Examining the impact of board diversity on firm profitability in Italian start-ups: a study of gender and racial representation

Abstract

Several studies have investigated whether there is a relationship between diversity on a company's board of directors and its performance. The diversity considered has been mainly gender and ethnicity, with a few studies also investigating that of education and age. The results obtained varied, with some studies finding no relationships and others finding positive or negative ones. This study will focus on the Italian region of Piedmont, which is characterized by the presence of hi-tech and low-tech firms (such as wineries) and aims to investigate and verify the existence of a link between gender and ethnic diversity and firm performance in terms of ROA and ROE. To do so, three data sets were analysed: one with startups only, one with manufacturing companies, and the last one combining the previous two. The analysis technique used is that of linear regression. Diversity was modelled as Blau indices and represents the independent variables. ROA and ROE, on the other hand, are the dependent variables. Company size, modelled as the logarithm of revenue, is instead used as the control variable. The models analyse the independent variables first individually and then jointly. The results report the nonexistence of a relationship in almost all cases, evidenced by very high p-values and very low adjusted R squares. These findings are also reflected in the literature reviewed. In contrast, the mixed sample reports a negative relationship between ethnic diversity and ROA and ROE, with very negative coefficients and highly significant p-values; however, the R square remains quite low. These results may be due to three main reasons: nationality mix increases transaction and communication costs, greater innovation by mixed boards leads to worse results in the short run and nationality mix does not add value to the company