AN ANALYSIS OF THE CORRELATIONS BETWEEN DIVERSITY, NETWORKS, AND FIRM FINANCIAL PERFORMANCE

Abstract

This paper looks at the board characteristics of companies and their effects onfirm financial performance. The results show a trend that women tend to have largernetworks than men, but they show no conclusive evidence with respect to race.Additionally, the findings show that having higher levels of diversity can increasefinancial performance for companies through the critical mass theory, or the idea thatthere has to be a certain level of women or minorities on a board to see positive results.Lastly, we find no correlation between the average network size of a director and theTobin’s Q of the company. We conclude that there may be flaws with the belief thatwomen and ethnic minorities are not seen often in boards because they do not havenetwork connections, and that there is reasonable cause to believe that from a humancapital perspective there is value in diversity.