Committee Diversity Effect on Corporate Investment Risk Practices

Abstract

Background: This study examines how diversifying committees influence corporate investment risk practices, specifically in decision-making and resource allocation strategies. Previously, board diversity was commonly used in studies, but committee diversity was often overlooked, even though committees are delegated with providing recommendations for board decisions. Methods: Using information on committee presence, size, gender representation, and independent and non-executive members, we build a detailed diversity composite index. We capture this information from various sources such as corporate official disclosures, corporate websites, and other relevant disclosures. We combine this data with financial and investment information collected through secondary data, including Bloomberg and Refinitiv databases about companies listed on the ASX 300 in the Australian equity market from 2018 to 2020. Results: Our findings show that diversity plays a much more critical role in enhancing long-term strategic investment decisions than in driving short-term operational gains. Conclusions: Additional investigations have shown that increased diversity enhances corporate resource allocation, generating optimal investment and investment efficiency levels. These findings highlight the strategic importance of diversity as a contributor to good governance and better financial performance.