How Does the Diversity of the Board-Profitability Work?

This study investigates the effect of board diversity on the profitability of publicly listed firms, motivated by ongoing global discourse on corporate governance and the value of inclusive leadership. Despite a growing body of literature highlighting the strategic importance of diversity, empirical evidence remains inconclusive, especially within emerging economies. The purpose of this study is to examine how various dimensions of board diversity—specifically gender, independence, and size—affect firm profitability, measured by return on assets (ROA). The study adopts a quantitative research design using panel data from 150 firms listed on the Nigerian Exchange between 2014 and 2023. A random effects regression model is employed to analyze the data, controlling for firm size, leverage, and board size to ensure the robustness of the findings. The results reveal that gender and independence diversity on the board have a statistically significant and positive effect on firm profitability, while size diversity exhibits no significant impact. These findings suggest that certain aspects of diversity contribute more meaningfully to profitability than others. However, the study is limited by its focus on listed firms in a single country and its reliance on secondary data, which may not capture qualitative aspects of board dynamics. Despite these limitations, the research offers practical implications for policymakers, corporate stakeholders, and investors by emphasizing the financial merits of promoting gender and independence diversity at the board level. This paper contributes original insights to the literature on corporate governance by empirically validating the profitability implications of board diversity in an African context, where such studies are still sparse.