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Article

Board Gender Diversity and Banks Profitability for Business Viability: Evidence from Serbia

by
Stefan Milojević
1,
Marko Milašinović
2,
Aleksandra Mitrović
2,*,
Jasmina Ognjanović
2,
Jelena Raičević
3,
Nebojša Zdravković
4,
Snežana Knežević
5 and
Malči Grivec
6
1
Audit, Accounting, Financial and Consulting Service Company “Moodys Standards” Ltd., 11000 Belgrade, Serbia
2
Faculty of Hotel Management and Tourism in Vrnjačka Banja, University of Kragujevac, 36210 Vrnjačka Banja, Serbia
3
Toplica Academy Professional Studies—Department of Business Studies Blace, 18420 Blace, Serbia
4
Faculty of Medical Science, University of Kragujevac, 34000 Kragujevac, Serbia
5
Faculty of Organizational Sciences, University of Belgrade, 11000 Belgrade, Serbia
6
Faculty of Economics and Informatics, University of Novo Mesto, 8000 Novo Mesto, Slovenia
*
Author to whom correspondence should be addressed.
Sustainability 2023, 15(13), 10501; https://doi.org/10.3390/su151310501
Submission received: 2 June 2023 / Revised: 27 June 2023 / Accepted: 29 June 2023 / Published: 4 July 2023
(This article belongs to the Section Economic and Business Aspects of Sustainability)
Versions Notes

Abstract

:
As an important topic in the field of corporate governance, the influence of the board of directors’ characteristics on the profitability of corporations is examined here. This paper examines the influence of the board of directors’ and chief executive officers’ (CEO) characteristics on the profitability of banks in Serbia. In this study, the characteristics of boards of directors were examined in terms of size and the participation of women, and the characteristics of CEOs were examined similarly in terms of women’s participation. The research was conducted on a sample of 23 commercial banks from Serbia in the period from 2017 to 2021. Profitability was measured by the rate of return on operating assets (ROA) and the rate of return on equity (ROE). The results of the panel regression analysis indicate that the size of the board of directors had a positive impact on bank profitability during the COVID-19 pandemic period, while this impact was not statistically significant before the pandemic. The participation of women on the board of directors did not have a statistically significant impact on bank profitability before or during the COVID-19 pandemic. It has been found that the participation of women as CEOs had a negative impact on bank profitability before and during the COVID-19 pandemic.

