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Board gender
Board gender diversity, board diversity
compensation and firm
performance. Evidence
from Jordan
Taha Almarayeh Received 20 May 2021
Revised 21 August 2021
Department of Accounting, American University of Madaba, Madaba, Jordan Accepted 24 November 2021

Abstract
Purpose – This study aims to analyze the relationship between board gender diversity, board compensation
and firm financial performance in the developing country, Jordan, whose cultural, economic and institutional
context is very different from most previously analyzed countries’ context.
Design/methodology/approach – Ordinary least squares regression was used to examine the
association between board gender diversity, board compensation and firm financial performance in a sample
of 510 firm-year observations during the years 2009–2018. Generalized least squares estimation method was
used to confirm that the results are robust.
Findings – The author provides new evidence that board gender diversity does not contribute to firm
financial performance. The author also detects that there is a positive relationship between board
compensation on firm financial performance.
Originality/value – This paper examines the under-researched relationship between board gender
diversity, board compensation and firm financial performance. In so doing, the author tries to provide new
insights into this relationship within the developing context, the case of Jordan that has a different
environment from that of advanced markets. To the best of the researcher’s knowledge, this is almost
certainly the first research to investigate the impact of board gender diversity and board compensation on
firm financial performance in the Jordanian market. This manuscript is expected to be used as a reference by
the regulators and policymakers – both in Jordan and other countries with a similar institutional, cultural
setting – to provide a deep understanding of the impact of board gender diversity and board compensation on
the firm performance.
Keywords Corporate governance, Board gender diversity, Board compensation,
Financial performance, Developing country, Jordan
Paper type Research paper

1. Introduction
Following the recent corporate scandals, many developed and developing countries have
directed more attention to corporate governance mechanisms, particularly on the
importance of the board of directors in terms of their roles, effectiveness, composition and
diversity. In this regard, gender diversity and board compensation are attributes that
obtained a lot of interest in the recent period, not only among the scholarly community but
also civil organizations and governments throughout the world. Many countries have
subsequently required a minimum quota of female representation in the corporate boards
such as Norway, Spain, France and The Netherlands (see i.e. De Cabo et al., 2012; Hoel, 2008;
Reguera-Alvarado et al., 2017). Journal of Financial Reporting and
Accounting
Prior scholars, as Huang and Kisgen (2013), Moreno-G
omez and Calleja-Blanco (2018) © Emerald Publishing Limited
1985-2517
and Levi et al. (2014) reveal that female managers are more careful than male managers in DOI 10.1108/JFRA-05-2021-0138
JFRA making major corporate decisions. Likewise, Adams and Ferreira (2009) point out that
female board managers are more diligent monitors and demand more audit efforts than male
managers. In the same vein, gender-diverse boards could also partially offset weak
corporate governance, and it may generate more economic gains (Gordini and Rancati, 2017;
Gul et al., 2011; Pucheta-Martínez and Gallego-Álvarez, 2019). Furthermore, prior literature
reports that the compensation package stimulates directors to work hard toward better firm
performance (Conyon, 2006). Theoretically, numerous theories from different fields have
presented insight into the economic benefits of ladies participation and board compensation
such as the agency theory (Fama and Jensen, 1983; Jensen and Meckling, 1976), resource
dependence theory (Reguera-Alvarado et al., 2017) and stakeholder theory (Jensen, 2001).
However, as indicated by Cabrera-Fern
andez et al. (2016), there is no particular theory that
can explain the economic benefits of ladies’ participation and board compensation. In the
same line, other theories, such as token status (Kanter, 1977), presents different views for
gender diversity; it claimed that in a family-concentrated business and a patriarchal society,
woman managers are considered merely as a token and, consequently, their influence on
firm performance is insignificant. This study, therefore, examines the impact of board
gender diversity, board compensation on the firm performance in a developing country, the
case of Jordan, which provide a rich empirical environment to link board gender diversity,
board compensation and firm performance.
In an attempt to address this issue, numerous researchers in recent years have examined
the effect of board gender diversity, board compensation on firm performance. However, the
empirical evidence in the extant literature is inconclusive and most of the studies focus on
firms in the USA and a few other developed economies (Agyemang-Mintah and Schadewitz,
2019; Andreas et al., 2012; Erhardt et al., 2003; Müller et al., 2014; Watson and Wilson, 2005).
Thus, there are not many such studies in developing economies such as Jordan, and
corporate governance investigation in this area remains undeveloped.
The Jordanian environment is an excellent laboratory for our research for several
reasons.
First, this kind of empirical evidence can afford relevant and valuable insights into the
current debate regarding board gender diversity, board compensation in supporting firm
performance, especially in emerging markets.
Second, the majority of studies on this topic have been used data from developed
countries, with a legal system based on common law, narrowing the potential generalization
of results to emerging markets, which characterized by a civil law system. Noticeably,
Jordan as a country of the Middle East North Africa (MENA) remains one of the few areas,
where the role of board gender diversity has been pointedly under-researched (Hasan et al.,
