Board diversity, firm risk, and corporate policies

Gennaro Bernile, Vineet Bhagwat and Scott Yonker

Journal of Financial Economics, 2018, vol. 127, issue 3, 588-612

Abstract: We examine the effects of diversity in the board of directors on corporate policies and risk. Using a multidimensional measure, we find that greater board diversity leads to lower volatility and better performance. The lower risk levels are largely due to diverse boards adopting more persistent and less risky financial policies. However, consistent with diversity fostering more efficient (real) risk-taking, firms with greater board diversity also invest persistently more in research and development (R&D) and have more efficient innovation processes. Instrumental variable tests that exploit exogenous variation in firm access to the supply of diverse nonlocal directors indicate that these relations are causal.

Keywords: Diversity; Board of directors; Governance; Firm risk; Performance (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (223)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:127:y:2018:i:3:p:588-612

DOI: 10.1016/j.jfineco.2017.12.009

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