The study's impetus stems from the increasing need for improved corporate board effectiveness, highlighted by recent financial scandals and corporate failures. Board diversity (BD) is recognized as a key factor in enhancing board effectiveness. The relationship between BD and firm's financial performance (FP) is examined through three management perspectives: Upper Echelons Theory (UET), which emphasizes the top management team's role; Resource-Based Theory (RBT), focusing on human resource utilization; and Managerial Network Theory (MNT), highlighting the role of managers' social and political ties. The board of directors is crucial for upholding shareholder interests and improving decision-making accuracy, risk reduction, and FP. Prior research yields mixed results on the BD-FP relationship, with a lack of consensus and limited focus on emerging markets. Strategic change (SC) is also identified as a critical factor influencing the BD-FP nexus, potentially requiring adjustments in boardroom structure to achieve strategic objectives. The study aims to bridge the existing knowledge gap by investigating the impact of BD on FP and how SC moderates this relationship, utilizing a six-dimensional index to measure both BD and SC. The study uses data from 240 non-financial firms across four emerging markets over 13 years, employing both fixed-effect models and the two-step system GMM approach. The study contributes to the literature by providing empirical evidence on BD-FP relationship in emerging markets, considering SC as a moderating factor, examining multiple BD attributes beyond gender, and employing a rigorous econometric approach.

Prior research on the relationship between board diversity (BD) and financial performance (FP) has yielded mixed results, with some studies showing positive associations, others negative, and some showing no significant relationship. This ambiguity is examined through three theoretical lenses: Upper Echelons Theory (UET), highlighting the top management team's impact; Resource-Based Theory (RBT), emphasizing the effective utilization of human resources; and Managerial Network Theory (MNT), focusing on managers' social and political ties to reduce transaction costs. Existing studies often focus on specific diversity attributes like gender and nationality, producing varied conclusions across different geographical contexts and methodologies. The role of strategic change (SC) as a potential moderator in this relationship is under-researched, although some studies suggest SC could influence the connection between BD and FP. The current study seeks to synthesize these findings, addressing the inconsistencies and limited exploration of emerging markets and the moderating role of SC.

This study employs a quantitative research design using a balanced panel dataset of 240 non-financial firms from four emerging markets (Moscow, Shanghai, Bombay, and Pakistan) over a 13-year period (2008-2020). Firms were selected based on market capitalization. Data on financial performance (FP) were measured using Return on Assets (ROA) and Return on Equity (ROE), with ROA as the primary dependent variable. Boardroom diversity (BD) was measured using a composite index incorporating six dimensions: gender, age, expertise, nationality, education, and tenure. The Blau index was used to calculate diversity within each dimension. Strategic Change (SC) was also measured with a composite index based on six resource allocation profiles: advertising intensity, R&D intensity, plant & machinery and innovation, non-production unit costs, inventory level, and financial leverage. Five control variables were included: firm size, growth, financial leverage, board size, and state ownership. Before analysis, diagnostic tests were performed to assess data validity, including panel unit root tests (LLC, IPS, ADF, PP-Fisher), multicollinearity diagnostics (VIF), and tests for heteroskedasticity (White's test, Cameron & Trivedi's decomposition of the IM-test). The study used two econometric approaches: a fixed-effects model (FEM) and a two-step system Generalized Method of Moments (GMM) dynamic panel data model. The FEM was used to address individual and time effects. The GMM addressed potential endogeneity issues and included lagged dependent and independent variables to manage reverse causality. Robustness checks were conducted using robust regression and Tobit regression to address potential outliers and ensure consistency of findings. Board independence was also added as an additional variable, and return on equity (ROE) was used as an alternative FP measure.

Descriptive statistics revealed variations in ROA, BD, and SC across the four markets. Panel unit root tests confirmed the stationarity of all variables. Multicollinearity diagnostics indicated no significant issues. Tests for heteroskedasticity revealed heterogeneity issues, leading to the use of fixed-effect robust models. Regression analysis results showed a positive and significant relationship between board diversity (BD) and financial performance (FP) across all four markets. The strength of this relationship varied across markets. Strategic change (SC) was found to weaken the positive relationship between BD and FP in China, Russia, and India, but not significantly in Pakistan. Control variables like firm size, growth, and board size also showed significant impacts on FP, although their direction and significance varied across markets. The fixed-effect robust model and two-step system GMM dynamic panel estimation yielded consistent results supporting the positive impact of BD on FP and the moderating effect of SC. Robustness checks using robust regression and Tobit regression, along with the addition of board independence as an independent variable and ROE as an alternative measure of FP confirmed the main findings.

The study's findings support the hypothesis that board diversity (BD) positively influences financial performance (FP). This aligns with the theoretical underpinnings suggesting that diverse boards provide a wider range of perspectives, expertise, and networks, leading to better decision-making and improved firm outcomes. The findings further demonstrate that strategic change (SC) can weaken the positive relationship between BD and FP, suggesting that periods of significant organizational change may temporarily disrupt the benefits of board diversity. The variability in results across different markets highlights the importance of considering contextual factors when examining the impact of board diversity. These findings have significant implications for corporate governance practices in emerging markets and provide valuable insights into the complex interplay between BD, SC, and FP. The robustness of the findings across multiple econometric approaches strengthens the validity of the results.

This study provides robust empirical evidence supporting the positive impact of boardroom diversity on corporate financial performance in four emerging markets. It highlights the importance of considering strategic change as a moderating factor that can weaken this positive relationship. This research contributes to the ongoing debate on board diversity and its influence on firm performance, particularly in emerging economies. Future research could explore the specific mechanisms through which BD and SC interact and investigate the long-term impacts of diversity initiatives on firm value. Further, investigation into the impact of specific diversity dimensions in different institutional contexts would be beneficial.

While this study offers significant insights, some limitations exist. The focus on four specific emerging markets limits the generalizability of the findings to other contexts. The specific selection criteria for firms may introduce selection bias. The use of accounting-based measures of FP might not fully capture the complexities of firm performance. Furthermore, the use of self-reported data on strategic change may introduce potential biases. Future studies could address these limitations by using larger samples spanning various geographic regions, employing alternative measures of FP, and considering other variables, such as stakeholder engagement, to gain a more complete understanding of the BD-FP relationship. The temporal scope of the study may limit the capture of long-term impacts of diversity initiatives.