Simultaneous board and CEO diversity: does it increase firm value?

Richard Borghesi, Kiyoung Chang and Jamshid Mehran

Applied Economics Letters, 2016, vol. 23, issue 1, 23-26

Abstract: There remain open questions regarding whether board of director ethnic and gender diversity increases or decreases firm value. Additionally, prior research has yet to examine the value effects of a diverse board in the presence of a gender/ethnic minority CEO. Using the KLD social ratings database, we examine 13 000 firm-years and provide robust evidence that board diversity increases firm value. However, we also show that any value added via board diversity is nullified when a diverse board operates in the presence of a female and/or minority CEO. Results suggest that a significant portion of the value in board diversity may come from gender/ethnic differences between the board members and the CEO. One implication of our study is that when hiring a CEO or electing directors relative gender/ethnic make-up is important.

Date: 2016
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DOI: 10.1080/13504851.2015.1047082

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