2014; Salloum et al., 2019). Hence, there are distinguished differences in institutional,
economic, legal and cultural backgrounds between developed and developing countries that
may affect the relationship between board gender diversity, board compensation and firm
performance, which justify additional research. Third, in response to the 1997 Asian
financial crisis and international corporate developments, Jordan was one of the first
countries in the MENA region to pursue corporate governance (CG) reforms in the form of
the UK-style 2008 voluntary CG Code issued by the Jordanian Securities Commission. Abed
et al. (2012) indicated that the corporate governance code requires that the fraction of women
on the board of directors should be increased among all listed companies. Fourth, distinct
from most developed countries, but similar to other MENA countries, the Jordanian
corporate context has a number of unique features. Jordanian corporate context is
characterized by: hierarchical social structures, the strong impact of family associations and
personal trust on business operations, strong influence of the Islamic religion’s values on
business activity and corporate practices; low attendance of women at head management Board gender
sites and on corporate boards (Piesse et al., 2012; Sarhan and Ntim, 2019). On this side, and diversity
as per the Arab Human Development Report (UNDP, 2016) announced by the United
Nations Development Programme, ladies in the Arab region still face a life of discrimination.
They experience low participation in political, economic and social life, access to job
chances, high absence of education and pay discrimination. Terjesen and Singh (2008)
discover that boards’ gender diversity is affected by macro-level economic, political,
environmental and social elements. Therefore, particular national contextual components,
for example, social norms, legal frame and structure of the economy may have an important
influence on the motivations, preferences, opportunities and the capacity of ladies to engage
in work and politics (Metcalfe, 2007; Salloum et al., 2019). In the light of this, this scenario
offers a case where the effects of corporate governance attributes, such as board gender
diversity, board compensation on the firm performance can be anticipated to vary between
developing and developed countries (i.e. Anglo-Saxon countries and Western European
countries). Finally, the Jordanian institutional setting is characterized by a code law
tradition, weak investor protection and a small proportion of quoted firms (Almarayeh et al.,
2020; Francis and Wang, 2008). Thus, an exploration of board gender diversity and board
compensation in developing countries, where there is a scarcity of experimental evidence, is
essential in providing a deep understanding of the impact of board gender diversity, board
compensation on the firm performance.
Against this backdrop, this study makes an attempt to examine whether board gender
diversity and board compensation affect firm performance as measured by earnings per
share (EPS), dividend yield (DIVY) and return on asset (ROA). To explore the relationship
among the variables, the study uses a hand-collected sample of 510 firm-year observations
from Jordan over the period 2009–2018. Our results suggest that the presence of women in
corporate governance positions does not contribute to firm performance. We also find that
board compensation is positively associated with firm performance.
Our study contributes to the literature on board gender diversity, board compensation
and firm performance in several aspects. First, we extend the literature beyond developed
markets by presenting empirical evidence on board gender diversity, board compensation
and firm performance from developing countries, Jordan, a country that has had minimum
female participation in the workforce in general and in boards of directors in particular
compared with Western countries. Second, to date, the influences of board structure on firm
performance are intertwined, making it very challenging to link board characteristics,
including board gender diversity, board compensation to firm performance. This study tries to
fill a gap in the prior research by investigating the board gender diversity, board compensation
on firm performance in a unique context. Thus, as far as we know, we provide the first
experimental evidence on the impact of board gender diversity, board compensation on firm
performance in unexplored environments, a context where the institutional, economic and
legal setting not only varies notably from that of developed countries but also is dominated
by the Islamic religion’s values which strongly influence business activity and corporate
practices. Thus, the outcomes afford worthy information to policymakers on the relationship
between women’s presence in corporate positions and performance to additionally promote
the incorporation of women in hierarchical structures. Zona et al. (2013) argue that the
influences of board characteristics may be enhanced or restricted, depending on the specific
context in which the company operates. Third, we add new empirical evidence to the
literature showing that board gender diversity is not related to firm performance. Besides,
board compensation is positively associated with firm performance. Fourth, the study
distinguishes itself from other related investigations (Kanakriyah, 2021) by using
JFRA observations over 10 years. Therefore, it provides a better inference and supports the
potential generalization of findings to developing markets. Finally, this study follows suited
methodological ways to address econometrical/statistical issues associated with omitted
variable bias, multicollinearity and endogeneity. Besides, this study addresses the
endogeneity concern between study variables by using two-stage least squares (2SLS)
estimation. Consequently, more-rigorous results in this kind of research.
This research starts with a review of literature and hypothesis development, follows by
research design and methodology, the empirical results, the robustness checks and ends
with a conclusion, implications, limitations and future research directions.