1. Introduction

The identification of factors that influence the profitability of a corporation is an important task that is put before the management and/or owners [1,2]. This becomes especially important during the emergence of different types of crises (examples of crises include the financial crisis of 2008 and the health crisis triggered by the COVID-19 pandemic) and in those sectors, such as financial, which are of vital importance for the operation of the entire economic system [3,4,5].
Banking institutions are complex institutions that engage in business outside the borders of a country and offer services to be much more than traditional commercial banking. Banks differ from non-financial institutions due to their public role and the trust they have in society [6].
In modern business conditions, corporate governance, together with intellectual capital, is recognized as one of the main factors in the success of corporations, but also in overall economic growth and development [7,8]. The term corporate governance refers to a set of practices, procedures, and guidelines that are employed to oversee, manage, and regulate the functioning of a corporation [5,9,10]. In other words, it represents a system of control and monitoring of the work of managers by the board of directors in order to ensure the maximization of value for shareholders and other stakeholders. In addition, a very important role of the board of directors is making strategic decisions and monitoring their execution.
Adequate corporate governance is the appropriate incentive for management to fulfill goals that are in the interest of the organization and its shareholders. Since there are different objectives of corporate governance, investors, shareholders, and others have different measures of the success of corporate governance. High-quality and proper bank management is inconceivable without a good control system, which again is not possible without good-quality accounting and management reports. Managerial competence supported by a transparent system of accounting and management information represents strong support for the management of the company at all levels of management activities. Management has a particularly important role (planning and control) in the domain of costs, as well as in the need to improve financial stability. Financial literacy of managers is important for helping ensure the financial health of the organizations they manage [11].
Corporate governance is a topic that continues to receive significant research attention. Effective management of the resources of companies operating in a turbulent and highly competitive environment is undoubtedly important for financially sustainable business. Managers are faced with various challenges in managing company risks and the demands placed on them are more and more complex.
The world’s traditional banks started operating a few hundred years ago [12]. Business viability relates to whether a profit-oriented organization survives. This survival is tied to its financial position and performance. A business is sustainable when there is a satisfactory profit that will ensure a return to the business owner, on the one hand, and the fulfillment of obligations to business creditors, on the other hand. In this context, it is emphasized that therefore, it is necessary to measure profitability and to undertake activities in time so that profitability ensures the sustainability of the organization.
A company is controlled by the shareholders, and the focus of their attention is generating a better return on their investment. The shareholders elect the board of directors, which, respectively, hires managers who have managerial skills to manage organizations by generating profits in an ethical manner. The board of directors acts as an instrument for monitoring shareholders within the firm [13]. Managers have more power over the resources of a profit-oriented organization and tend to avoid providing information to shareholders, but instead focus on reinvesting their profits, which leads to agency costs [14].
In the circumstances of global financial crisis, the composition of the board is undoubtedly a topic that receives a lot of attention in the field of corporate governance. Being appointed as a director on a company’s board is considered to be the pinnacle in the development of a managerial career. It has been observed that there is low participation of women appointed to the boards of directors of companies. It is assumed that various reasons can lead to this, but more extensive research is needed to precisely identify the causes, starting from the fact that it is desirable to have more women appointed to boards, while it is necessary to take care that this is the result of their high competence and not a symbolic appointment [15].
There is increasing regulatory and social pressure on organizations to promote board gender diversity, on the one hand, while on the other hand, there is stronger support for equity in corporate governance. In doing so, the focus is on greater representation of women from an ethical point of view, but also on financial grounds. In this context, it is noted that more research attention is needed in the direction of identifying the relationship between board gender diversity and organizational outcomes.
The presence of women in the business environment has been discussed, taking into account different aspects. When it comes to the question of the diversity of corporate boards, various aspects have been considered, such as, for example, gender, age, nationality, ethnicity, and others. However, what is not fully clarified in the literature is the connection between the financial results (performance) of companies and the representation of women on corporate boards.
The board of directors is the highest decision-making body in an organization. According to Bogdan et al. [16], the board gender diversity literature has demonstrated the positive influence of female leaders’ traits on the business development strategy and, consequently, on the performance of companies. Bogojević Arsić [17] stresses that financial technology has significantly changed business operations. Various trends initiate efforts that should lead to the achievement of sustainable development [18]. Although the impact of board diversity has received significant research attention in fields such as finance, human resource management, and international business [19], the research results remain inconclusive [20]. Board diversity is influenced by many different factors. They can be subjective (e.g., level of education) as well as objective (industrial orientation, investment policy, organizational structure, and others). “Educational diversity is essential for effective decision-making, which invariably increases shareholder wealth” [21]. The board also helps shape the organizational strategy [19]. Agrawal and Knoeber [22], find little evidence that women directors play a political role.
