Journal of Small Business Management 2017 00(00), pp.

00–00
doi: 10.1111/jsbm.12336

Democracy across Gender Diversity and Ethnicity of

Middle Eastern SMEs: How Does Performance Differ?
by Charbel Salloum, George Jabbour, and Catherine Mercier-Suissa

This paper examines the relationship between boards of directors’ demographic diversity and
firms’ financial performance. In particular, we highlight how women and ethnic minorities can
affect Middle Eastern SMEs’ financial performance. Using an unbalanced panel of 1,855 firm-
year observations of 371 boards of directors from nine Middle Eastern countries, our results sup-
port the positive impact of women and ethnic minority group members on Middle Eastern firms’
performance. However, our evidence implies that when Western ethnic minority members increase,
firms’ performances tend to decrease, because these board members are appointed for regional
and international board reputation legitimacy, personal business agendas, and links to the exter-
nal corporate environment.

Introduction along with demographic diversity such as gen-

This study examines the impact of demo-
graphic diversity on the boards of SMEs on
financial performance in the Middle East. In the
light of recent corporate governance scandals,
we investigate whether there is a causal relation-
ship between the inclusion of women on corpo-
rate boards and firm performance. We also
investigate if Western ethnic minority represen-
tatives in the boardroom have a significant
impact on Middle Eastern SMEs’ performance.
Despite significant advanced democratic gov-
ernance practices, demographic diversity is still
imbalanced among corporate boards, but this
imbalance is much smaller than in previous dec-
ades. The notion of democratic governance
varies over time and across regions. It encom-
passes norms, equality, freedoms, and rights of
a defined system. The cornerstone of democratic
governance in any organization emphasizes the
recognition and respect of individual differences
der, ethnicity, religion, and beliefs within the
society. De Tocqueville (1890) considers demo-
cratic governance as a system where rights are
equal, minorities are represented, and there is a
separation of powers. The debate on this issue
has existed for decades, and it is often linked to
equality and the inclusion of the rights of
women and ethnic minorities in an organiza-
tion’s governance system. Favoring a demo-
graphic diversity rights-based approach in a
boardroom would enhance improvement and
effectiveness (Williams and Dolkas 2012).
Women and ethnic minorities experience more
stereotyping and discrimination on a social and
economic level in Middle Eastern organizations
(Jamal and Tessler 2008). Since the geopolitical
and international economic region’s develop-
ment, organizations seek to adapt themselves to
more Western democratic governance practices.
The appointment of outside directors from

Charbel Salloum is Associate Professor and Associate Dean for Research, Faculty of Business and Commercial
Sciences at Holy Spirit University of Kaslik, Lebanon.
George Jabbour is Professor and Associate Dean for Executive Education, School of Business, George Washing-
ton University.
Catherine Mercier-Suissa is MCF HDR, Iaelyon School of Management, Lyon 3 University, France.
Address correspondence to: Charbel Salloum, Faculty of Business and Commercial Sciences, Holy Spirit
University of Kasllik, Jounieh, Lebanon. E-mail: charbelsalloum@usek.edu.lb.

