Background

This study examines the influence of diversity within corporate committees on investment risk practices and decision-making in companies listed on the ASX 300 between 2018 and 2020. While previous research has focused on board diversity, this study emphasises committee diversity, as committees play a critical role in providing recommendations that shape board-level decisions. Using a composite diversity index based on committee presence, size, gender representation, independence, and non-executive membership, the research investigates how these elements affect investment efficiency and corporate governance outcomes.

Introduction

The research is positioned within the growing movement towards board and committee diversity as mechanisms for improving governance and decision-making quality. While earlier studies often found mixed results on the relationship between gender diversity and financial performance, this paper identifies committee-level diversity as an underexplored yet influential factor. Drawing on agency theory, stakeholder theory, and social role theory, the authors argue that diverse committees—through broader perspectives and skills—enhance both ethical and strategic decision-making. The study focuses on how committee diversity influences long-term strategic investment decisions compared to short-term operational efficiency.

Review Of Literature And Development Of Hypotheses

Agency theory suggests that diverse committees strengthen oversight and mitigate conflicts of interest by incorporating a variety of viewpoints. Stakeholder theory provides a rationale for both mandatory and voluntary committee formation, emphasising inclusiveness and balance in representing stakeholder interests. Social role theory explains how individuals from varied demographic backgrounds contribute different perspectives that improve decision quality.

The literature review highlights that diversity—in gender, experience, and independence—has been linked to improved firm performance, though with mixed evidence. Prior studies show that independent and non-executive directors enhance objectivity and accountability. Gender diversity, while often symbolically included, can lead to more cautious and thorough decision-making, improving firm value. The study therefore hypothesises that committee diversity positively influences corporate investment outcomes.

Research Design

The research analyses 682 firm-year observations from ASX 300 companies across eleven sectors. The data combines manually collected information on committee structures with financial metrics from Bloomberg and Refinitiv databases. Committees analysed include audit, nomination, risk, remuneration, executive, and sustainability committees.

A committee diversity index (Coms_Diversity) was constructed using five equally weighted components—existence, size, gender representation, independent membership, and non-executive participation—normalised on a 0–1 scale. Investment efficiency was assessed using return on invested capital (ROIC), return on capital employed (ROCE), and return on equity (ROE).

Results

Panel regression analysis found that greater committee diversity is positively and significantly associated with ROIC and ROE but not with ROCE. This indicates that diversity primarily enhances long-term strategic investment performance rather than short-term operational efficiency. Specifically, committee diversity increased ROIC by 0.78 and ROE by 0.058 (p < 0.05), suggesting improved decision-making and resource allocation.

The additional analysis of investment efficiency found a positive and statistically significant relationship (coefficient = 0.018, p < 0.05) between committee diversity and investment efficiency. Firms with higher diversity avoided both over- and under-investment, aligning more closely with optimal investment levels. Larger firms and those with more experienced boards also demonstrated higher efficiency.

Additional Analysis—Robustness Test-Endogeneity

To address potential endogeneity, an instrumental variable (IV) approach was used. Results confirmed that predicted committee diversity had a strong positive effect on ROIC (coefficient = 0.87, p < 0.01) and a moderate positive effect on ROE (coefficient = 0.05, p < 0.05), confirming robustness across models and industries.

Conclusions

The study concludes that committee diversity substantially improves the quality of corporate investment decision-making and enhances long-term strategic financial outcomes. While its effects on operational efficiency are limited, diversity fosters better governance and investment discipline by incorporating a range of perspectives and expertise.

From a practical standpoint, the findings suggest that firms should prioritise diverse membership within mandatory and voluntary committees to strengthen strategic decision-making and optimise capital allocation. The study also notes that better disclosure of committee composition data would support transparency and further research.

Overall, committee diversity is shown to be a vital governance mechanism that enhances investment efficiency and contributes to more sustainable corporate performance.