A growing number of studies show that the gender diversity of the board can positively affect the financial and organizational performance of a company, which has influenced the growth of attention and initiatives related to this issue. However, regardless of this, women are still underrepresented on boards around the world, as evidenced by the fact that they hold only 17% of all positions [23]. Hence, having women visible in the organizational power structure may reduce the causal effects of gendered stereotypes throughout the organization [24]. The loss of market share because of underinvestment results in value destruction [25]. Previous studies [26,27] stress that female directors, being more diligent, pay close attention to the decisions that result in higher market share and hence greater firm value. It is interesting to highlight the statements of Fan et al. [28] that when there are only a marginal number of women directors, banks are more likely to manipulate earnings, while when the number of female directors reaches three or more, bank earning management declines. According to Burke [29], “efforts to broaden the selection and nomination process to include more qualified women may benefit women, men and organizations”. The findings in the paper of Sheridan [30] suggest that it is the combination of business knowledge and business contacts that facilitate women’s access to board positions.
Educational training and development programs for gender-diversified empowerment help to accomplish sustainable growth of financial organizations. In this context, the importance of the implementation of virtual technology in order to improve access to the profitability of organizations is highlighted. Moreover, a particularly important topic is the wider involvement of women in innovation and entrepreneurship [31].
According to Porter et al. [32], women are typically found to have lower awareness and knowledge than men about financial matters, and have lower confidence than men about their financial skills. Sustainability, digitalization, and the study of virtual reality should be the subject of wider research, especially when they are related to the managerial affirmation of women in business [33,34,35,36,37]. Digital finance provides a great space for the financial inclusion of women [38]. Artificial intelligence and women’s empowerment can be a very challenging topic [39]. According to Tomic [40], gender diversity at the board level is a hot topic, and diversity is in focus today, among other things, because of the benefits for companies and shareholders.
Social similarity (e.g., from education, demography) may be especially important for appointment to boards [41]. Social similarity means that individuals will often have shared values and attitudes and derive self-esteem from group membership [42]. “Women also need to increase their social capital and similarity by working in organizations where they are similar in gender to the managerial hierarchy, and by developing networks of other women directors” [41]; individuals are attracted to and prefer those similar to themselves, which ultimately leads to ease of communication and trusting relationships [43]. On the one hand, the low representation of women in the management boards of companies requires further investigation, and on the other hand, as Burgess and Tharenou [41] highlight, the question arises as to whether these are women who have reached director positions by themselves as exceptionally competent managers or only symbolic designations of women in a traditionally male-dominated culture, remaining unattainable.
Successfully managing a company’s finances requires an understanding of some key principles. It is important to properly identify financial goals so you know where to go—understanding the importance of profit and cash flow, how to measure financial performance, and what key numbers to watch. It is also important to know how to use financial information to understand what is happening in the environment, covering the format and content of financial statements and how they can be used to evaluate past transactions of a family and other business.
Performance management systems are indispensable for monitoring and evaluating performance, as well as for planning future achievements. Various organizations implement various performance measurement systems, and develop them themselves or buy ready-made solutions. To achieve sustainable business, strong support from the company’s management is necessary. The effectiveness and efficiency of the board of directors is influenced by its size and diversity of members (such as independence, gender, level of education, duality of the executive director, professionalism, etc.) [5,10,44,45].
The performance management of banks and insurance companies is a very current research topic, bearing in mind that risk is inherent in them. Bank performance assessment includes financial and non-financial indicators of the business. Bank managers should become more aware of developments on the path to short-term performance, bearing in mind that it is not simply a late-stage transition to a long-term path.
Bearing in mind the various types of risks that managers face in the company’s operations, it is especially important to carefully manage the company’s performance in order to ensure stable operations and long-term survival in the market. Performance measurement is a very complex activity, and performance evaluation is a multi-dimensional procedure, so it can also be considered complex. It is indisputable that continuous measurement of the performance of corporate governance is of primary importance for the aforementioned. This can be carried out internally, or external agencies can be engaged.
It is necessary to encourage women to be involved in the boards of directors as much as possible, and this implies a greater involvement in formal education. Better education is the path to competitive female human capital, which can have a positive impact on eliminating gender imbalances on corporate boards. In addition, it will enable them to reach high-level decision-making positions to a greater extent.
The focus of this paper is to investigate how the characteristics of the board of directors and characteristics of the chief executive officer (CEO) affect the financial performance of commercial banks in Serbia. Specifically, this paper aims to assess the significance and magnitude of the impact of board size, female board representation, and female CEO representation on bank profitability in the period between 2017 and 2021. The profitability of the banks was measured by the rate of return on operating assets (ROA) and the rate of return on equity (ROE).
The contribution of the conducted research is twofold. As the research covers the operations of banks in the years before the start of the COVID-19 pandemic (2017, 2018, and 2019) and the years of the COVID-19 pandemic (2020 and 2021), the first contribution is reflected in the addition to the small amount of research on the impact c of the characteristics of the board of directors and characteristics of the CEO on the profitability of banks during crises. The majority of previous research examined this influence during periods of economic growth. The second contribution is reflected in supplementing the research on the impact of the board of directors’ characteristics on the profitability of banks in developing countries and gaining a clearer picture of this impact, since previous research has reached different, often contradictory findings.
This paper is structured according to the logical order. At the beginning, an introductory discussion is presented, then the literature that served as a foundation for the research hypotheses is detailed. The third section focuses on the research methodology, while the fourth section focuses on the results of this research. Finally, the concluding section summarizes the key points and highlights the limitations of the research.