SALLOUM, JABBOUR, AND MERCIER-SUISSA 1

minority groups, especially women and different
ethnicities, has become an international trend
for the region. For Miller and del Carmen Triana
(2009), women will benefit the organization by
obtaining higher profits, having more risk
awareness, enhancing the social workforce envi-
ronment, and using long-term planning in an
unstable environment. Corporate board mem-
bership diversity ensures corporate brand image
and prestige, and improves networking and
employee motivation. It could lead to a more
equitable outcome for society. The study of
women’s inclusion within organizations has
increased interest not only in the academic field,
but also in social and economic business devel-
opment (Campbell and Mınguez-Vera 2008).
Businesses’ stakeholders and social groups
require the presence of gender diversity in order
to maintain the pressure on the old boys’ mana-
gerial network. Additionally, foreign investors
are increasingly scrutinizing demographic diver-
sity by considering the inclusion of women and
Western minority groups in the boardroom as
one of their investment criteria. Ethnic minor-
ities are defined as multiple ethnic groups as
opposed to the main existent category (Miller
and del Carmen Triana 2009). Ethnicity brings
an alternative perspective that stimulates creativ-
ity and innovation (Hillman, Shropshire, and
Cannella 2007). Corporate boards with diverse
ethnic groups are likely to generate more intui-
tive and pluralistic expertise in various environ-
mental spheres. This concept is analyzed in the
existing literature as a corporate competitive
advantage (Carney 2005). In our case, we focus
on the proportion of women and Western ethnic
minorities on the corporate boards of directors
of SMEs in the Middle East and their impact on
performance.
A better understanding is needed of how
women and ethnic minorities contribute to bet-
ter performance. This research reviews the
impact of the existence of demographic diver-
sity on corporate boards on firms’ performance.
Few researchers have been considering whether
gender diversity in Middle Eastern firms’ corpo-
rate boards is beneficial for the development of
democratic governance. This approach is unique
and noteworthy because the subject is relevant
and timely due to many recent corporate and
government initiatives. The subject extends the
existing literature by using a stratified sample of
family-owned SMEs from nine Middle Eastern
countries, which have adopted institutional gov-
ernance practices over the last decade.
2 JOURNAL OF SMALL BUSINESS MANAGEMENT
The paper is organized as follows. The first
section contains the theoretical foundation, the
significance and background of the research,
and hypotheses development, including the lit-
erature review. After that, the research design
and methodology will be presented with the
main results. Finally, the discussion and conclu-
sion will highlight the main findings and their
theoretical and practical implications.
Research Context
The Middle East covers 21 Arab League coun-
tries, which span 17 territories. This part of the
world is geographically located to the east of
the Mediterranean Sea and in ancient terms rep-
resents Persia or the Arabian Peninsula. This
region has been the crossroads of spiritual civili-
zations and a strategic, culturally sensitive area
where ethnic groups are very diversified. The
region is very diverse when it comes to religion.
According to a report on world religions pub-
lished by the Pew Research Center in 2015,
Judaism, Christianity, and other groups consti-
tute 7 percent of the population whereas Islam
comprises 93 percent. Recent interest in corpo-
rate board membership democracy has been
driven by changing societal, cultural, and politi-
cal interest in the realms of diversity and corpo-
rate governance in the Middle East. These views
have been informed by the suggestion that there
could be better corporate governance if board
membership was designed to include more peo-
ple of minority backgrounds. In this scope, the
concept of democracy encourages forms of
acceptance and norms in order to reinforce the
rights and interests of its population regardless
of gender, religion, race, and ethnicity. Middle
Eastern women and ethnic minority groups
were particularly vulnerable to marginalization.
Jamal and Tessler (2008) stated that democracy
and governance in the Middle East are beneficial
to women by securing their representation in
the public and political spheres. The authors
clearly suggest that the country’s monarchies
should promote women’s equality and ethnic
minority groups in order to secure their interests
and representation in today’s society (Freeland
and Keister 2014).
The advancement of the role of women in
Arab SMEs is limited by deeply rooted social
and cultural norms and traditions. Those bar-
riers persist in all countries of the Middle East,
despite women’s inclusion in politics and corpo-
rations (Jamal and Tessler 2008; Salloum et al.
2016). Ashourizadeh and Schøtt (2013) state
that the presence of women in the Arab region
will improve gender disparity and equality,
which will contribute to economic growth and
SMEs’ development. Middle Eastern women are
known as good listeners and they are acknowl-
edged for their ability to share and for their
teamwork (Salloum et al. 2016). Alternatively,
Middle Eastern men tend to manage in a less
interactive way, and lack communication and
innovation. They tend to lead using a “one-man
show” technique, which grants women the
capability to manage, direct, and lead compa-
nies more effectively (Moghadam 2004). The
reason for this low contribution is the presence
of cultural and social barriers and societal
expectations.
Recently, the geopolitical region’s develop-
ment is shaping the region against constitutional
monarchies in order to spread democratic
reforms. Middle Eastern countries differ dramati-
cally in their systems of governance where reli-
gion has a critical impact on politics and
economic development. For Ali (2005), the Mid-
dle East is a complex intersection of civiliza-
tions, where history, culture, and religion have
been related to economic development from
feudal times. Entrepreneurs dominate the Mid-
dle Eastern business environment and family-
owned SMEs are run by men. Middle Eastern
SMEs are not bureaucratic and hierarchical,
whereas being innovative and customer-
oriented. Families are the unit of interest and
dominate politics and society. Religious beliefs
and culture have shaped the role of women in
society so that they are second-class citizens.
Despite the fact that the decision-making
remains monopolized by men, Arab women
have started to be recognized as valuable and
credible contributors to the boardroom
decision-making process and monitoring con-
trol. The geopolitical and economic changes
offer different models of managerial structure
that seek to adapt to the evolution that is taking
place in this particular region, where significant
change has been underway for a decade. The
phenomenon of sexism is changing in the
region. Women are cracking the perceived dis-
crimination, and governments, such as Saudi
Arabia, UAE, Kuwait, Lebanon, Jordan, and
Qatar, are adopting political reforms and
amending corporate laws in order to promote
women into organizations’ strategic roles, rais-
ing hopes of political and economic freedoms.
As stated by Walt and Ingley in 2003,
SALLOUM, JABBOUR, AND MERCIER-SUISSA
demographic diversity in firms’ boardrooms is
closely linked to a society’s level of democracy.
Organizations are aware that demographic
diversity could enhance board effectiveness and
firms’ performance (Adams and Ferreira 2009).
This concept presents drastic challenges in the
Arab Peninsula, which should be made to inte-
grate more diversity into boardrooms in order
to implement democratic governance across a
complex and diverse culture.
Theoretical Framework
There is a pluralistic theories argument
