A CONCEPTUAL PAPER ON THE FIRM LIFE CYCLE, BOARD DIVERSITY, AND INVESTMENT EFFICIENCY

Abstract

Due to the ever-increasing failures of governments throughout the world, such as Enron, HealthSouth, Arthur Anderson, and WorldCom, diversifying the board of directors have attracted a great attention and difficulties. Moreover, improving firm value is subject to efficient investment. The majority of research on board diversity and corporate investment efficiency has been done from a static perspective. This is not in accordance with reality. The agency costs of free cash flows, in accordance with the firm life cycle theory, are persistent problems that arise after firms reach a particular stage in their life cycle. This study examines the effects of firm life cycle (measured by free cash flow of the firm) and board diversity (measured through CEO duality, board size, board independence, board nationality, board education level, and women representation) on firm investment efficiency. Our findings suggest that the investment made by corporations in tangible and intangible assets is significantly influenced by the firm life cycle. In addition, a crucial component of the corporate governance environment, the board's structure and role change depending on the stage of the life cycle