2. Literature review and hypotheses development

In this section of the study, we discuss our two main hypotheses relating to the impact of
board gender diversity and board compensation on firm performance.

2.1 Gender diversity

Female directors’ attendance on the board has been placed in the extant research to improve
firm performance by presenting the needed guidance in several ways. It also helps the firm
to achieve positive social acceptance through supporting family life (Francoeur et al., 2008).
Yi (2011) and Zalata et al. (2018) mentioned that the existence of female directors in the
board is probably to enhance the shareholders’ wealth and improve board monitoring because
hiring managers from various backgrounds add “multiple diversity facets to the oversight
lens,” which, in turn, enabling the female members to challenge the status quo. According to
(Hillman and Dalziel, 2003; Reguera-Alvarado et al., 2017), board gender diversity brings
greater resources to the firm, lessens external dependency, decreases uncertainty and increases
reputation, all of which are associated with enhanced business performance and value. In line
with this view, Adams and Ferreira (2009) claimed that women directors introduce tougher
monitoring as they do not belong to the “old boys club.” Besides, compared to their male
counterparts, female directors have higher attendance at board meetings (Adams and Ferreira,
2009) and prepare themselves better for them (Huse and Solberg, 2006).
However, prior literature noticed that the relationship between gender diversity and firm
performance is affected by religious ideology. For example, Tracey (2012) explained that in
Islamic countries, religion may create a thick “glass ceiling” and obstacles to ladies’ ascent to
leadership positions. Adida et al. (2012) also argued that Muslim gender norms hinder
women’s progress to a higher level than non- Muslim norms. Therefore, in such Muslim
societies, the empowerment of women is restricted. In the Jordan context, cultural traditions
and beliefs have driven gender discrimination, which has negatively affected women’s
presence at top management positions and on corporate boards (Sarhan et al., 2019).
Consequently, the expected role of diversity may not succeed to translate into performance
as suggested by the gender diversity theorists. Then, small numbers indicate tendencies of
tokenism (Handa, 2018). In the same vein, Chen et al. (2016) argued that there are some
concerns that companies may add female members to solely diminish criticism: female
directors are only tokens (critical mass theory).
Empirical studies that investigated the effects of gender-balancing quotas on firm
performance found mixed and inconclusive results. Much of the prior studies (Agyemang-
Mintah and Schadewitz, 2019; Erhardt et al., 2003; Gordini and Rancati, 2017; Green and
Homroy, 2018; Isidro and Sobral, 2015; Joecks et al., 2013) have generally found that gender
diversity helps to improve firm performance. Based on a sample from 34 countries, Pucheta-
Martínez and Gallego-Álvarez (2019) revealed that the female director is positively
associated with firm performance. D - ặng et al. (2020) found that the presence of women on
the board of directors had a positive and significant impact on financial performance. Aribi Board gender
et al. (2018) revealed that gender diversity on boards positively affects the level of forward- diversity
looking information disclosure. In addition, Aggarwal et al. (2019) and Duppati et al. (2019),
documented that board gender diversity increased the value of Indian and New Zealand
listed firms, respectively. The findings of Salloum et al. (2019) and Attah-Boakye et al. (2020)
provided further evidence that gender diversity is positively associated with firms’
performance. More recently, using Nigerian data over the period of 2008–2016, Chijoke-
Mgbame et al. (2020) document that female representation on corporate boards has a
positive effect on firm financial performance.
In contrast, another stream of scholars such as Unite et al. (2019) showed that women and
men directors had comparable competency levels but increasing gender diversity on firms’
boards had no significant effect on firms’ financial performance. Arnaboldi et al. (2020) and
Chauhan and Dey (2017) also detected no significant relationship between the proportion of
women on the corporate board and firms’ financial performance. Moreover, Yang et al. (2019)
and Ahern and Dittmar (2012) concluded that implementing quotas increased the proportion of
women on Norwegian corporate boards and adversely affected firms’ financial performance.
Accordingly, considering the characteristics of the Jordanian business setting, we may
contend that, though, agency and resource dependency theories associate improved firm
performance with the women’s presence on corporate boards, the token status theory is
notably more suitable and applicable. Thus, the following hypothesis is stated:

H1. All other things being equal, board gender diversity is not related to firm
performance.

2.2 Board compensation

In recent years, director compensation issues have gained more attention in the academic
literature. Besides, institutional shareholders are paying increasing attention to board
compensation. On this side, shareholders endeavor to set up mechanisms that have to align the
interests of the agents and the principals. As Jensen and Meckling (1976) indicated that the
management compensation plans are designed as a tool to ensure that all parties in the firms
act toward maximizing the value of the organization, as well as reducing agency costs. Magnan
et al. (2010) debated that director compensation must be sufficiently high to attract high-caliber
individuals and to reward them for their responsibilities. However, this remuneration should
not be as high as to probably weaken their objectivity, judgment and independence.
Empirically, the extant literature on corporate governance proposes that board
compensation positively affects a firm’s performance. For instance, based on a sample of the
UK firms, Watson and Wilson (2005) discovered that board compensation has a positive
effect on firm performance. In the same vein, Andreas et al. (2012) argued that board
compensation has a crucial role as a corporate governance mechanism, particularly in firms
with otherwise weak governance mechanisms. They found that board remuneration
positively affects firm performance. Moreover, Müller et al. (2014) demonstrated that board
compensation positively influences company performance. Cornett et al. (2008) found
support for optimal contracting, requiring pay-for-performance for board members. With
regard to developing markets, Molonko (2004) reported that board compensation is
positively associated with performance in Kenyan banks. Likewise, Handa (2018), based on
Indian banks’ data, documents that board remuneration has a positive impact on bank
performance. A similar finding was obtained in a recent study on the South Africa market
conducted by Lemma et al. (2020). Based on a sample of 1,736 firm-year observations listed
on the Johannesburg Stock Exchange, Lemma et al. (2020) found that director compensation
JFRA is significantly and positively associated with bank market value. However, another stream
of scholars did not entirely succeed in revealing a significant relationship between board
compensation and firm performance (Pucheta-Martínez and Gallego-Álvarez, 2019). Based
on the previous debate and the positive association reported in the above studies, the current
research heads to hypothesizing a positive relationship between board compensation and
firm performance. Thus, we posit the following hypothesis:

H2. All other things being equal, there is a positive association between board
compensation and firm performance.

3. Research design and methodology

3.1 The sample
The period under study is from 2009 to 2018. This 10-year data comes to some extent in
parallel with the enactment of the corporate governance’s code on the sampled country,
therefore providing for a meaningful examination of the corporate governance’s impact on
firm performance. We manually obtained the financial and board composition data of listed
firms in Jordan from companies’ official websites, annual reports and the Securities
Depository Center. Our initial sample included all listed firms in Amman Stock Exchanges
for the period 2009–2018. Following the convention in the literature, we excluded the
financial and insurance firms from our sample. Service firms are also excluded due to their
different nature that could distort the results. Our final sample consisted of 510 firm-year
observations for 51 firms. Table 1 (Panel A) describes the sample selection process.

