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) |
|---|---|
| Pages (from-to) | 588-612 |
| Number of pages | 25 |
| Journal | Journal of Financial Economics |
| Volume | 127 |
| Issue number | 3 |
| DOIs | |
| State | Published - Mar 1 2018 |
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Keywords
- Board of directors
- Diversity
- Firm risk
- Governance
- Performance
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management
Cite this
Board diversity, firm risk, and corporate policies. / Bernile, Gennaro; Bhagwat, Vineet; Yonker, Scott.
In: Journal of Financial Economics, Vol. 127, No. 3, 01.03.2018, p. 588-612.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Board diversity, firm risk, and corporate policies
AU - Bernile, Gennaro
AU - Bhagwat, Vineet
AU - Yonker, Scott
PY - 2018/3/1
Y1 - 2018/3/1
N2 - 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.
AB - 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.
KW - Board of directors
KW - Diversity
KW - Firm risk
KW - Governance
KW - Performance
UR - http://www.scopus.com/inward/record.url?scp=85044645209&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85044645209&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2017.12.009
DO - 10.1016/j.jfineco.2017.12.009
M3 - Article
AN - SCOPUS:85044645209
VL - 127
SP - 588
EP - 612
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 3
ER -