Companies with More Ethnically Diverse Boards Have Higher Valuation on the Stock Market

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Reviewed by Clare Fisher


A board of directors is a crucial aspect of an organization’s leadership. Members are instrumental in shaping a company’s mission, goals, and financial success. Historically in Western culture, seats on boards of directors have been largely homogeneously dominated by those who have held political and economic power in those societies – white men.  This is particularly true in South Africa, the country in which Collins G. Ntim conducted research on the effects of board diversity on an organization’s stock market value. 

South Africa’s history of European colonialism and apartheid leave a legacy of institutional racism that still affects society today. Decades of racial segregation and discrimination allowed the white population to  hold and maintain financial power while simultaneously excluding Black South Africans in the process. Preference for a white Afrikaner skilled workforce was codified by the apartheid government, reserving only unskilled labor jobs for black South Africans. As a result, many company boards of directors were entirely white, and generations of black South Africans struggled to rise into the upper levels of these organizations. Post-apartheid, the South African government aimed to rectify this by implementing policies that mandated and/or incentivized organizations to pursue greater diversity. (Affirmative action policies like these are designed to recruit individuals from underrepresented populations; affirmative action is often utilized by schools, companies, and government organizations.) 

Ntim summarizes existing international research on board diversity and highlights that diversity can foster a wider range of ideas and perspectives, as well as greater creativity and innovation. Many academics argue that a diverse board of directors can positively impact a company’s market valuation. However, other researchers found that a more diverse board has a negative impact on market value while others found no effect at all. Ntim aimed to reconcile these conflicting claims through a statistical analysis of the association between market valuation and board diversity on the basis of both ethnicity and gender. He hypothesized that there would be a positive or negative association between these variables.  His research concludes that there is a positive effect from board diversity in the South African context.  

Collins G. Ntim is a Professor of Accounting at the University of Southampton in the United Kingdom. Ntim’s research focus is on how accounting, finance and governance can drive development and sustainability around the world, especially in the developing world.

Methods and Findings

The author sampled 169 organizations across eight industries for this analysis. Ntim obtained data on these organizations over a five year period – from 2003 to 2007. He examined the effect of four variables on market valuation. Those four variables were: 

  1. Board diversity on the basis of ethnicity
  2. Board diversity on the basis of gender
  3. Board diversity on the basis of gender non-whites
  4. Board diversity on the basis of both ethnicity and gender

In addition, Ntim accounted for other variables that may have biased the results of the regression analysis.  Overall, the results were statistically significant and they supported the hypothesis that these four variables are positively associated with market valuation. In other words, organizations with more diverse boards of directors are associated with a higher market valuation. Notably, ethnic diversity is more strongly associated with high market valuation than gender diversity.


Ntim’s findings may have important implications for governments and companies around the world. This research shows that (within the South African context) companies benefit from higher market valuation when they have more diverse boards of directors, with a stronger positive impact generated by ethnic diversity. This research also shows that affirmative action policies and other government incentives that promote diversity may lead to better resource accessibility for companies which can have a positive impact on a company’s market valuation. The author also suggests that both government directed incentives and regulatory compliance and accountability measures ought to be strengthened to ensure greater adoption of diversity objectives in the corporate sector.  

Future research should build upon Ntim’s work to broaden the sample of organizations in terms of 1) the number of companies from which data is gathered and 2) the number of locations in which companies are based. These findings from 169 companies in South Africa may be translatable to other Western countries and their respective stock markets, but it would be worthwhile to conduct similar analyses with more organizations in other countries to validate the findings internationally.


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