across academic fields that can explain the gen-
der diversity relationship with firm performance
(Henry et al. 2015). Other researchers have
used several corporate governance theoretical
arguments, such as agency, resource depend-
ence, human capital, and social psychological
(Campbell and Mınguez-Vera 2008; Erhardt,
Werbel, and Shrader 2003). Recognizing this tra-
ditional approach, this study will not focus on
those theories because they involve many tradi-
tional variables interrelated across academic dis-
ciplines. That is why, in our case, we favor the
token status and critical mass theory in order to
examine the value relevance of increasing the
number of women and ethnic minorities on
SMEs boards (Liu, Wei, and Xie 2014) that we
briefly summarize next.
The token status theory developed by Kanter
(1977) and critical mass theory by Childs and
Krook (2008) use gender diversity to assess the
boardroom environment. According to Kanter
(1977), women who reach a managerial position
are ascribed a token status that gives them a
numerical disadvantage. Women and ethnic
minorities are described as “tokens” when they
represent an insignificant fraction in the board-
room. Kanter’s study (1977) describes group life
characteristics based on gender, race, and eth-
nicity, which are critical in dynamic boardroom
interaction. The token theory suggests that in
the absence of a significant number of women
in a group, minorities have difficulties in gener-
ating an alliance within the group and tend to
be dormant. They cannot counteract the domi-
nant culture adopted by their counterparts. With
an increase in numbers, minority members can
potentially create an alliance and coalition in
order to affect the group culture. Kanter (1977)
highlights three perceptual phenomena. The first
is visibility, which means that the tokens feel that
they are being watched and thus feel under
3
pressure, causing them to perform worse (Adams
and Ferreira 2009). The second is social isolation,
where men exclude women by enhancing gender
differences in informal networks and meetings,
which leads to women becoming polarized
(Walls, Berrone, and Phan 2012). As a result,
women are stereotyped and assimilated as repre-
sentatives of their kind (Bratton 2005). With an
increase in the number of women in the board-
room, they are more likely to form cross-gender
coalitions and affect the group culture, and as a
result the firm performance (Masulis, Wang, and
Xie 2012). Women in the boardroom create inter-
action and communication, which generates a
culture of interactivity and comprehensiveness.
Women’s ability to share thoughts and to listen to
others though encouraging teamwork gives them
the power to lead and perform better than men.
Childs and Krook’s (2008) critical mass
theory argued that a critical mass is necessary in
order to affect the culture of a group. Women
are more likely to bring significant added value
to a group when they grow considerably in
numbers. Torchia, Calabr o, and Huse (2011)
extended Kanter’s token status theory by stating
that “one” is a token, “two” is a presence, and
“three” is a voice meaning. Three is the “magic”
number that makes a difference in group
dynamics (Kanter 1977; Terjesen, Sealy, and
Singh 2009). Their numerical presence will tend
to influence a male-dominated group (Okhuy-
sen and Eisenhardt 2002). So, until a certain
threshold is reached in numbers, the minority
group will be unable to interfere and influence
a group performance. In sum, these two theo-
ries argue that numbers are important in order
to enhance demographic diversity dynamics in
the firm’s boardroom.
This theoretical argument has two main
objectives that aim to improve the performance
and effectiveness of the board of directors
through the inclusion of women and ethnic
minority groups in numbers.
Hypotheses Development
The rise of demographic diversity in organi-
zations’ boardrooms is a worldwide phenom-
enon for policymakers. According to Miller and
del Carmen Triana (2009), board demographic
diversity is related to the characteristics, knowl-
edge, and expertise of the board of directors’
members in relation to the decision-making pro-
cess and monitoring control.
4 JOURNAL OF SMALL BUSINESS MANAGEMENT
Evidence on demographic diversity and firm
performance remains mixed and mostly concen-
trated in European and North American coun-
tries (Carter et al. 2010; Nielsen and Huse 2010).
Carter et al. (2010) report that the inclusion of
women has a positive influence on firm perform-
ance among Fortune 1,000 firms. Evidence from
Campbell and Mınguez-Vera (2008) suggests that
gender diversity is positively correlated with
Spanish firms’ performance. However, Adams
and Fereira (2009) suggest an insignificant rela-
tionship between the presence of women in the
boardroom and performance. Those results are
similar to Nguyen and Faff (2007), who looked at
Australian firms. Marimuthu and Kolandaisamy
(2009) observe the same evidence in the Malay-
sian context. Smith, Smith, and Verner (2006)
investigated a sample of Danish firms and found
no significant relationship between gender diver-
sity and firms’ performance.
Despite being associated with social and
service-oriented sectors, women demonstrate
the ability to perform successfully and inde-
pendently in Middle Eastern firms (Salloum
et al. 2016). Previous evidence suggests that
women are more likely to possess a larger level
of education and advanced degrees, and mana-
gerial skills such as legal, communication chan-
nels, and public relations, bringing different and
creative problem solving (Singh, Terjesen, and
Vinnicombe 2008). Women educational credits
are a secure widespread valued knowledge for
individual achievement and expertise in the
boardroom field, which is dominated by men.
The dissimilarity in the positions held by men
and women can be explained by several factors,
such as level of education, career and work
experience, and the initial capital (Harrison,
Leitch, and McAdam 2015).
For Walls, Berrone, and Phan (2012) and
Joecks, Pull, and Vetter (2013), a woman’s pres-
ence in the boardroom offers diligence, dyna-
mism, and transparency, which contribute
better democratic performance to the board,
facilitate efficient decision-making capabilities,
and favor an increase in firm value. Women’s
presence shapes the governance of the board.
Bringing diversity to the board of directors
would allow the development of new plans and
initiatives and would encourage innovation and
distinctive perspectives. Women’s inclusion in
the boardroom brings dynamic and challenging
issues related to exigent questions, which mini-
mize corruption and fraud (Ramirez 2003).
Their presence tends to moderate the
organizational environment dependency risk. In
the same way, women have proven their ability to
give the board more energy and dynamics
because of their ways of cooperating and their
degree of honesty and reliability (Konrad, Kramer,
and Erkut 2008). Therefore, in order to sustain
growth in the future, women’s skills and capacities
should be utilized in leading and decision-making
positions (Dezs€o and Ross 2012).
Women promote democratic decisions and
enhance boards’ participation criteria. They tend
to show willingness to enhance board members’
collaboration, teamwork, cooperation, and par-
ticipation (Campbell and Mınguez-Vera 2008).
Based on all of these arguments, we assume
that previous mixed findings do not suggest a
clear outcome for the relationship between gen-
der diversity and firm performance. Each
research context and research methodology is
different. Consequently, it remains unclear if
women’s participation in the boardroom posi-
tively influences a firm’s financial performance.
We assume that an increase in women’s partici-
pation in the boardroom may provide additional
innovation, skills, experience, and collective
willingness for better collaboration and
decision-making. Therefore, we propose the fol-
lowing hypothesis:
H1: All being equal, the increase of women in the
