Determinants of Board Size and Diversity: A Study of Financial Institutions in South Africa

Abstract

This examined the determinants of board size and diversity in financial institutions. The study used a panel of selected South African financial institutions, namely banks and insurance companies, from the period 2007 to 2020. Employed the Generalised Method of Moments (GMM) to address the association between financial performance and corporate governance proxied by board size and board diversity. Using the unlisted and listed banks and insurance companies, the study sampled 11 banks and 10 insurance companies. The results revealed that the capital adequacy ratio (CAR) was significant and positive with board diversity. Firm size, leverage ratio, financial stability, efficiency ratio, and return on equity (ROE) were negative and significant with board diversity. The CAR and leverage ratio were positive and significant with board size. Financial stability, efficiency ratio and firm size were significant and negative with board size. Due to challenges in obtaining comprehensive annual reports, a small group of financial institutions were omitted from the sample. The study underpins the need to adopt a unified legal and governance framework to integrate corporate governance principles into the financial components of financial institutions to improve the oversight functions of the board.