2. Review of Literature and Definition of Hypotheses

Many companies use performance measures for business results. Financial performance is the cornerstone of performance system design. A broader set of potential financial measures is essential for monitoring, and many of them also include the realization of strategic competitive advantages and many of them are for predicting bankruptcy [46]. According to the organizational structure, a bank can be considered as an enterprise. With this, it has to satisfy the preferences of its owners, so the bank is expected to serve in a way that will enable an increase in value for its owners, i.e., maximum goals for investment capital. Therefore, its value is closely related to its growth and profitability [6]. Although profit is often at the center of attention, it should be borne in mind that profit, as the symbol of success, is only ever a consequence of something, and it should not be seen as a suitable goal for strategies [47]. The business environment has changed drastically, unlike the financial indicators, which have remained static. As a metric for a single period, measuring ROI ignores events outside the current period. It indicates what has happened, not what is happening or will happen. ROI is often misused as a long-term financial measure.
Mirza et al. [25] highlight that the loss of market share because of underinvestment results in value destruction. In this context, previous studies [26,27] suggest that female directors, being more diligent, pay close attention to the business decisions that result in higher market share and, accordingly, greater firm value. Biswas et al. [48] stress that having women at the top of organizational power structures may benefit female workers in terms of self-assessed opportunities as well as how their performance is evaluated and rewarded.
The current debate on the issue of diversity on boards of directors is concentrated around two points of view, the first, where the problem is viewed from an ethical viewpoint, advocating for board diversity because it is the right thing to do, and the second, which sees board diversity as a lever for creating value for the company and its stakeholders (through the prism of financial performance) [49].
Starting from the fact that commercial banks, as profit-oriented organizations, offer financial services in the economy, monitoring their performance is at the center of attention when observing national economic development. In the banking sector, the role of women is even more important, especially to promote more prudent and sustainable management [50], and according to de Cabo et al. [51], banks that have a growth orientation are more prone to including women on their board, especially when firms operate under critical circumstances. However, female directors are underrepresented in corporate boards around the world and this gap is more pronounced in the banking sector [52]. Moreover, it is necessary to see how the positioning of female directors (executive, non-executive or independent) affects bank performances [53]. Ramly et al. [54] stress that banks with independent female directors on board contribute significantly to the bank’s efficiency level.
The results of Sbai and Ed-Dafali [55] show that female presence on the board of directors reduces banks’ financial risk. Chen et al. [56] find that the presence of a female director reduces the likelihood of material weakness opinion issued by the auditors, and it is important to take into account that in 2019, women comprised 39% of the world’s workforce [57]. According to Mohan [58], female directors are less overconfident and less overestimating in their decisions than their male counterparts, and this has a positive impact on generating value for shareholders. The risk and return implications of women on boards are generally discussed in the contest of individuals’ risk preferences, and most previous studies have showed that women are risk-averse [59]. The greater prevalence of women in top executive positions of public corporations has led to increased attention to how gender impacts corporate business (and financial) decisions [60].
Equality between men and women and the value of female directors for companies are issues that are widely discussed [61]. The size of the board of directors is a characteristic of corporate governance that attracts significant attention from researchers studying the financial performance of companies across different industries. Two divergent opinions exist in the literature concerning the effect of board size on financial performance. According to the first opinion, with the increase in the size of the board of directors, there is a decrease in the success of the corporation’s operations. Difficulties in communication and coordination among board members are the primary reasons for this occurrence [5]. With difficult communication and coordination, there is a decline in the efficiency of the board of directors’ work and a deterioration of its ability to identify and use new business opportunities on the market and thereby improve its financial performance. According to the opposite opinion, with the growth of the board of directors’ size, there is an improvement in the financial performance of the corporation. Namely, it is believed that with the increase in the size of the board of directors comes an increase in its efficiency because they are usually made up of a larger number of people with a higher level of education, greater knowledge and experience, and specialized skills [62,63]. Furthermore, in the literature, there is no unified position regarding the optimal number of members of the board of directors. Lipton and Lorsch [64] propose an optimal board size of 7 to 9 members, whereas De Andres et al. [65] suggest a range of 16 to 18 members.
Researchers have come to different results when it comes to the impact of board size on bank profitability. The majority of studies indicate a negative impact of the size of the board of directors on bank profitability [63,66,67,68,69,70,71,72,73]. In addition, a negative impact of the size of the board of directors on the profitability of other financial institutions was determined [62,74,75]. However, some studies have found that the size of the board of directors has a positive impact on bank profitability [76,77,78]. Habtoor [10], Kajananthan [79], Yihun et al. [80], El-Chaaran et al. [81], and Perera and Dias [82] found that the size of the board of directors does not have a statistically significant effect on the profitability of banks, or other financial institutions [83].
Previous studies, including those conducted by Babić et al. [9] and Simić [84], have generally found that the size of the board of directors does not have a statistically significant impact on the profitability of banks in Serbia. However, Nikolić et al. [44] found that board size has no significant effect on bank profitability as measured by ROA, but does have a negative impact on profitability as measured by ROE. Based on the above, the first research hypothesis was defined:
H1. 
The size of the board of directors does not have a statistically significant effect on the profitability of banks in Serbia.
The gender diversity of the board of directors and its influence on the financial performance of corporations is attracting increasing attention of researchers in the field of corporate governance. The views of the literature are divided when it comes to the influence of these characteristics of the board of directors on the financial performance of corporations. According to the first view, with the growth of women’s participation on boards, the success of the corporation’s business is improved [63,80]. According to this view, it is considered that women, unlike men, have a higher level of education and other skills and thus positively influence the efficiency of the board and the performance of the company [62]. Greater diversity enables new views of the environment, richer sources of information, and increased creativity and innovation [7,44,62,63,80]. This is supported by the fact that female members of management boards attend meetings more often than their colleagues and are more actively involved in them [26]. On the other hand, the greater diversity of a board creates greater opportunities for conflicts to arise and thus to reduce the efficiency of the board’s work, which can be a problem when it is necessary to make quick strategic decisions [62,85]. Furthermore, women have a greater aversion to risk, which may result in a decision to invest in less risky businesses that usually bring a lower return [5,86,87].
Additionally, varying results have been reported by researchers regarding the impact of these characteristics of the board of directors on the profitability of banks. Berhe [63], Yihun et al. [80], Selvam et al. [88], Romano et al. [89], and García-Meca et al. [90] found that the participation of women on the boards of directors has a positive impact on the profitability of banks and other financial institutions [91]. On the other hand, Pathan and Faff [92] determined that the participation of women on management boards has a negative impact on the profitability of banks, i.e., other financial institutions [62]. Habtoor [10], El-Chaaran et al. [81], and Kusi et al. [86] determined that the participation of women on the boards of directors does not have a statistically significant effect on the profitability of banks.
To the best of the authors’ knowledge, there is only one research work aimed at identifying the impact of women’s participation on management boards on the profitability of banks in Serbia. Nikolić et al. [44] found that the presence of women on the boards of directors does not have a statistically significant impact on the profitability of banks in Serbia. Based on the above, the second research hypothesis was defined:
H2. 
The participation of women on boards of directors does not have a statistically significant effect on the profitability of banks in Serbia.
Just like in the case of boards of directors, gender diversity in CEOs results in the presence of diverse opinions and ideas, which can positively impact decision making, leading to improved financial performance [93]. It has been determined that companies with female CEOs are characterized by a lower level of debt, lower capital expenditures, higher sustainability, and higher cash holdings [94]. Moreover, female CEOs are characterized by greater efficiency in coordinating and controlling lower-level managers, which can result in better financial performance [26]. On the other hand, gender diversity in CEOs can hinder communication among members, often leading to conflicts and lower-than-expected financial performance [95].
Davis et al. [96], Ullah et al. [97], Mukherjee and Sen [93], and Zhu et al. [94] found that companies with female CEOs outperform companies with male CEOs. On the other hand, Vintilă et al. [98], Lunkes et al. [99], Kaur and Singh [95], Law and Ningnam [100], and Rahman and Chen [101] concluded that the presence of female CEOs does not have a statistically significant impact on companies’ financial performance. To the best of the authors’ knowledge, there are no publicly published studies that have examined the impact of women in CEO positions on the financial performance of companies and banks in Serbia. Based on the above, the third research hypothesis was defined:
H3. 
Female CEOs do not have a statistically significant effect on the profitability of banks in Serbia.

