THE IMPACT OF BOARD DIVERSITY ON INVESTMENT EFFICIENCY ACROSS STAGES OF FIRM LIFE CYCLE IN THE MENA REGION

Abstract

This study investigates the dynamic impact of board diversity on investment efficiency across different stages of a firm's life cycle, drawing from the framework of firm life cycle theory. It explores two critical diversity variables - the diversity-of-board index and diversity-in-board index - and their correlation with investment efficiency across various stages of the firm's life cycle, assessed based on free cash flow. The analysis encompasses 332 non-financial firms listed in the Dow Jones MENA Index from 2010 to 2021, yielding 3984 firm-year observations. Data was gathered from the S&P Capital IQ database and analysed using STATA software, employing panel data techniques. The findings reveal a positive influence of the diversity-of-board index on investment efficiency throughout the MENA region's firm life cycle. Conversely, the diversity-in-board index exhibits varying effects, being insignificant during the introduction stage, positive during growth and decline stages, and negative during mature and shake-out stages. These results endorse firm life cycle theory, emphasizing the dynamic role of board diversity in investment efficiency. Furthermore, the study supports resource dependence theory, indicating that diverse board structural characteristics enhance effectiveness, subsequently enhancing firm investment efficiency. This research offers valuable insights for economists and policymakers, advancing our comprehension of how board characteristics and attributes impact a firm's investment efficiency in a dynamic context.