THE EFFECTS OF BOARD MEMBERS’ AGE ON FIRMS’ FINANCIAL PERFORMANCE: EVIDENCE FROM ESG SECTOR LEADERS IDX KEHATI INDEX

• Main Author: Oktaviana Rusadi, Gisyla
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/72973
• Institution: Institut Teknologi Bandung

A lot of studies claimed that board diversity is able to elevate board performance, which then leads to improved firms’ financial performance. Hence, in this study, the author aims to investigate the effects of age diversity on boards, as one of the board diversity attributes, towards firms’ financial performance in Indonesia. However, because there are several variables revolving around the age of the board members which has frequently been jumbled up in previous studies, the author decided to use 3 independent variables in this research which consist of age diversity as measured by standard deviation, average age, and the presence of millennials on boards. Three financial performance indicators, namely return on assets (ROA), return on equity (ROE), and Tobin’s Q will be used as the dependent variables. Meanwhile, the control variables are board size and firm size. The author observes the data from 41 companies with a 5 year time period as the research sample, which was selected through purposive sampling method. The data is then analyzed using panel data regression. From all of the regression models, the author discovered 3 models where each of them had 1 independent variable which is significantly correlated with the dependent variables. These variables are age diversity on BOC which is positively correlated with ROA, average age of BOC which is negatively correlated with ROE, and the presence of millennials on BOD & BOC combined which is positively correlated with ROA. The negative correlation between the average age and ROE can be interpreted that boards with a younger average age outperformed boards with an older average age. In conclusion, the significant findings in this study support the hypotheses that age diversity and the presence of millennials on boards have positive relationships with firms’ financial performance, while the average age of boards have a negative relationship. These findings can provide insights for companies as a consideration in managing the composition of their boards and provide additional information for investors in deciding their investment strategies.