3.2 Variable constructions

Table 2 includes the definitions of the variables used in this research. For performance
measures as dependent variables: we choose accounting measures, specifically, EPS, DIVY
and ROA, over market-based measures such as market value added or Tobin’s q because
Jordanian stock ownership experienced vital reform through our sample period, rendering
accounting measures significantly more responsive to the underlying firm economic
performance than market-based measures. Besides, unlike market-based measures, EPS,

Panel A: Sample determination Numbers

Initial sample of all firms 264
Excluded:
Financial sector 119
Service sector 64
Sample before data collection 79
Excluded:
Merged and liquidated firms and unavailable annual report 28
Final sample 51
Panel B: Sample distribution across industries Number Observations (%)
Engineering and construction 7 70 16
Food and beverages 10 100 20
Chemical industries 8 80 16
Textiles, leathers and clothing 6 60 12
Pharmaceutical and medical industries 6 60 12
Table 1. Mining and extraction industries 14 140 27
Sample description Total 51 510 100
 Predicted
Board gender
Variables sign. Measurement Literature support diversity
Panel A: Dependent variable
Earnings per Net income divided by total shares Mashayekhi (2008), Sheikh
share (EPS) et al. (2013) and Wang et al.
(2019)
Dividend yield The ratio dividend per share of firm i at the Bista et al. (2019)
(DIVY) end of calendar year divided by market per
share of firm i at the end of calendar year t
Return on asset Denotes the ratio of earnings before interest Ciftci et al. (2019) and Sanan
(ROA) and taxes over the book value of average et al. (2019)
total assets
Panel B: Independent variables
Gender ? Denotes the percentage of female directors Bennouri et al. (2018) and
diversity (B- on the board for firm i in year t Chauhan and Dey (2017)
GDIV)
Board þ Log of board compensation, which is the Pucheta-Martínez and
compensation total compensation paid to all board Gallego-Álvarez (2019)
(BCOMP) members
Panel C: Control variables
Firm Leverage ) – The ratio total long-term debt of firm i at the Al-ahdal et al. (2020),
LEV) end of calendar year divided by total assets Bennouri et al. (2018) and
of firm i at the end of calendar year t Gebrayel et al. (2018)
Firm growth ? Denotes the relation of the difference in Bennouri et al. (2018) and
(GROW) sales and sales of the previous period for S
aenz-Gonz
alez and García-
firm i in year Meca (2014)
Cash flow (CFO) ? Denotes the ratio of net income before Kim et al. (2012)
extraordinary items plus depreciation to
total assets
Firm size (SIZE) þ The natural logarithm of total assets of firm Bennouri et al. (2018),
i at the end of calendar year t Gebrayel et al. (2018),
Ianniello (2015) and Wang
et al. (2019)
Independent þ Denotes the ratio of non-executive directors Bao and Lewellyn (2017),
board on board to board size for firm i in year t Chi et al. (2016), Sanan et al.
membership (B- (2019) and Wang et al. (2019)
IND)
Board size þ Denotes the number of directors appointed Ciftci et al. (2019)
(BSIZE) on board
Board meeting þ Denotes the number of board meetings over Kamal Hassan (2012) and
(B-MEET) the calendar year for firm i in year t Uribe-Bohorquez et al.
(2018) Table 2.
Firm age þ A log of firm age since incorporation, Chauhan et al. (2016), Pillai Measurement and
(FIRM-AGE) measured in number of years and Al-Malkawi (2018) and expectations of
Wang et al. (2019) variables

DIVY and ROA are not influenced by investor anticipation (Müller, 2014; Sanan et al., 2019).
Indeed, depending on a single performance index may be misleading. Thus, this research
uses three proxies to estimate firm performance, namely: EPS, DIVY and ROA. As shown in
Table 2, the key explanatory variables in this research are board gender diversity and board
compensation. We measure gender diversity (B-GDIV) as a percentage of female directors on
the board. Board compensation (BCOMP) estimates as the log of board compensation, which
is the total compensation paid to all board members.
JFRA Following the contemporary corporate board research (Duppati et al., 2020; Liu et al.,
2015; Pucheta-Martínez and Gallego-Álvarez, 2019), we group the control variables into two
categories. The group of board characteristic variables includes the ratio of non-executive
directors (B-IND), the number of directors appointed on board (BSIZE) and the number of
board meetings over the calendar year (B-MEET). The group of firm characteristic variables
includes the ratio of total long-term debt divided by total assets (LEV), the relation of the
difference in sales and sales of the previous period (GROW), the ratio of net income before
extraordinary items plus depreciation to total assets (CFO), the natural logarithm of total
assets (SIZE) and log of firm age since incorporation (FIRM-AGE).

3.3 Model specification

To investigate the role of gender diversity and board compensation on firm performance, we
paraded the relationship between both (BD and FP) by the following models.

EPSi; t ¼ a þ b 1 B  GDIV it þ b 2 BCOMP i; t þ b 3 LEV i; t þ b 4 GROW i; t þ b 5 CFO i; t

þ b 6 SIZE i; t þ b 7B  INDi; t þ b 8BSIZEi; t þ b 9BMEETi; t

þ b 10FIRM  AGEi; t þ « i; t (1)

DIVY i; t ¼ a þ b 1 B  GDIV it þ b 2 BCOMP i; t þ b 3 LEV i; t þ b 4 GROW i; t þ b 5 CFO i; t

þ b 6SIZE i; t þ b 7B  INDi; t þ b 8BSIZEi; t þ b 9BMEETi; t

þ b 10FIRM  AGEi; t þ « i; t (2)

ROAi; t ¼ a þ b 1 B  GDIV it þ b 2 BCOMP i; t þ b 3 LEV i; t þ b 4 GROW i; t þ b 5 CFO i; t

þ b 6SIZE i; t þ b 7B  INDi; t þ b 8BSIZEi; t þ b 9BMEETi; t

þ b 10FIRM  AGEi; t þ « i; t (3)

where i symbolizes a particular firm, signifies the time in years (t = 2009, . . ., 2018), « i,t is a
stochastic error term and all other variables are labeled as in Table 2. Three different panel
regression models are built using Stata 13. Our panel data model was estimated with pooled
ordinary least squares (OLS) regressions with corrected (clustered) standard errors to
control for firm-fixed effects (Williams, 2000).

