PurposeThe purpose of this study is to investigate the relationship between board diversity measured as relation-oriented, task-oriented and board overall diversity and firm’s investment efficiency.Design/methodology/approachThis study estimates four dimensions of board diversity, including age, gender, tenure and education. The four dimensions are further categorized in relation-oriented diversity (i.e. age and gender), task-oriented diversity (i.e. tenure and education) and overall board diversity (relation and task oriented). Panel data analysis is used to examine the board diversity–investment efficiency relationship in Chinese listed firms during the years 2003–2018. The findings of the study are robust to a battery of econometric techniques.FindingsThis study finds relation-oriented, task-oriented and overall diversity of a board curb investment inefficiency by discouraging sub-optimal investment (over- or under-investment). In other words, board diversity improves firms’ investment efficiency.Practical implicationsThe results suggest that board diversity plays a significant role in corporate decisions. The findings illustrate that board diversity disciplines the management, reduces agency conflicts and thereby improves corporate governance, resulting in higher investment efficiency.Originality/valueThis study has two important contributions. First, this study extends the prior literature of investment efficiency by considering socio-psychological dimension of the board diversity by constructing relation- and task-oriented diversity. Second, contrary to earlier studies on board diversity, this study takes four facets of board diversity, i.e. age, gender, education and tenure that improve corporate governance mechanism.