3. Methodology and Data

The research was based on a sample of 23 commercial banks operating in Serbia at the end of 2022. Since at the time of conducting the research, financial reports for 2022 were not publicly available, the research covered the operations of the observed banks in the period from 2017 to 2021. The period from 2017 to 2019 is marked as the period before the COVID-19 pandemic, while the period from 2020 to 2021 is marked as the period during the COVID-19 pandemic.
Since the quality of every analysis is conditioned by the quality of input data (in this analysis, data from financial reports), it is necessary to highlight the quality of the financial reports of the banks. An impression of the quality of data from financial reports can be gained by examining the reports of independent auditors [102]. After reviewing the audit reports of the observed banks, it was determined that auditors issued a qualified opinion in 98 reports, while in the remaining 17, they issued a qualified opinion with emphasis of matter. Based on this, it can be concluded that the financial statements represent a reliable source of data for conducting analysis.
In a large number of previous research works [9,44,63,73,74,85,86], the profitability of banks was measured by ROA and ROE. For the purposes of this research, ROA is defined as the ratio of net results and the value of total operating assets [103]. The value of ROE was determined in this research as the ratio of the net results and the value of the bank’s own capital [103].
The size of the bank’s board of directors (BS) was measured by the number of board members, while the participation of women on the board of directors (PWB) was determined as the ratio of the number of female members of the board of directors to the total number of board members [5,44,62,81]. The participation of women as CEOs (PWCEO) was measured as the ratio of the number of female CEOs to the total number of CEOs.
Consistent with prior research, this study utilized several control variables specific to banks, including bank size (SIZE), measured as the natural logarithm of the bank’s total operating assets, total loans ratio (TLR), measured as the ratio of loans to total business assets, and capital reserve ratio (CRS), measured as the ratio of respective capital and total operating assets [63]. This study also incorporated a macroeconomic control variable in the form of inflation rate (INFL), which was measured using the consumer price index.
To investigate the impact of board of directors characteristics and CEO characteristics on bank profitability in Serbia, this study used multiple panel regression analysis, which has been commonly utilized in prior research. Accordingly, the following general panel regression model was formed:
PROFit = β0 + β1BSit + β2PWBit + β3PWCEOit β4SIZEit + β5TLRit + β6CRSit + β7INFLit
where PROF represents ROA and ROE.