boardroom from one to two or more is positively
correlated with firm financial performance.
Each individual brings unique specialized
knowledge and expertise that can be useful for
decision making. Individuals from different
backgrounds and cultures may strengthen the
existing board environment and widen the
expertise present (Walt and Ingley 2003).
Organizations with members from different eth-
nicities provide diversity that can be used as a
strategic asset to obtain competitive advantage.
That is why we propose that ethnic minorities
could positively affect firm performance.
According to Paulus and Nijstad (2003), ethnic
minority members hold various experiences and
cultural values that could generate distinctive
alternatives in order to represent innovation and
creativity. Hence, ethnic minority presence in the
boardroom may help generate competitive
threats and opportunities in order to respond to
environmental changes. Those groups shaped by
their ethnic identity in the boardroom may
develop new insights and problem solving due
to their different backgrounds, cultures, and
SALLOUM, JABBOUR, AND MERCIER-SUISSA
experiences, which complement executive board
experience (Harrison, Leitch, and McAdam 2015;
Miller and del Carmen Triana 2009).
However, previous results suggest that ethnic
minorities affect decision-making outcomes due
to group marginalization and intrateam conflict
(Erhardt, Werbel, and Shrader 2003). For Miller
and del Carmen Triana (2009), ethnic groups
tend to reduce trust and increase decision con-
sensus time processes. For Westphal and Milton
(2000), ethnic minority presence in the board-
room tends to lower social cohesion between
groups, and social barriers and differences
reduce minority influence over the board
decision-making process. Nielsen and Huse’s
(2010) findings suggest that ethnic minority
groups impede communication among board
members. This could lead to less transparent
practices, because they face peer pressure to
conform to group thinking, which favors less
control and monitoring intensity.
Moreover, research continues to indicate that
there is a significant relationship between ethnic
minorities and firm performance in the United
States (Carter et al. 2010). The results are similar
for Conyon and Mallin (1997) in the United
Kingdom and for Huse and Solberg (2006) in
Norway and Sweden. Minority groups tend to
be better coordinated and thus to exercise better
monitoring control.
According to Adams and Ferreira (2009),
demographic differences in the boardroom are
necessary to implement democratic and effective
monitoring control, and thus better performance.
We assume that all those previous arguments
do not suggest a clear outcome for the relation-
ship between ethnic minorities and firm per-
formance. We assume that an increase in ethnic
minority group members in the boardroom may
provide additional cultural expertise and knowl-
edge for better collaboration and decision-
making capabilities.
Therefore, we propose the following
hypothesis:
H2: All being equal, an increase in ethnic minority
members from one to two or more is positively
correlated with firm financial performance.
Methodology
Sample and Data Collection
Data for this study were gathered using a
multi-country approach that focused on SMEs
5
located in the Middle East for a five-year period:
2010–2014. The selected sample countries were
chosen based on the data that could be accessed
on Thomson Reuters’ Eikon and DataStream
databases and in companies’ annual reports. In
order to select our cluster sampling, we used
the arabianbusiness.com database to preselect
500 SMEs that were family-owned listed compa-
nies from different sectors with at least 15 years
of activity. After crossing the sample data with
Thomson Reuters’ Eikon database, 129 firms
from the original sample had to be excluded
due to missing data. Consequently, we obtained
a final sample with complete data from an
unbalanced panel of 1,855 firm-year observa-
tions related to 371 family-owned and listed
SMEs from nine Middle Eastern countries out of
17 (Bahrain, Egypt, Jordan, Kuwait, Lebanon,
Qatar, Saudi Arabia, Turkey, and United Arab
Emirates). Data from the eight remaining coun-
tries either could not be accessed (Iran, Iraq,
Palestine, and Israel) or were incomplete
(Cyprus, Oman, Syria, and Yemen) due to politi-
cal and economic instability. Similar to previous
studies, an unbalanced panel reduces sample
selection bias and makes the results more repre-
sentative (Bruno 2005; Dkhil 2014).
The services sector comprises 23 percent of
the sample, whereas 7 percent of the firms are
from the industrial goods sector and only 3 per-
cent of firms are from the healthcare sector. Leb-
anon represents only 4 percent of the sample
weight, with the weights of all the other coun-
tries being distributed evenly (see Table 1).
For each year, the gender of board members
was determined from the company annual
reports available in the Thomson Reuters’ Data-
Stream database. Ethnicity was more difficult to
determine, but we have estimated ethnicity
through board member names listed in Eikon
and in the annual reports. People with particular
first and last names are likely to be from a cer-
tain ethnicity, especially in the Middle East. This
is a common method used locally to segregate a
person’s origins and culture.
Variables Measurement
We estimate that the gender diversity inde-
pendent variable (dichotomous adopted by Car-
ter et al. 2010) will be measured as a percentage
based on the total number of women serving on
the board. The ethnic minority variable will be
measured as a percentage based on the total
number of Western members in the boardroom
6 JOURNAL OF SMALL BUSINESS MANAGEMENT
(Erhardt, Werbel, and Shrader 2003). Western
members’ ethnicity is defined as ethnicity of
non-Middle Eastern origin (American, British, or
European). Middle Eastern women board mem-
bers were counted as ethnic minorities, not
women. We adopt the same procedure used by
Liu, Wei, and Xie (2014) by creating three
dummy variables, which take “1” for the pres-
ence of one woman (WO1)/one ethnic member
(ET1) in the boardroom and “0” otherwise; “1”
for the presence of two women (WO2)/two eth-
nic members (ET2) in the boardroom and “0”
otherwise; and “1” for the presence of three or
more women (WO3)/three ethnic members
(ET3) in the boardroom and “0” otherwise.
The firm-performance dependent variable
will be measured using Tobin’s Q (Q) market-
based value (Ali, Ng, and Kulik 2014; Fauzi and
Locke 2012). This metric is commonly used in
the existing literature to assess a firm’s wealth
€
and income (Tatli and Ozbilgin 2012). Tobin’s
Q was measured by dividing the total market
value of the firm’s shares by its total asset book
value.
Similar to previous studies (Adams and Ferre-
ira 2009; Liu, Wei, and Xie 2014), and in order
to reduce potential omitted variable bias, we
added control variables such as board size
(BSZ), CEO duality (DUA), natural log of total
assets (LOG), firm sales growth (GRO), and
leverage (LEV).
Results and Interpretations
Table 2 presents an overview of the descrip-
tive statistics of gender diversity and ethnicity.
The mean of the ethnic variable suggests that
14.88 percent of all board members are ethnic
minorities. 46 percent of the sample has at least
one ethnic minority director, with 13 percent,
10 percent, and 20 percent of boards having at
least one, two, or three ethnic members,
respectively.
Additionally, the mean of the inclusion of
women in the boardroom shows that 14.32 per-
cent of the board members are women and that
43 percent of the sample has at least one
woman on the board.
As for the control variables, the results show
a significant spread that avoids possible selec-
tion bias.
Table 3 presents a Pearson’s bivariate correla-
tion matrix. This highlights some multicollinearity
concerns, which are due to the women and ethnic
measurement scale adopted (Smith, Smith, and
 Table 1
Sample Distribution

