Board tenure diversity and shareholder value creation of non-financial companies listed in South Africa

This research examined the influence of board tenure diversity (BTD) on shareholder value creation (SVC) among 95 non-financial companies listed in South Africa. A quantitative quasi-experimental research design was employed. The data collection sources included integrated annual reports, the Who Owns Whom database and the Osiris database. The study used a fixed effects model to test the hypotheses. BTD was measured using the Blau index (BI_BTD), average tenure (AVE_TBM), standard deviation (SD_TBM), and coefficient of variation for tenure board members (TBM), as well as dummies for short tenured boards (AVE_TBM 3) and long tenured boards (AVE_TBM 10) The proxies of SVC included standard market value added (SMVA), market-to-book ratio (MTB) and Tobin’s Q (TBQ). The results of curvilinear quadratic models indicate that all BTD measures had both positive and negative influences on all SVC measures, highlighting an inverted U-shaped effect. The inverted U-shape effect reflects a trade-off between beneficial knowledge accumulation and harmful entrenchment or coordination problems as board tenure diversity increases beyond an optimal level. Given the inverted U-shaped effect, many proposals for corporate governance reform explicitly stress the importance of limiting board tenure.