Board diversity and firm performance: a study of Indian corporate boards

Purpose This study aims to make a novel contribution by examining the multidimensional relationship between board diversity and firm performance within the Indian corporate landscape. Using a sample of non-financial firms listed on the Nifty 100 Index, the research integrates diversity attributes such as gender, age, tenure and functional background into a unified empirical framework. This approach enhances the corporate governance literature by contextualising diversity in an emerging economy with dynamic regulatory mandates, particularly under the evolving provisions of the Companies Act, 2013. Design/methodology/approach This study uses a fixed-effects regression model on a cross-sectional dataset of 84 non-financial firms listed on the Nifty 100 Index for financial year (FY) 2022. It integrates four board diversity dimensions – gender, age, tenure and functional background – into a unified analytical framework. Control variables such as firm size, board age, tenure and multiple directorships are included to account for firm-level heterogeneity. To address potential endogeneity, a two-stage least squares instrumental variable (IV) approach is applied, with diagnostic tests confirming instrument validity and model robustness. Findings Using heterogeneity-controlled regression models, the study controls for unobserved firm-level heterogeneity, an important consideration given the cross-sectional nature of the data. The findings indicate that gender and tenure diversity are positively associated with return on assets and return on equity, suggesting their strategic value in improving firm outcomes. In contrast, age diversity consistently exhibits a negative relationship with performance, lending support to social categorisation theory, which posits that excessive demographic heterogeneity may impede cohesion. Functional background diversity, although often viewed positively in theory, shows a statistically significant negative impact on earnings per share, implying potential coordination difficulties or conflicting perspectives within highly diverse boards. Research limitations/implications The study is limited to cross-sectional data from a single financial year (FY, 2022), which restricts causal inference and temporal analysis. While fixed-effects and IV regression models address unobserved heterogeneity and endogeneity, the absence of panel data limits dynamic insights. In addition, the sample is confined to large, non-financial firms listed on the Nifty 100 Index, which may not fully represent smaller or unlisted firms. Despite these limitations, the findings offer important implications for governance reforms in emerging markets and encourage future research using longitudinal data to assess the evolving impact of board diversity over time. Practical implications For practitioners and policymakers in emerging markets, the study highlights that effective governance requires more than compliance with diversity quotas. Instead, emphasis should be placed on fostering inclusive board cultures that enable all members to participate meaningfully and effectively provide strategic guidance to firms seeking to align their board composition with performance goals and regulatory expectations, emphasising the need to transition from representation to genuine inclusion in board dynamics. Social implications The model specification incorporates key control variables – firm size, mean age, mean tenure and multiple directorships – informed by agency and resource dependence theories. These inclusions strengthen the theoretical robustness of the analysis. Importantly, the findings suggest that diversity should not be viewed as universally beneficial; rather, its effectiveness depends on the type of diversity and the context in which it is applied. The evidence also raises concerns about symbolic representation, particularly regarding gender diversity, where presence does not necessarily equate to influence, echoing critiques within feminist and institutional theory perspectives. Originality/value This study offers a novel contribution by analysing multiple board diversity dimensions – gender, age, tenure and functional background – within a single empirical framework, a relatively unexplored approach in the Indian context. It advances the corporate governance literature by situating diversity within the regulatory environment shaped by the Companies Act 2013. By combining fixed-effects and IV techniques, the study addresses endogeneity concerns and enhances methodological rigour. The findings challenge the assumption that all forms of diversity are beneficial, offering nuanced insights for scholars, policymakers and practitioners seeking to design more inclusive and performance-oriented corporate boards in emerging markets.