Board Tenure Diversity and Firm Performance

Abstract: This paper studies the potential effect that board tenure diversity has on a company's firm performance, measured in terms of Return On Average Assets, Return On Average Equity and Tobin's Q. Long-tenured directors are experienced and knowledgeable but yield a higher risk of causing managerial entrenchment than short-tenured directors who, in contrast, lack experience. Having a mix of the two could therefore, in theory, be optimal to maximize firm performance. The study was done using multiple linear regression models with board data and financial data from companies in the S&P1500 index for every year between 2011 and 2021. However, the study fails to find relationships between board tenure diversity and any of the firm performance metrics as the results were not statistically significant. This can be explained by evidence suggesting that lower board tenure diversity leads to the company taking greater risks, which may have been a good strategy during the period we studied since the financial markets had a relatively strong performance during this time. There may also be less consensus on a board that has higher board tenure diversity, which might cause more indecisiveness and reduce the Board's capability to make decisions, thus reducing or completely neutralizing a theoretical positive impact that higher board tenure diversity has on firm performance.