4. Data analysis and findings discussion

4.1 Descriptive statistics and correlations among variables
Table 3 displays the descriptive statistics for the whole sample that consists of 51 Jordanian
firms. The findings show that the mean values of EPS, DIVY and ROA are 0.05, 2.43
and 0.05, respectively. Regarding the explanatory variables, results report that the
average value of the percentage of female directors (Std. Dev) hovers around 1.28% (4.89).
The finding also reveals that the mean (Std. Dev) of the board compensation (BCOMP) is
8.94 (4.2445). As for control variables, results from Table 3 reveal that average boards have
7.796 directors, board independence (B_INDEP), on average, accounts for 32.4015% and
board meeting on average accounts for 7.4159. In the term of the group of firm
characteristics, the findings show that the mean values of firm leverage (LEV), firm growth
Variables† Obs Mean SD p25 p50 p75
Board gender
diversity
Earnings per share (EPS) 510 0.052 0.403 0.075 0.021 0.135
Dividend yield (DIVY) 510 2.433 5.744 0 0 4.587
Return on asset (ROA) 510 0.054 13.571 3.266 2.099 5.865
Gender diversity (B-GDIV) 510 1.284 4.893 0 0 0
Board compensation (BCOMP) 510 8.941 4.244 9.441 10.610 11.293
Firm leverage) LEV) 510 36.469 28.537 14.894 30.589 51.492
Firm growth (GROW) 510 2.537 22.524 0.633 0.988 1.619
Cash flow (CFO) 510 0.038 1.745 0.019 0.035 0.093
Firm size (SIZE) 510 7.238 0.633 6.881 7.206 7.591
Board size (BSIZE) 510 7.796 2.260 6 7 9
Independent board membership (B-IND) 510 32.401 30.170 0 22.222 55.555
Board meeting (B-MEET) 510 7.415 2.162 6 6 8
Firm age (FIRM-AGE) 510 26.768 15.787 16 22 37
Table 3.
Note: †Please see Table 2 for variable definitions Descriptive statistics

(GROW), cash flow (CFO), firm size (SIZE) and firm age (FIRM-AGE) are 36.4696,
2.53775, 0.0386, 7.2386 and 26.7686, respectively.
Table 4 exhibits the pairwise correlation coefficients among the selected variables. As
can be seen, a correlation among variables is low or moderate, which allows us to decide that
there are no serious multicollinearity problems (Albassam and Ntim, 2017). Variance
inflation factors (VIF) are also far below the threshold value of 10, confirming the above
conclusion. The VIF scores are shown in Table 4.

5. Results discussion
In Table 5, we present the results of all estimated models. Panel A, B and C of Table 5 show
the outcomes linked to the effect of gender diversity (B-GDIV) and board compensation
(BCOMP) on firm performance, as reflected by EPS, DIVY and ROA.
In Models 1, 4 and 7, we analyze how gender diversity (B-GDIV affects firm performance,
in Models 2, 5 and 8, we examine the effect of board compensation (BCOMP) on firm
performance. Finally, in Models 3, 6 and 9, we show the finding for all independent variables
estimated in one model, as displayed in Panel A, B and C of Table 5.
Is it evident in Table 5, no support is found for H1, as the coefficient of B-GDIV is not
significant on all three proxies of financial performance. In other words, B-GDIV does not
contribute to improving firm performance in the Jordanian setting. This result is consistent
with previous literature in developing countries (Chauhan and Dey, 2017). As a potential
interpretation of such a conclusion, In Jordanian firms, maybe there is not enough
representation of women on the board compared with their male counterparts, where,
gender diversity has not been sufficiently legislated on corporate governance code in Jordan.
Torchia et al. (2011) claimed that because of under-representation, female managers are
more often viewed as a symbol or a token on a corporate board. Konrad et al. (2008)
indicated that there is a lack of a critical mass of women directors on the board where a
minimum of three women is needed for them to be effective. It could also be the case that
female directors might not have sufficient expertise and experience. In addition, Süssmuth-
Dyckerhoff et al. (2012) explained that the variation in female board representation is
somewhat due to a “double burden” which refers to the dual role undertaken by working
ladies: one in the workplace and the other in managing the household. Thus, this double
 values
JFRA

Table 4.

matrix and VIF

Pearson’s correlation
Variables† 1 2 3 4 5 6 7 8 9 10 11 12 13 VIF

(1) Earnings per share (EPS) 1.00

(2) Dividend yield (DIVY) 0.191*** 1.00
(3) Return on asset (ROA) 0.452*** 0.221*** 1.00
(4) Gender diversity (B-GDIV) 0.0074 0.036 0.0559 1.00 1.12
*** ***
(5) Board compensation (BCOMP) 0.213 0.156 0.234*** 0.0077 1.00 1.15
*** *** ***
(6) Firm leverage )LEV) 0.308 0.207 0.224 0.131** 0.0132 1.00 1.24
***
(7) Firm growth (GROW) 0.063 0.051 0.326 0.00482 0.112* 0.137** 1.00 1.12
**
(8) Cash flow (CFO) 0.148 0.029 0.065 0.0151 0.0131 0.0174 0.0049 1.00 1.10
*** *** *** **
(9) Firm size (SIZE) 0.433 0.068 0.396 0.08 0.195 0.149 0.171*** 0.104* 1.00 1.55
*** *** ***
(10) Board size (BSIZE) 0.290 0.0064 0.032 0.023 0.232 0.233 0.025 0.039 0.257*** 1.00 1.34
(11) Independent board
*** ** ** *** * ***
membership (B-IND) 0.237 0.0049 0.122 0.136 0.067 0.164 0.048 0.0949 0.353 0.197*** 1.00 1.29
(12) Board meeting (B-MEET) 0.080 0.142** 0.0091 0.089 0.072 0.105* 0.0231 0.139** 0.204*** 0.129** 0.161*** 1.00 1.16
*** ***
(13) Firm age (FIRM-AGE) 0.208*** 0.117* 0.0295 0.032 0.222 0.0546 0.09 0.097* 0.196 0.074 0.036 0.033 1.00 1.18
** ***
Notes: *Significant at the 0.05 level (two-tailed). Significant at the 0.01 level (two-tailed). Significant at the 0.001 level (two-tailed). †Please see Table 2 for
variable definitions
 Panel A Panel B
EPS DIVY
Variables† Model 1 Model 2 Model 3 Model 4 Model 5

