Benefits of Focus vs. Heterogeneity: An Analysis of Corporate Boards

44 Pages Posted: 23 Mar 2009 Last revised: 23 Jan 2013

See all articles by Anzhela Knyazeva

Anzhela Knyazeva

Independent; New York University (NYU) - Leonard N. Stern School of Business

Diana Knyazeva

Independent; Securities and Exchange Commission

Charu G. Raheja

Wake Forest University

Date Written: February 25, 2009


We study the costs and benefits of dispersion in directors’ incentives and ability within corporate boards. Director incentive is measured by their ownership in the firm and number of outside directorships help by each director. Director ability is measured based on the experience of directors in other industries and the age of the companies in other directorship appointments of each director. Directors exhibit a considerable amount of heterogeneity in their ownership in the firm, number of outside board appointments, and the characteristics of the other companies in which directors hold appointments. Firm and industry characteristics appear to affect the preference towards more versus less board heterogeneity. Board heterogeneity has significant effects on firm value and key firm decisions that cannot be explained by board composition, size, and expertise levels. Heterogeneity in director industry expertise is associated with lower firm value, which underscores the importance of focus in director appointments. Heterogeneity in director ownership incentives similarly has a negative effect on firm value. Heterogeneous boards compensate the CEO with less incentive pay and higher total pay. We also find that board heterogeneity is associated with lower cash holdings, higher dividends, and higher leverage.

Keywords: board characteristics, director heterogeneity, monitoring

JEL Classification: G30, G34

Suggested Citation

Knyazeva, Anzhela and Knyazeva, Diana and Raheja, Charu G., Benefits of Focus vs. Heterogeneity: An Analysis of Corporate Boards (February 25, 2009). AFA 2010 Atlanta Meetings Paper, Available at SSRN: or

New York University (NYU) - Leonard N. Stern School of Business ( email )

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Diana Knyazeva

Independent ( email )

Securities and Exchange Commission

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Washington, DC 20549
United States

Charu G. Raheja

Wake Forest University ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7659
United States

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