ABSTRACT

This study aims to provide empirical evidence about the effect of the board diversity on firm risk. Agency conflicts occured in Indonesian firms give attention to shareholders to determine the correct composition of the board of directors to minimize firm risk to maintain the company's sustainability. This research uses 556 observation of listed Indonesian firms for the year 2013-2015. This study reveals that board diversity derived from risk behaviors and networking contribute negative effect on firm risk, while board diversity derived from cognitive matters has no significant effect on firm risk. This study concludes that the diversity of the board of directors influences the risk of the company, so shareholders need to consider the composition of the board of directors appropriately so that decision-making by the board of directors really aims to maximize shareholders’ value and business continuity in the long term.

Keywords: Agency conflict, Board diversity, Firm risk