Does nationality and gender of the board members influence corporate governance compliance? Evidence from selected Sub-Saharan Africa countries

This study examines the relationship between board diversity and corporate governance compliance in the firms listed in stock exchanges of the selected Sub-Saharan Africa countries. This study uses data collected manually from the annual reports of the publicly listed non-financial firms from eleven Sub-Saharan Africa countries. The dependent variable of this study is corporate governance compliance index which is measured by the level of compliance with corporate governance practices. To obtain the index, the study constructed an unweighted corporate governance index based on various dimensions of good corporate governance practices existing in the literature and recommended by different corporate governance codes. The independent variable of this study is board diversity which is proxied by nationality and gender of the board members and represented by foreign directors and female directors in the boards, respectively. The data are analysed using descriptive statistics and multivariate regression methods. More specifically, the Fractional Probit Regression method is utilised to analyse a 5-year unbalanced panel data set of 531 firm‐year observations to examine the effect of board diversity on corporate governance compliance. The findings indicate that both the percentage and inclusion of foreign directors on the boards improve corporate governance compliance. However, a relatively high percentage of foreign directors on the boards may be detrimental to corporate governance compliance. Moreover, the findings indicate that the percentage of female directors on the board is positive but not significantly related to corporate governance compliance. Similarly, the inclusion of female directors on the board has a positive but marginal significant relationship with corporate governance compliance only if the analysis model includes foreign directors as a control variable. These findings are especially useful for policy on the composition of the boards in Sub-Saharan Africa countries and other developing countries, mainly because the results suggest that foreign directors can help firms to enhance corporate governance compliance. However, there is a critical threshold of the number of foreign directors to include on the board, beyond which any additional increase of foreign directors may negatively affect corporate governance compliance. The findings emphasise the importance of board diversity, that is, an effective board should comprise foreign and domestic directors in a certain optimal proportion.