Examining the Moderating Role of Board Independence and Business Environment Dynamism on the Relationship between Board Diversity and the Marginal Value of Cash

Document Type : Original Article

Authors

1 Ph.D. Student in Accounting, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamedan, Iran.

2 Department of Accounting, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamadan, Iran

3 Associate Professor of Accounting, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamedan, Iran.

Abstract

Introduction: In recent years, the role of cash holdings in corporate financial decision-making has attracted increasing attention from researchers, as the efficiency with which firms utilize their cash resources can serve as an indicator of the quality of their financial management and corporate governance. Despite extensive studies on the financial determinants of the marginal value of cash, the non-financial dimensions-particularly the characteristics of the board of directors-have received comparatively little attention. Board diversity, by broadening the range of perspectives, skills, and experiences among directors, can influence the quality of decision-making and the allocation of financial resources. At the same time, board independence and the dynamism of the business environment may alter the strength and direction of this relationship. Accordingly, the present study aims to examine the effect of board diversity on the marginal value of cash and to explain the moderating roles of board independence and business environment dynamism in this relationship.



Methods: This study is applied in purpose and descriptive-correlational in methodology, employing a panel data approach. The statistical population consists of all firms listed on the Tehran Stock Exchange during the period 2007–2024. After applying selection criteria to ensure data homogeneity, 116 firms with a total of 2,088 firm-year observations were selected as the final sample. The dependent variable is the marginal value of cash, while the independent variable is board diversity. Board independence and business environment dynamism are included as moderating variables. Data analysis was conducted using a panel regression model controlling for year and industry fixed effects, and the generalized least squares (GLS) estimator with firm-level clustered standard errors was employed to address heteroskedasticity and within-firm correlation.



Results and discussion: The results of the regression models indicate that board diversity has a positive and significant effect on the marginal value of cash. Firms with more diverse boards - in terms of gender, education, experience, and professional background-demonstrate greater efficiency in utilizing their cash holdings. This finding supports the role of board diversity in enhancing decision-making quality and improving oversight of corporate financial policies. Moreover, the magnitude of this effect is stronger in firms with more independent boards. The independence of non-executive directors, by mitigating conflicts of interest and increasing the transparency of managerial decisions, contributes to a higher marginal value of cash. The results also reveal that business environment dynamism amplifies this relationship. In dynamic and rapidly changing markets, the positive impact of board diversity on the marginal value of cash becomes stronger, suggesting that in conditions of higher uncertainty and market volatility, firms with more diverse boards possess greater flexibility and responsiveness in financial decision-making. Conversely, in more stable environments or in firms with less independent boards, this relationship weakens or becomes insignificant. Additional robustness tests, using alternative operational definitions of the dependent variable, confirm the main findings and demonstrate the stability and reliability of the results.



Conclusions: The findings of this study indicate that board diversity enhances the marginal value of corporate cash by improving the efficiency of financial decision-making and managerial oversight. This effect becomes stronger in firms with more independent boards and in dynamic business environments. Accordingly, managers and financial policymakers are advised to focus on board diversity and independence as key value-creating factors when designing corporate governance structures.

Keywords

References

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Financial Management Perspective
Volume 15, Issue 3 - Serial Number 51
November 2025
Pages 78-100

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