BAH EGY JOR KUW LEB QAT SAA TKY UAE Total Sect. percent

Basic Materials 2 3 4 3 2 3 2 5 2 26 7 percent

Conglomerates 7 9 9 6 1 9 14 9 11 75 20 percent
Consumer Goods 5 4 3 7 1 2 2 3 3 30 8 percent
Financial 5 5 5 4 5 4 4 5 5 42 11 percent
Healthcare 1 2 1 2 0 2 1 1 1 11 3 percent
Industrial Goods 4 5 3 3 1 3 3 2 2 26 7 percent
Services 9 12 13 6 3 12 3 13 15 86 23 percent
Technology 3 4 3 3 1 4 2 5 4 29 8 percent
Utilities 5 4 6 4 2 4 7 8 6 46 12 percent
Total 41 48 47 38 16 43 38 51 49 371 100 percent
Weight 11 13 13 10 4 12 10 14 13 100
percent percent percent percent percent percent percent percent percent percent

SALLOUM, JABBOUR, AND MERCIER-SUISSA

7
 Table 2 (Munro 2005; Rousseeuw and Leroy 2005). This
technique may reduce simultaneity issues. The
Descriptive Statistics of Gender independent variables have been lagged for one
Diversity and Ethnicity year (Liu, Wei, and Xie 2014).
We adopt the token status theory developed
Variables Mean S.D. Median Min. Max. by Kanter (1977) and the critical mass theory
used in previous studies (Bratton 2005; Peso-
Panel A: Women Variables nen, Tienari, and Vanhala 2009) in order to pro-
Gender 14.32 22.34 7.06 0.00 85 pose three means: “one is a token,” which
DYWO 0.43 0.39 1.00 0.00 1.00 means that woman/ethnic minority can influ-
WO1 0.17 0.34 0.00 0.00 1.00 ence firm performance; “two is a presence,”
WO2 0.14 0.28 0.00 0.00 1.00 which means that women/ethnic minorities can
WO3 0.12 0.23 0.00 0.00 1.00 have more influence on firm performance; and
Panel B: Ethnic Variables “three is a voice,” which means that women/
Ethnicity 14.88 18.99 0.00 0.00 100 ethnic minorities have a greater influence on
DYET 0.46 0.48 0.00 0.00 1.00 firm performance. Timespan is one year and
ET1 0.13 0.29 0.00 0.00 1.00 financial performance expectation to increase is
ET2 0.10 0.32 0.00 0.00 1.00 the same year due to the financial market reac-
ET3 0.20 0.34 0.00 0.00 1.00 tion (listed companies). Investors react posi-
Panel C: Performance Variable tively and performance as well (market-based
Q 1.87 0.88 2.14 0.44 6.3 value, Tobin’s Q).
Panel D: Control Variables Each equation is run by replacing the main
GRO 48.23 19.01 41.87 254.43 87.11 independent variable (gender/ethnicity) by its
LEV 14.01 15.22 18.43 0.00 121 dummies (WO1, WO2, WO3/ET1, ET2/ET3).
LOG 12.84 4.32 14.01 3.52 19.89 Each variable is incorporated separately to
reduce the multicollinearity effect (Huse and
Solberg 2006).
Verner 2006). However, we will incorporate the The results show that only two women or
collinear independent variables in different more exercise a significant impact on firm
regression models in Table 4, which represents performance. This is associated with 0.125
the fixed-effects results for the number of women percent and 0.371 percent Tobin’s Q with an
and ethnic minorities and firm performance. increase of 1.96 percent that confirms our first
An appropriate panel data technique should hypothesis. The evidence is theoretically con-
be used to control variables’ individual hetero- sistent with the token status theory (Bratton
geneity in over-cross-sectional and time-series 2005; Torchia, Calabr o, and Huse 2011) and
data. Similar to Anselin (2013) and Ahn and critical mass theory (Kanter 1977). Our find-
Low (1996), we conduct the Breusch and Pagan ings are also similar to those of Singh, Terje-
(1980) test, which rejects variables’ individual sen, and Vinnicombe (2008) and Hillman,
effects. Those results are similar to the Hausman Shropshire, and Cannella (2007), who suggest
(1978) test performed. Thus, we adopt a fixed- that women have more influence on a male-
effects Q regression model, where Q is the dominated boardroom when there are three
Tobin’s Q for the firmi at timet; diversity is or more of them.
related to ethnicity, women, or any dummy vari- Additionally, the results show that one ethnic
ables (ET1, ET2, ET3, WO1, WO2, and WO3); member or two or more exercise a significant
and control variables are LEV, LOG, and GRO. impact on the firm performance, which is asso-
Mathematically,
ciated with 0.244 percent, 0.261 percent Tobin’s
X
n Q with an increase of 0.069 percent or with
Qit 5 a1 1 Diversityit21 1 b1 Controlsit21 three members and more, the financial perform-
i51 ance tends to decrease of 0.046 percent that
1 dit21 1 eit21 reject our second hypothesis. Our finding is sim-
ilar to that of Hillman, Shropshire, and Cannella
A robust regression across all assumptions has (2007) and to Carter et al. (2010). Western eth-
been used to reduce inequality of variables nic minority members may serve on multiple
boards, and then are more effective in

8 JOURNAL OF SMALL BUSINESS MANAGEMENT

 Table 3
Pearson’s Bivariate Correlation
Q DYWO DYET ET1 ET2 ET3 WO1 WO2 WO3 Ethnicity Gender GRO LOG LEV

Q 1
DYWO 0.134*** 1
DYET 0.110*** 0.627*** 1
ET1 0.139** 20.031 0.352*** 1
ET2 0.143** 0.311*** 0.363*** 20.14 1
ET3 0.039* 0.398*** 0.612*** 20.198 20.301 1
WO1 0.002 0.451*** 0.311*** 0.086*** 0.215*** 0.123*** 1
WO2 0.089*** 0.201*** 0.150*** 20.004 0.014 0.151*** 20.069 1
WO3 0.151*** 0.393*** 0.05 20.116 20.039 0.153*** 20.238 20.09 1
Ethnicity 0.068* 0.502*** 0.783*** 20.04 0.157*** 0.808*** 0.202*** 0.141*** 0.139*** 1
Gender 0.091*** 0.576*** 20.016 20.089*** 20.015 0.066** 20.10 0.006 0.791*** 0.061** 1
GRO 20.091** 0.024 0.029 20.002 0.071*** 20.013 20.02 0.051** 0.053** 0.03 0.031 1
LOG 0.091*** 0.004 0.043 0.051** 0.079*** 20.039 0.073*** 20.031 20.032 20.003 0.02 0.028 1
LEV 20.022 0.308*** 0.292*** 0.052* 0.131*** 0.210*** 0.015 0.081*** 0.191*** 0.269*** 0.217*** 0.029 20.05 1

SALLOUM, JABBOUR, AND MERCIER-SUISSA

*, **, ***, significant at the .10, .05, and .01 level, respectively.