4. Research Results and Discussion

Table 1 shows the results of descriptive statistical analysis of research variables before and during the COVID-19 pandemic. During the observed periods (before and during the COVID-19 pandemic), the average values of the used profitability indicators recorded positive values. In the period before the onset of the COVID-19 pandemic, the average value of ROA was at the level of 0.8%, while the average value of ROE was 4.6%. During the period of the COVID-19 pandemic, a decrease in the average values of these two profitability indicators was recorded; the average value of ROA was 0.6%, while the average value of ROE was 3.8%.
On average, before and during the COVID-19 pandemic, bank boards of directors consisted of six members. At 12 banks, with the onset of the COVID-19 pandemic, there was an increase in the number of board members compared to the period before the pandemic. On the other hand, at 11 banks, there was no change in the number of board members during the observed period. On average, before and during the COVID-19 pandemic, one fifth of board members were women. Only six banks did not change the number of women on the management boards with the onset of the COVID-19 pandemic. These data should be supplemented by the fact that at four banks during the observed five-year period, women did not participate in the work of the boards of directors. When it comes to the participation of female CEOs, with the onset of the COVID-19 pandemic, an increase in the average value was recorded compared to the period before the pandemic. Thus, during the COVID-19 pandemic, women made up an average of 37% of CEOs, while before the pandemic, this share was 32%. During the observed five-year period, at three banks, all CEOs were men. On the other hand, in the case of one bank, all the CEOs were women.
The results of the Spearman’s correlation analysis are presented in Table 2. When determining the strength of the correlation, Cohen’s guidelines were respected [104]. As can be seen from Table 2, in the period before the onset of the COVID-19 pandemic, there was no statistically significant dependence between the size of the board of directors and the participation of women on the boards of directors on the one hand and the profitability of banks in Serbia on the other hand. The existence of a negative statistically significant dependence of low strength between the participation of women on the CEO and the profitability of banks before the onset of the COVID-19 pandemic was identified. During the COVID-19 pandemic, the existence of a positive statistically significant dependence of medium strength between the size of the board of directors and the profitability of banks in Serbia was identified. With regard to the dependence between the participation of female CEOs and the profitability of banks during the COVID-19 pandemic, the existence of a statistically significant negative dependence of low strength was identified. It was determined that there was no statistically significant relationship between the participation of women on the boards of directors and the profitability of banks in Serbia during the COVID-19 pandemic.
Table 3 shows that the Hausman test results suggest that the fixed effects model is a more suitable approach for analyzing how the characteristics of the boards of directors and CEOs affect the profitability of banks in Serbia before and during the pandemic. The results of the fixed effects model are presented in Table 4.
As can be seen from Table 4, the size of the board of directors had a positive impact on the profitability of banks in Serbia before the onset of the COVID-19 pandemic, though this impact was not statistically significant. This is in line with previously conducted research before the onset of the COVID-19 pandemic, such as Habtoor [10], Kajananthan [79], Yihun et al. [80], El-Chaaran et al. [81], and Perera and Dias [82], but also in accordance with the results obtained by researchers observing banks in Serbia [9,44,84]. With regard to the impact of the size of the board of directors on the profitability of banks in Serbia during the COVID-19 pandemic, a positive statistically significant impact was established (Table 4). The explanation can be found in the fact that boards of directors with a larger number of members can have a greater degree of knowledge and experience, which can be crucial for a successful business during crises (such as the one caused by the COVID-19 pandemic). Thus, hypothesis H1 is partially accepted.
It was established that the participation of women on the boards of directors did not have a statistically significant effect on the profitability of banks in Serbia before or during the COVID-19 pandemic (Table 4). Thus, hypothesis H2 is accepted. This confirms the results of previously conducted research on the example of banks in Africa [86], Saudi Arabia [10], and the Middle East and North Africa [81], as well as research conducted on a sample of banks in Serbia [16]. Nikolić et al. [44], as a partial explanation for such results, state “that women are not sufficiently represented in the management boards of banks and that, accordingly, it is difficult to adequately assess and determine their contribution to the board’s effectiveness and financial performance” (p. 37). To this should be added the fact that the management boards of companies in the countries of the former Yugoslavia are dominated by men and that it is more difficult for women to fully assimilate into these boards, especially because women are entrusted with jobs that have less influence on financial performance [62]. Pavić Kramarić et al. [62] state that the impact of women’s participation on the boards of directors on profitability may also depend on the level of their qualification. Crster et al. [105], as an explanation for the absence of a statistically significant impact, state that innovation and creativity in decisions that result from the participation of women on boards of directors can be cancelled out due to the existence of group conflicts in the boards.
It was found that the participation of female CEOs had a positive effect on the profitability of banks in Serbia before and during the COVID-19 pandemic. In this way, the results reached by Davis et al. [96], Ullah et al. [97], Mukherjee and Sen [93], and Zhu et al. [94] were confirmed. Thus, hypothesis H3 is rejected.

