Work

Does board diversity in industry-experience boost firm value? The role of corporate innovation

Year: 2023

Type: article

Abstract: Previous studies examining board diversity disproportionately focus on directors' demographic features. In this paper, we construct a sophisticated measure of board diversity based on directors' industry-experience diversity (BIED) and examine its effect on firm value. Using a sample of S&P1500 firms, we find that higher BIED leads to higher firm value. This result survives both firm fixed effects and an instrumental variable approach, at least partially suggesting a causal relationship. We argue that a more diverse board brings more perspectives, viewpoints, knowledge and information to the firm, enhances directors’ capability of advising, and thus creates higher firm value. We further find one possible underlying economic mechanism through which BIED facilitates value creation. That is, BIED creates value by promoting corporate innovation. Overall, BIED constitutes a valuable corporate governance mechanism.

Source: Economic Modelling

DOI: 10.1016/j.econmod.2023.106504

Authors: Peng Huang, Yue Lu, Ji Wu

Institutions: University of Waikato, RMIT University, Massey University

Language: English

Topic: Gender Diversity and Inequality

Subfield: Gender Studies

Field: Social Sciences

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $2,630