Gender diversity (B-GDIV) 0.0047 (1.49) 0.0050 (1.60) 0.0421 (0.75)

Board compensation (BCOMP) 0.0101* (2.43) 0.0103* (2.50) 0.208** (2.85)
Firm leverage (LEV) 0.0064*** (9.44) 0.0063** (9.48) 0.0065*** (9.63) 0.0550*** (4.58) 0.0584*** (4.99)
Firm growth (GROW) 0.0054 (1.41) 0.0063 (1.63) 0.0067 (1.73) 0.0359 (0.52) 0.00788 (0.12)
Cash flow (CFO) 0.0304*** (3.51) 0.0308*** (3.58) 0.0298*** (3.47) 0.173 (1.13) 0.156 (1.03)
Firm size (SIZE) 0.249*** (8.45) 0.236*** (8.24) 0.246*** (8.41) 0.395 (0.76) 0.412 (0.82)
Board size (BSIZE) 0.0129 (1.71) 0.0100 (1.32) 0.0087 (1.14) 0.126 (0.95) 0.217 (1.62)
Independent board membership (B-IND) 0.0020*** (3.65) 0.0022*** (4.07) 0.00208*** (3.68) 0.00518 (0.52) 0.00410 (0.42)
Board meeting (B-MEET) 0.0068 (0.90) 0.0063 (0.84) 0.0508 (0.68) 0.427** (3.20) 0.384** (2.91)
Firm age (FIRM-AGE) 0.0029** (2.94) 0.0026** (2.62) 0.0239* (2.36) 0.0388* (2.21) 0.0265 (1.50)
Constant 1.830*** (9.76) 1.819*** (9.77) 1.847*** (9.90) 1.809 (0.55) 2.336 (0.71)
R2 0.38 0.39 0.39 0.08 0.10
Observations 510 510 510 510 510

Notes: *Significant at the 0.05 level (two-tailed); ** Significant at the 0.01 level (two-tailed); *** Significant at the 0.001 level (two-tailed). †Please see Table 2 for
variable definitions
(continued)

gender diversity,
OLS regression

board compensations
Table 5.

results of the board

Board gender

performance
variables on firm
and the control
diversity
 JFRA

Table 5.
Panel B Panel C
DIVY ROA
Variables† Model 6 Model 7 Model 8 Model 9

Gender diversity (B-GDIV) 0.0356 (0.64) 0.0828 (0.75) 0.105 (0.98)

Board compensation (BCOMP) 0.206** (2.82) 0.686*** (4.87) 0.692*** (4.91)
Firm leverage (LEV) 0.0570*** (4.78) 0.172*** (7.30) 0.174*** (7.72) 0.179*** (7.76)
Firm growth (GROW) 0.0107 (0.16) 0.653*** (4.86) 0.577*** (4.38) 0.569*** (4.30)
Cash flow (CFO) 0.162 (1.07) 0.0953 (0.32) 0.112 (0.38) 0.132 (0.45)
Firm size (SIZE) 0.344 (0.66) 10.07*** (9.85) 9.692*** (9.93) 9.893*** (9.92)
Board size (BSIZE) 0.208 (1.54) 1.116*** (4.28) 1.364*** (5.27) 1.391*** (5.34)
Independent board membership (B-IND) 0.0053 (0.54) 0.0181 (0.92) 0.0223 (1.19) 0.0187 (0.97)
Board meeting (B-MEET) 0.393** (2.96) 0.642* (2.45) 0.731** (2.87) 0.756** (2.95)
Firm age (FIRM-AGE) 0.0282 (1.58) 0.0399 (1.16) 0.0707* (2.08) 0.0755* (2.19)
Constant 2.136 (0.65) 51.76*** (7.95) 52.27*** (8.26) 52.86*** (8.32)
R2 0.10 0.31 0.35 0.35
Observations 510 510 510 510
burden is a universal phenomenon but is arguably heavier for Arab women due to cultural Board gender
and religious patterns in which they are anticipated to take duty for most family and diversity
household affairs. This outcome supports the conclusions of Brammer et al. (2007) that
gender diversity is very constrained and that diversity is fairly slightly marked in executive
positions.
Table 5 also reports that H2 is fully supported, as the coefficient of BCOMP is positive
and significant for three performance proxies, which means that BCOMP generally
improves firm performance. It can be claimed that well-paid board members mean that
board members will have more motivation to monitor managers, which, in turn, more
supervising efforts will lead to converging their interests with those of shareholders. It is
also possible that well- remuneration will encourage board members to work hard to
maximize firm returns and shareholder value. This result is consistent with previous
literature (Andreas et al., 2012; Handa, 2018). Our finding tends to corroborate the agent-
principal or agency approach, which explains the positive influence of board compensation
on firm value.
In terms of our control variables, firm leverage (LEV), firm growth (GROW) and board
size (BSIZE) are significantly negatively correlated with firm performance. Thus, high
financially distressed firms, low growth firms and the big board size are negatively
associated with the firm value. On the other hand, cash flow (CFO), firm size (SIZE), board
independence (B-IND) and board meetings (B-MEET) are found to have a positive and
significant effect on firm performance. Therefore, this generally signifies that large
companies and independent board members enhance firm performance. While firm age
(FIRM-AGE) is showed mixed signs.