9
 Table 4
Regression Analysis Q Models
Q Q Q Q Q Q

WO1 0.04
(20.45)
WO2 0.125*
(22.39)
WO3 0.371**
(23.01)
ET1 0.244**
(23.11)
ET2 0.261**
(23.11)
ET3 0.249**
(22.51)
GRO 22.352 25.1 25.932 24.882 23.921 0
(20.18) (20.29) (20.48) (20.39) (20.28) (20.12)
LOG 1.340*** 1.411*** 1.298*** 1.319*** 1.293*** 1.303***
(27.42) (26.54) (27.41) (27.22) (27.48) (27.71)
LEV 20.002 20.002 20.004 20.001 20.001 20.001
(20.09) (20.19) (20.39) (20.19) (20.27) (20.32)
Year Yes Yes Yes Yes Yes Yes
Cons 1.361*** 1.331*** 1.348*** 1.380*** 1.369*** 1.369***
25.12 24.02 23.99 24.12 24.01 23.84
Wald Chi2 42.08*** 38.81*** 39.66*** 41.31*** 25.12*** 46.23***
p-Value 0 0 0 0 0 0
Adjusted R2 0.25 0.25 0.25 0.25 0.25 0.26
N 1,855 1,855 1,855 1,855 1,855 1,855

*, **, ***, significant at the .10, .05, and .01 level, respectively.
T-statistics are mentioned in parentheses.

maintaining their image and less effective in
monitoring control.
Discussion
Our evidence, similar to studies by Konrad,
Kramer, and Erkut (2008) and Terjesen, Sealy,
and Singh (2009), shows that the inclusion of
more than one non-family woman member in
the boardroom positively influences the firm
financial performance. Despite strict Islamic law
in the region, societies are shifting, and Middle
Eastern women’s competences are earning soci-
ety’s respect. Their feminine traits and emo-
tional skills are perceived as a positive strategic
benefit in the boardroom decision-making pro-
cess. In contrast, consistent with Carter et al.’s
(2010) conclusion, our findings suggest that
firm financial performance tends to decline
when the members of an ethnic minority group
increase. Thus, demographic diversity may influ-
ence the firm financial performance negatively.
This is similar to the findings of Joecks, Pull,
and Vetter (2013) and Henry et al. (2015). Over-
all, our results provide interesting evidence on
firm performance and demographic diversity in
the boardroom.
Our sample may not be representative
enough to generalize our findings across non-
listed Middle Eastern firms. We did not differen-
tiate between women who were family or non-
family members, which could have led to differ-
ent results and which is an important area for
further research.
Our results have significant implications for
both theory and practice. First, our study pro-
vides theoretical implications by contributing to
the existing literature on the token status and

