The Effect of Gender Diversity and the Business Expertise of Female Directors on Firm Performance: Evidence from the Indonesia Stock Exchange

The aim of this research is to determine the effect of gender diversity and the business expertise of female directors on the performance of 264 non-financial firms listed in the Indonesia Stock Exchange between 2013 and 2017 (1,223 observations). The research model employs panel data analysis with random and fixed effect model approaches. We address the endogeneity issues (reverse causality and omission of variables) in our research models via lagged independent and control variables. Controlling for firm size, leverage, liquidity, cash flow, and growth opportunities, the results show that 1) in general, gender diversity does not significantly affect firm performance except where there is a female CEO, this being a factor which significantly affects return on assets (ROA), and 2) the business expertise of female directors does not significantly affect firm performance as measured by ROA and return on equity (ROE). We run robustness checks using a market-based proxy (Tobin's Q) to measure firm performance and these tests confirm the results. We argue that the presence of women on the board of directors reflects family relationship with shareholders, rather than their having been chosen based on expertise and experience.