6. Robustness check
To ascertain the robustness of the findings, we perform several additional tests: First,
models 1, 2 and 3 were re-estimated using the RE effect method to check the robustness of
the OLS results. The outcomes reported in Table 6 are almost compatible with the OLS
outcomes in Table 5. Second, we use the IV-2SLS estimator to address endogeneity concerns.
Lagged values of explanatory variables were included in the regression models. The results
of the two-stage regression (2SLS) for all models in panel B of Table 7 appear to remain
stable and constant compared to the OLS results reported in Table 5. Third, we experiment
with two additional regression models to control for fixed effects across industry and year.
The fixed effects are reported in Table 8. Again, the findings remain similar to those
reported in Table 5.

7. Conclusion
This research sets out to examine empirically the nexus between board gender diversity,
board compensation and firm financial performance as measured by EPS, DIVY and ROA.
Responding to scholars call that not sufficient investigation of this nature has been
completed in the setting of developing countries. We use panel data models on a sample of
510 firm years observations spanning from 2009–2018 in the Jordanian context and
subjected it to in-depth econometric analysis to test the proposed hypotheses. Jordan, a civil
law country characterized by less-developed stock markets, weak investor protection,
concentrated ownership structure. Jordan is also a country that has had different cultural
features, such as the strong impact of family associations and personal trust on business
operations, strong influence of the Islamic religion’s values on business activity and
corporate practices; low attendance of women at head management sites and on corporate
board.
 JFRA

Table 6.

performance
and the control
GLS regression

gender diversity,

variables on firm
results of the board

board compensations
Panel A Panel B
EPS DIVY
Variables† Model 1 Model 2 Model 3 Model 4 Model 5

Gender diversity (B-GDIV) 0.0100 (2.26) 0.0102 (2.33) 0.0357 (0.48)

Board compensation (BCOMP) 0.0094* (1.70) 0.0099* (1.79) 0.161** (1.71)
Firm leverage (LEV) 0.0053*** (6.39) 0.0052*** (6.24) 0.0053*** (6.41) 0.0410** (2.82) 0.0420** (2.93)
Firm growth (GROW) 0.0029 (0.81) 0.0030 (0.83) 0.0030 (0.86) 0.0147 (0.23) 0.0097 (0.15)
Cash flow (CFO) 0.0293*** (3.58) 0.0307*** (3.75) 0.0301*** (3.69) 0.0617 (0.43) 0.0689 (0.48)
Firm size (SIZE) 0.282*** (5.67) 0.262*** (5.31) 0.269*** (5.39) 0.212 (0.27) 0.0827 (0.11)
Board size (BSIZE) 0.0141 (1.18) 0.0120 (1.00) 0.0105 (0.87) 0.0788 (0.40) 0.00693 (0.04)
Independent board membership (B-IND) 0.00095* (1.12) 0.00118* (1.41) 0.00097* (1.15) 0.0035 (0.25) 0.0030 (0.22)
Board meeting (B-MEET) 0.00805 (0.89) 0.00813 (0.90) 0.00676 (0.75) 0.450** (2.87) 0.424** (2.72)
Firm age (FIRM-AGE) 0.00111 (0.61) 0.00106 (0.59) 0.000929 (0.52) 0.0345 (1.20) 0.0292 (1.03)
Constant 2.022*** (5.92) 1.977*** (5.87) 1.973*** (5.82) 2.648 (0.49) 2.208 (0.42)
R2 0.1792 0.1694 0.1829 0.0183 0.0197
Observations 510 510 510 510 510
** ***
Notes: *Significant at the 0.05 level (two-tailed); Significant at the 0.01 level (two-tailed); Significant at the 0.001 level (two-tailed). †Please see Table 2 for
variable definitions
(continued)
 Panel B Panel C
DIVY ROA
Variables† Model 6 Model 7 Model 8 Model 9

Gender diversity (B-GDIV) 0.0313 (0.42) 0.0572 (0.42) 0.0815 (0.60)

Board compensation (BCOMP) 0.159* (1.68) 1.080*** (6.27) 1.099*** (6.33)
***
Firm leverage (LEV) 0.0412** (2.84) 0.192 (6.90) 0.194*** (7.26) 0.197*** (7.25)
Firm growth (GROW) 0.0104 (0.16) 0.475*** (3.54) 0.413** (3.20) 0.406** (3.15)
Cash flow (CFO) 0.0710 (0.49) 0.306 (1.03) 0.292 (1.03) 0.308 (1.08)
Firm size (SIZE) 0.0507 (0.06) 11.79*** (8.64) 11.08*** (8.29) 11.25*** (8.25)
Board size (BSIZE) 0.0163 (0.08) 1.093** (3.19) 1.481*** (4.34) 1.498*** (4.34)
Independent board membership (B-IND) 0.0037 (0.27) 0.0092 (0.37) 0.0125 (0.51) 0.0097 (0.39)
Board meeting (B-MEET) 0.429** (2.74) 0.624* (2.05) 0.752* (2.56) 0.767** (2.59)
Firm age (FIRM-AGE) 0.0298 (1.04) 0.0866 (1.81) 0.131** (2.76) 0.136** (2.81)
Constant 2.178 (0.41) 62.55*** (6.94) 62.45*** (7.03) 63.18*** (7.01)
R2 0.0197 0.2213 0.3258 0.3256
Observations 510 510 510 510