10 JOURNAL OF SMALL BUSINESS MANAGEMENT

critical mass theories. This is contrary to previ-
ous work, which is dominated by the agency
and interdisciplinary governance theories. Thus,
to some degree, our findings contribute to the
existing literature, which acknowledges that
women bring different expertise, knowledge,
and effectiveness to the board of directors and,
as a result, enhance firm performance (Ali, Ng,
and Kulik 2014; Carter et al. 2010). Second, our
evidence is particularly relevant in a region
where culture and religion play a crucial role in
managing an organization. In the Middle East,
the religious culture dramatically privileges men
over women; our study sheds further light on
how women could unbalance the inequality
between genders. Finally, our study could con-
tribute to Middle Eastern governments, policy-
makers, corporate boards, and religious leaders
by expressing that gender diversity and ethnic
diversity could bring vital resources to the effec-
tiveness of any organization, and thus to its per-
formance. Women are capable of leading and
managing effectively (McGowan et al. 2015).
They are able to take effective and sensible deci-
sions that increase the firm’s value. They are
more convincing and more self-assured than
men (Hamilton 2014).
Women still face stereotyping and discrimina-
tion. Future research should examine how mod-
erating factors such as religion and culture
could influence the effectiveness of demo-
graphic diversity in a firm’s boardroom, and
whether the appointment of a Western woman
CEO could positively enhance firm performance
in Middle Eastern SMEs.
Conclusions
The aim of this study was to contribute to the
existing literature about demographic diversity
on firms’ board of directors by focusing on how
performance differs in Middle Eastern SMEs.
This research represents an attempt to under-
stand how in Muslim-majority Middle Eastern
countries, women’s democratic participation is
likely to improve an organization’s value. We
believe that tokenism may in reality be less
severe in Middle Eastern countries, where
women are usually confronted with domestic
and family duties. Gender equality is one of the
main components of democracy, especially
when the Arab world is actually extending its
democratization process. However, our evidence
provides encouraging results which suggests
that Middle Eastern male-dominated boards are
SALLOUM, JABBOUR, AND MERCIER-SUISSA
not opposed to gender equality and board diver-
sity. Despite representing a small minority in the
region, Middle Eastern women are becoming
more confident, secure, visible, and influential in
socio-economic and civil society activities. The
presence of three or more Western ethnic minor-
ity group members is not perceived as critical to
the corporate board. They are appointed for rea-
sons of regional and international board reputa-
tion legitimacy, personal business agendas, and
links to the external corporate environment.
Multiculturalism on the board is paramount for
demographic diversity and thus for democracy.
Greater gender equality and ethnicity are essen-
tial in order to achieve strong and sustainable
growth in a multicultural and diverse society.
Gender equality is also a key driver in self-
reported well-being and happiness across the
world. Indeed, life satisfaction increases over
time as gender equality does (Veenhoven 2012).
References
Adams, R. B., and D. Ferreira (2009). “Women
in the Boardroom and Their Impact on Gov-
ernance and Performance,” Journal of
Financial Economics 94(2), 291–309.
Ahn, S. C., and S. Low (1996). “A Reformulation
of the Hausman Test for Regression Models
with Pooled Cross-Section-Time-Series Data,”
Journal of Econometrics 71(1), 309–319.
Ali, A. J. (2005). Islamic Perspectives on Man-
agement and Organization. Cheltenham:
Edward Elgar.
Ali, M., Y. L. Ng, and C. T. Kulik (2014). “Board
Age and Gender Diversity: A Test of Compet-
ing Linear and Curvilinear Predictions,” Jour-
nal of Business Ethics 125(3), 497–512.
Anselin, L. (2013). Spatial Econometrics: Meth-
ods and Models (Vol. 4). New York:
Springer Science & Business Media.
Ashourizadeh, S., and T. Schøtt (2013).
“Entrepreneurs’ Gender, Age and Education
Affecting Their Networks in Private and
Public Spheres: Denmark, Middle East and
North Africa,” International Journal of
Business and Globalisation 11(4), 380–398.
Bratton, K. A (2005). “Critical Mass Theory
Revisited: The Behavior and Success of
Token Women in State Legislatures,” Poli-
tics & Gender 1(01), 97–125.
Breusch, T. S., and A. R. Pagan (1980). “The
Lagrange Multiplier Test and Its Applications
to Model Specification in Econometrics,” The
Review of Economic Studies 47(1), 239–253.
11
Bruno, G. S. F. (2005). “Estimation and Infer-
ence in Dynamic Unbalanced Panel-Data
Models with a Small Number of Individu-
als,” Stata Journal 5(4), 473.
Campbell, K., and A. Mınguez-Vera (2008).
“Gender Diversity in the Boardroom and
Firm Financial Performance,” Journal of
Business Ethics 83(3), 435–451.
Carney, M. (2005). “Corporate Governance and
Competitive Advantage in Family-Controlled
Firms,” Entrepreneurship Theory and Prac-
tice 29(3), 249–265.
Carter, D. A., F. D’Souza, B. J. Simkins, and W.
G. Simpson (2010). “The Gender and Ethnic
Diversity of US Boards and Board Commit-
tees and Firm Financial Performance,” Cor-
porate Governance: An International
Review 18(5), 396–414.
Childs, S., and M. L. Krook (2008). “Critical
Mass Theory and Women’s Political Repre-
sentation,” Political Studies 56(3), 725–736.
Conyon, M. J., and C. Mallin (1997). “Women
in the Boardroom: Evidence from Large UK
Companies,” Corporate Governance: An
International Review 5(3), 112–117.
De Tocqueville, A. (1890). “Democracy in
America, Volume 1 (of 2),” History 1,
11–31.
Dezs€ o, C. L., and D. G. Ross (2012). “Does
Female Representation in Top Management
Improve Firm Performance? A Panel Data
Investigation,” Strategic Management Jour-
nal 33(9), 1072–1089.
Dkhil, I. B. (2014). “Investment in Fixed
Broadband Networks and Access Regulation
in Developed and Developing Countries:
Panel Data Applications,” paper presented
at University of Sousse/ Tunisia, Faculty of
Management and Economic Sciences of
Sousse, LAMIDED on October 16, 2014.
Available at http://mpra.ub.uni-muenchen.
de/59337/, accessed on January 5, 2016.
SSRN 2511514.
Erhardt, N. L., J. D. Werbel, and C. B. Shrader
(2003). “Board of Director Diversity and
Firm Financial Performance,” Corporate
Governance: An International Review
11(2), 102–111.
Fauzi, F., and S. Locke (2012). “Board Struc-
ture, Ownership Structure and Firm Per-