5. Conclusions

Corporate governance scholars are increasingly focusing on the impact of the board of directors’ characteristics on firm profitability. This is confirmed by the increasing amount of published research on this topic. However, most of these studies were conducted on the example of companies from the real sector operating in developed countries. To put it differently, the number of studies investigating the impact of board of directors’ characteristics on the financial performance of financial institutions in developing countries is limited. For these reasons, this paper examines the influence of the characteristics of the boards of directors (size and participation of women) and CEOs (participation of women) on the profitability of banks in Serbia. Using panel regression analysis, the research was conducted on a sample of 23 commercial banks in Serbia, where their operations were observed in the period from 2017 to 2021. Profitability was measured by the ROA and ROE.
Our research has found that prior to the outbreak of the COVID-19 pandemic, the size of the boards of directors and the participation of women on the boards of directors did not have a statistically significant impact on the profitability of banks in Serbia, while the participation of women as CEOs had a negative impact. During the COVID-19 pandemic, the size of the boards of directors positively affected the profitability of banks in Serbia, while the participation of women on these boards did not have a statistically significant impact. The participation of women as CEOs had a negative impact on the profitability of banks during the COVID-19 pandemic.
This paper’s scientific contribution is evident in its investigation of the impact of the board of directors’ size and characteristics on bank profitability in developing countries like Serbia. The contribution of this paper is also reflected in the fact that the influence of the characteristics of the board of directors on the profitability of banks was also examined in the years of the COVID-19 pandemic (2020 and 2021). The majority of previous research examined this influence during periods of economic growth. The findings of this study could potentially be of significance to banking professionals and regulatory bodies, particularly the National Bank of Serbia. These entities may use the results to evaluate the current state of corporate governance in commercial banks operating in Serbia, and to understand its impact on their profitability.
This paper has several limitations. Firstly, the research only covers banks in Serbia, so future studies should consider including banks from neighboring countries in the region. Furthermore, future research should expand upon the analysis by observing the effects of other board of directors characteristics on financial and other outcomes, such as the number of independent members or the level of education of members. Finally, future studies could extend the investigation to other financial institutions. These could be insurance and leasing companies, to explore the influence of the board of directors’ characteristics on their financial outcomes as a part of overall business performance.

Author Contributions

S.M., M.M., A.M., J.O., J.R., N.Z. and S.K. participated in all the stages of this paper, including conceptualization, methodology, analysis, writing—original draft preparation, and review and editing. M.G. was involved in conceptualization and writing—original draft preparation and review and editing. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

Not applicable.

Conflicts of Interest

The authors declare no conflict of interest.

