Corporate boards' political ideology diversity and firm performance

Incheol Kim, Christos Pantzalis and Jung Chul Park

Journal of Empirical Finance, 2013, vol. 21, issue C, 223-240

Abstract: We investigate whether diversity in points of view within corporate boards, as captured by the diversity in political ideology of board members, can affect a firm's performance. We employ personal political contributions' data to measure political ideology distance among groups of inside, outside directors and the CEO. Our empirical evidence strongly supports the notion that outside directors' monitoring effectiveness is more likely to be enhanced when their viewpoints are distinct from those of management. We find that ideologically diverse boards are associated with better firm performance, lower agency costs and less insiders' discretionary power over the firm's Political Action Committee (PAC) spending. Taken together, our results lead us to conclude that multiplicity of standpoints in corporate boardrooms is imperative for board effectiveness.

Keywords: Corporate board's diversity; Corporate governance; Firm performance (search for similar items in EconPapers)
JEL-codes: G34 L25 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:21:y:2013:i:c:p:223-240

DOI: 10.1016/j.jempfin.2013.02.002

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