formance: A Study of New Zealand Listed-
Firms,” Asian Academy of Management
Journal of Accounting and Finance 8(2),
43–67.
12 JOURNAL OF SMALL BUSINESS MANAGEMENT
Freeland, R. E., and L. A. Keister (2014). “How
Does Race and Ethnicity Affect Persistence
in Immature Ventures?” Journal of Small
Business Management 54, 210–228. doi:
10.1111/jsbm.12138
Hamilton, E. (2014). “Entrepreneurial Narrative
Identity and Gender: A Double Epistemologi-
cal Shift,” Journal of Small Business Manage-
ment 52, 703–712. doi:10.1111/jsbm.12127
Harrison, R., C. Leitch, and M. McAdam (2015).
“Breaking Glass: Toward a Gendered Analy-
sis of Entrepreneurial Leadership,” Journal of
Small Business Management 53, 693–713.
doi:10.1111/jsbm.12180
Hausman, J. A. (1978). “Specification Tests in
Econometrics,” Econometrica: Journal of
the Econometric Society, 1251–1271.
Henry, C., L. Foss, A. Fayolle, E. Walker, and
S. Duffy (2015). “Entrepreneurial Leadership
and Gender: Exploring Theory and Practice
in Global Contexts,” Journal of Small Busi-
ness Management 53, 581–586. doi:
10.1111/jsbm.12174
Hillman, A. J., C. Shropshire, and A. A.
Cannella (2007). “Organizational Predictors
of Women on Corporate Boards,” Academy
of Management Journal 50(4), 941–952.
Huse, M., and A. Grethe Solberg (2006). “Gender-
Related Boardroom Dynamics: How Scandina-
vian Women Make And Can Make Contribu-
tions On Corporate Boards,” Women in
Management Review 21(2), 113–130.
Jamal, A. A., and M. A. Tessler (2008).
“Attitudes in the Arab World,” Journal of
Democracy 19(1), 97–110.
Joecks, J., K. Pull, and K. Vetter (2013).
“Gender Diversity in the Boardroom and
Firm Performance: What Exactly Constitutes
a ‘Critical Mass?’” Journal of Business Ethics
118(1), 61–72.
Kanter, R. M. (1977). “Some Effects of Propor-
tions on Group Life: Skewed Sex Ratios and
Responses to Token Women,” American
Journal of Sociology 965–990.
Konrad, A. M., V. Kramer, and S. Erkut (2008).
“Critical Mass: The Impact of Three or More
Women on Corporate Boards,” Organiza-
tional Dynamics 37(2), 145–164.
Liu, Y., Z. Wei, and F. Xie (2014). “Do Women
Directors Improve Firm Performance in
China?” Journal of Corporate Finance 28,
169–184.
Marimuthu, M., and I. Kolandaisamy (2009).
“Can Demographic Diversity in Top Man-
agement Team Contribute for Greater
 Financial Performance? An Empirical Dis-
cussion,” The Journal of International
Social Research 2(8), 273–286.
Masulis, R. W., C. Wang, and F. Xie (2012).
“Globalizing the Boardroom—The Effects of
Foreign Directors on Corporate Governance
and Firm Performance,” Journal of Account-
ing and Economics 53(3), 527–554.
McGowan, P., S. Cooper, M. Durkin, and C.
O’Kane (2015). “The Influence of Social and
Human Capital in Developing Young
Women as Entrepreneurial Business Lead-
ers,” Journal of Small Business Manage-
ment 53, 645–661. doi:10.1111/jsbm.12176
Miller, T., and M. del Carmen Triana (2009).
“Demographic Diversity in the Boardroom:
Mediators of the Board Diversity–Firm Per-
formance Relationship,” Journal of Manage-
ment Studies 46(5), 755–786.
Moghadam, V. M. (2004). “Patriarchy in Transi-
tion: Women and the Changing Family in
the Middle East,” Journal of Comparative
Family Studies 35(2), 137–162.
Munro, B. H. (2005). Statistical Methods for Health
Care Research (Vol. 1). Wilkins, PA: Lippincott
Williams & Wilkins.
Nguyen, H., and R. Faff (2007). “Impact of
Board Size and Board Diversity on Firm
Value: Australian Evidence,” Corporate
Ownership and Control 4(2), 24–32.
Nielsen, S., and M. Huse (2010). “The Contribu-
tion of Women on Boards of Directors: Going
beyond the Surface,” Corporate Governance:
An International Review 18(2), 136–148.
Okhuysen, G. A., and K. M. Eisenhardt (2002).
“Integrating Knowledge in Groups: How
Formal Interventions Enable Flexibility,”
Organization Science 13(4), 370–386.
Paulus, P. B., and B. A. Nijstad (Eds.). (2003).
Group Creativity: Innovation through Col-
laboration. Oxford: Oxford University
Press.
Pesonen, S., J. Tienari, and S. Vanhala (2009).
“The Boardroom Gender Paradox,” Gender
in Management: An International Journal
24(5), 327–345.
Ramirez, S. A. (2003). “Flaw in the Sarbanes-Oxley
Reform: Can Diversity in the Boardroom Quell
Corporate Corruption?” St. John’s L. Rev 77, 837.
Rousseeuw, P. J., and A. M. Leroy (2005). Robust
Regression and Outlier Detection. Hoboken,
NJ: Wiley.
Salloum, C., G. Azzi, C. Mercier Suissa, and S.
Khalil (2016). “The Impact of the Presence of
Women in Management on the Firms’
SALLOUM, JABBOUR, AND MERCIER-SUISSA
Performance,” International Journal of Entre-
preneurship and Small Business 27(2/3), 213–
246.
Singh, V., S. Terjesen, and S. Vinnicombe
(2008). “Newly Appointed Directors in the
Boardroom: How Do Women and Men Dif-
fer?” European Management Journal 26(1),
48–58.
Smith, N., V. Smith, and M. Verner (2006). “Do
Women in Top Management Affect Firm
Performance? A Panel Study of 2,500 Dan-
ish Firms,” International Journal of Pro-
ductivity and Performance Management
55(7), 569–593.
€
Tatli, A., and M. F. Ozbilgin (2012). “An Emic
Approach to Intersectional Study of Diver-
sity at Work: A Bourdieuan Framing,” Inter-
national Journal of Management Reviews
14(2), 180–200.
Terjesen, S., R. Sealy, and V. Singh (2009). “Women
Directors on Corporate Boards: A Review and
Research Agenda,” Corporate Governance: An
International Review 17(3), 320–337.
Torchia, M., A. Calabr o, and M. Huse (2011).
“Women Directors on Corporate Boards:
From Tokenism to Critical Mass,” Journal of
Business Ethics 102(2), 299–317.
Veenhoven, R. (2012). “Social Development
and Happiness in Nations (No. 2012-03).”
ISD Working Paper Series. Presentation at
Conference “Taking Stock: Measuring Social
Development” December 14-15, 2011, Inter-
national Institute of Social Studies, The
Hague. Retrieved January 6, 2016 from
http://hdl.handle.net/1765/50509.
Walls, J. L., P. Berrone, and P. H. Phan (2012).
“Corporate Governance and Environmental
Performance: Is There Really a Link?” Stra-
tegic Management Journal 33(8), 885–913.
Walt, N., and C. Ingley (2003). “Board Dynam-
ics and the Influence of Professional Back-
ground, Gender and Ethnic Diversity of
Directors,” Corporate Governance: An Inter-
national Review 11(3), 218–234.
Westphal, J. D., and L. P. Milton (2000). “How
Experience and Network Ties Affect the
Influence of Demographic Minorities on
Corporate Boards,” Administrative Science
Quarterly 45(2), 366–398.
Williams, J. C., and J. Dolkas (2012). “The Opt-
Out Revolution Revisited,” in Women Who
Opt Out: The Debate over Working Mothers
and Work-Family Balance. Ed. B. D. Jones.
New York: New York University Press, 151–
175.
13