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Table
Table 1. Descriptive statistics of research variables.
Table 1. Descriptive statistics of research variables.
VariablesMeanStd. DeviationMinimumMaximum
Before the COVID-19 Pandemic
Dependent variables
ROA0.0080.003−0.0810.120
ROE0.0460.139−0.6360.477
Independent variables
BS5.7970.90158
PWB0.2140.15000.6
PWCEO0.3200.26001
Bank-specific control variables
SIZE18.0111.41814.43220.296
TLR0.6370.1500.0120.893
CRS0.2090.1180.0690.983
During the COVID-19 pandemic
Dependent variables
ROA0.0060.014−0.0320.042
ROE0.0380.072−0.1410.212
Independent variables
BS6.0651.497511
PWB0.2050.18000.6
PWCEO0.3700.26901
Bank-specific control variables
SIZE18.3771.42115.64820.494
TLR0.6250.1270.3510.852
CRS0.1590.0530.0770.326
Control macroeconomic variables
Year20172018201920202021
INFL0.031 0.0200.0180.0160.041
Source: Authors, based on data from financial reports of banks and the World Bank (2023).
Table
Table 2. Correlation analysis of research variables before the COVID-19 pandemic (to the left) and during the COVID-19 pandemic (to the right).
Table 2. Correlation analysis of research variables before the COVID-19 pandemic (to the left) and during the COVID-19 pandemic (to the right).
ROAROEBSPWBPWCEOSIZETLRCRSINFL
ROA10.956 **0.266 *0.243−0.067 *0.448 **0.1430.1300.008
ROE0.95810.260 *0.207−0.105 *0.453 **0.111−0.0680.057
BS0.3530.391 **10.351 *0.0050.526 **0.234−0.2420.036
PWB0.1220.151−0.00110.0160.312 *0.185−0.1650.070
PWCEO−0.269*−0.236 *−0.0670.1221−0.140−0.1070.0330.136
SIZE0.569 **0.569 **0.487 **0.245 *−0.03210.099−0.3250.093
TLR0.1170.1070.053−0.0700.015−0.0171−0.2360.057
CRS−0.009−0.188−0.093−0.355−0.174−0.237−0.1841−0.205
INFL0.0940.0510.016−0.042−0.043−0.113−0.0110.1071
Source: Authors. Note: ** and * indicate significance at the 0.01 and 0.05 levels.
Table
Table 3. Hausman test results.
Table 3. Hausman test results.
Before the COVID-19 PandemicDuring the COVID-19 Pandemic
DependROAROEROAROE
Chi-sq. statistic12.02413.7289.4488.693
Chi-sq. d.f.7777
p-value0.0040.0290.0130.019
EffectsFixedFixed Fixed Fixed
Source: Authors.
Table
Table 4. The influence of board of directors and CEO characteristics on bank profitability.
Table 4. The influence of board of directors and CEO characteristics on bank profitability.
Before the COVID-19 PandemicDuring the COVID-19 Pandemic
ROAROEROAROE
C−0.579−4.559−4.045−4.922
(−1.776) **(−2.741) **(−1.874) **(−2.197) *
BS0.0120.0180.0170.024
(0.016)(0.169)(0.547) *(0.603) *
PWB−0.044−0.199−0.187−0.011
(−0.609)(−1.010)(−1.009)(−0.472)
PWCEO−0.009−0.003−0.006−0.010
(−0.183) **(−0.125) **(−0.278) **(−0.354) **
SIZE0.0420.2910.9270.136
(2.303) **(3.091) ***(2.703) ***(3.027) **
TLR−0.135−0.5590.0260.033
(−2.208) *(−1.795) *(0.624)(0.507)
−0.0340.2190.0360.062
CRS(−0.604)(0.723)(0.871) *(0.022)
0.0020.001−0.143−0.121
INFL(2.032) *(0.159) *(−0.321) *(−0.196)
Adj. R20.2040.2190.1430.132
F-Value(4.773) ***(4.856) ***(1.971) **(1.773) **
Source: Authors. Note *, **, and *** indicate significance at the 0.1, 0.05, and 0.01 levels, respectively.
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Milojević, S.; Milašinović, M.; Mitrović, A.; Ognjanović, J.; Raičević, J.; Zdravković, N.; Knežević, S.; Grivec, M. Board Gender Diversity and Banks Profitability for Business Viability: Evidence from Serbia. Sustainability 2023, 15, 10501. https://doi.org/10.3390/su151310501

AMA Style

Milojević S, Milašinović M, Mitrović A, Ognjanović J, Raičević J, Zdravković N, Knežević S, Grivec M. Board Gender Diversity and Banks Profitability for Business Viability: Evidence from Serbia. Sustainability. 2023; 15(13):10501. https://doi.org/10.3390/su151310501

Chicago/Turabian Style

Milojević, Stefan, Marko Milašinović, Aleksandra Mitrović, Jasmina Ognjanović, Jelena Raičević, Nebojša Zdravković, Snežana Knežević, and Malči Grivec. 2023. "Board Gender Diversity and Banks Profitability for Business Viability: Evidence from Serbia" Sustainability 15, no. 13: 10501. https://doi.org/10.3390/su151310501

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