management and administrative
Keywords age diversity; gender diversity; bankruptcy models; financial health; IT industry
Description This paper presents the area of sharing and creating knowledge in management as well as on the boards of Czech stock companies in the context of long-term financial health. In particular, it tries to discover if there is any relationship between higher demographic diversity and a firm's ability to remain in good financial health. Based on a review of the literature, there is an assumption that higher diversity among board members supports sharing and creating knowledge, since different people can provide their own experience, professional background and opinions. That should lead to better corporate management, which is inseparable from good financial health. One of the ways we can assess financial health is by bankruptcy models. They make use of selected financial data and then divide companies by a final score into numerous groups (depending on the particular model we choose). Each group shows specific characteristics, which let us know how good a firm's financial health is. The main aim of this paper is to examine the possible relationship between age and gender composition of executive board members in selected Czech stock companies operating in the IT industry. Our initial sample included 364 companies based in the Czech Republic (all of the companies operating in this industry), from which we randomly chose 70 firms. However, not all of the requested data was available for this sample, so we were forced to reduce our final sample to 56. We were able to gain the basic data describing the number of board members, their age, gender as well as current financial indicators published in financial statements. Based on these numbers, we calculated selected bankruptcy models (Altman index, Index IN01). Afterwards we used basic statistical and mathematical methods to observe if companies with higher diversity showed better financial health indicators. Based on our results, age and gender diversity could potentially have an influence on corporate performance, especially considering age diversity, where we discovered a relatively strong negative correlation of -0.32 between ROE and average age. We cannot state the direction of the relationship, but it could be examined in further research using detailed statistical tests.
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