Table 6.
Board gender
diversity
JFRA Panel B: Instrumental variables (2SLS) regression
Variables† EPS DIVY ROA

Gender diversity (B-GDIV) 0.0054 (1.67) 0.028 (0.51) 0.106 (0.96)

Board compensation (BCOMP) 0.0099* 2.29 0.136* 1.81 0.392** 2.68
Firm leverage (LEV) 0.0062*** (9.02) 0.0517*** (4.32) 0.162*** (6.93)
Firm growth (GROW) 0.0072 –1.84 0.025 –0.37 0.479*** (3.60)
Cash flow (CFO) 0.0303*** 3.55 0.108 –0.73 0.314 (1.08)
Firm size (SIZE) 0.238*** 8.03 0.484 –0.94 10.52*** 10.46
Board size (BSIZE) 0.0092 –1.15 0.0059 –0.04 1.181*** (4.36)
Independent board membership (B-IND) 0.0020*** 3.56 0.0047 (0.47) 0.0105 –0.53
Board meeting (B-MEET) 0.0028 –0.27 0.429** 3.16 0.736** (2.78)
Firm age (FIRM-AGE) 0.0026* 2.42 0.0072 –0.39 0.0696 (1.90)
Constant 1.751*** (8.77) 4.71 (1.36) 52.68*** (7.79)
R2 0.40 0.15 0.37
Observations 510 510 510
Table 7. Notes: *Significant at the 0.05 level (two-tailed). **Significant at the 0.01 level (two-tailed). ***Significant at
Endogeneity test the 0.001 level (two-tailed). †Please see Table 2 for variable definitions

Variables† EPS DIVY ROA

Gender diversity (B-GDIV) 0.0045 (1.32) 0.0289 (0.49) 0.106 (0.92)

Board compensation (BCOMP) 0.0119** 2.64 0.162* 2.06 0.593*** 3.9
Firm leverage (LEV) 0.0062*** (8.76) 0.0522*** (4.22) 0.164*** (6.84)
Firm growth (GROW) 0.00642 –1.61 0.0136 –0.2 0.507*** (3.77)
Cash flow (CFO) 0.0306*** 3.49 0.112 –0.73 0.301 (1.02)
Firm size (SIZE) 0.236*** 7.65 0.448 –0.84 10.34*** 9.97
Board size (BSIZE) 0.0073 –0.89 0.0173 (0.12) 1.286*** (4.61)
Independent board membership (B-IND) 0.0021*** 3.56 0.0042 (0.41) 0.0125 –0.62
Board meeting (B-MEET) 0.0011 –0.14 0.417** 2.98 0.809** (2.98)
Firm age (FIRM-AGE) 0.0025* 2.33 0.0065 –0.34 0.0809* (2.16)
Constant 1.759*** (8.57) 4.732 (1.33) 53.26*** (7.71)
Table 8. Industry fixed effects Yes Yes Yes
Fixed effects Year fixed effects Yes Yes Yes
R2 0.41 0.15 0.38
regression model
Observations 510 510 510
parameters (with
year and industry Notes: *Significant at the 0.05 level (two-tailed). **Significant at the 0.01 level (two-tailed). ***Significant at
effect) the 0.001 level (two-tailed). †Please see Table 2 for variable definitions

We document evidence that board gender diversity does not affect firm performance. In
particular, this conclusion supports the idea that women’s presence in the corporate
board would not have any contribution to improving firm financial performance in
developing countries, Jordan, compared with the Western more developed contexts.
Thus, our results support the tokenism theory (Kanter, 1977) and propose that the
promotion of board gender diversity in Jordan, according to Anglo- Saxon philosophies,
is probably superficial due to differences in institutional, religious value and social-
cultural models. We also report evidence of a positive nexus between board
compensation and firm financial performance, which confirms existing empirical works
that have been done by prior researchers.
 These findings can provide useful information to regulators and policymakers, both in Board gender
Jordan and other countries with a similar institutional, culture setting. Therefore, the diversity
findings have two important policy implications. On the other hand, the low female
attendance on corporate boards in Jordan is affected by social, cultural, religious values
obstacles that still impede women’s role in Jordan to bring benefits to the top management.
Consequently, the government should issue regulations and recommendations, in line with
international corporate governance best practices, so as to address the low representation of
ladies in top management and corporate board level positions. On this side, policymakers in
Jordan should focus on improving corporate governance to promote women’s participation
in corporate activities by adopting quotas for women on corporate boards. On the other
hand, our evidence encourages listed firms to set out a compensation package in such a way
that it is possible to motivate managers toward better firm performance.
Like any other research in this domain, the current study suffers from several
limitations, which potentially represent a worthy platform for future corporate
governance investigation. First, this research does not examine the degree of gender
diversity. The author does not distinguish between boards that have one female director
compared to those boards that have more than one female director. Second, our findings
may be somewhat limited by data availability. We have been unable to incorporate other
aspects of board diversity that may significantly impact corporate outcomes, such as
education level, years of experience, culture, age and more demographic factors. Thus, as
more appropriate data becomes accessible, future work may attempt to extend our results
by controlling these factors. Finally, future research may also offer richer insights by
using other approaches to investigate this relationship, for instance, qualitative research
methods and interviews.

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About the author

Dr Taha Almarayeh completed his bachelor’s and master’s degree in Accounting. His PhD was on
earnings management and corporate governance from the University of Santiago de Compostela in
January 2019. Currently. Dr Taha is working in the accounting department at the American
University of Madaba. He was a member of the European accounting association in 2017. His
research interests include Audit quality, Corporate governance and earnings management.
Taha Almarayeh can be contacted at: taha.marayeh@gmail.com

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