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.
Original language | English (US) |
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Pages (from-to) | 588-612 |
Number of pages | 25 |
Journal | Journal of Financial Economics |
Volume | 127 |
Issue number | 3 |
DOIs | |
State | Published - Mar 2018 |
Keywords
- Board of directors
- Diversity
- Firm risk
- Governance
- Performance
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management