When does board diversity benefit shareholders? Strategic deadlock as a commitment to monitor

Alexander Ljungqvist () and Konrad Raff

No 15165, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We ask when and how a diverse board can benefit shareholders. Board diversity may be value-increasing even if some directors have agendas that are not perfectly aligned with shareholders’ interests. Diversity commits the board to a high information standard because directors with opposing agendas are deadlocked unless they have persuasive information in support of the optimal course of action. Since deadlock is costly, diversity strengthens directors’ incentives to gather information ex ante, which raises expected firm value. Diversity is more likely desirable if the firm's information environment is poor and if directors' opposing agendas are accompanied by sufficiently strong incentives for value maximization. However, if directors cannot credibly communicate their information, a homogeneous board dominates a diverse board.

Keywords: Boards of directors; Diversity; Monitoring; Deadlock (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-cfn, nep-hrm and nep-mic
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Citations: View citations in EconPapers (1)

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