Corporate Boards’ Political Ideology Diversity and Firm Performance

46 Pages Posted: 11 May 2012 Last revised: 24 Aug 2015

See all articles by Incheol Kim

Incheol Kim

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - College of Business and Entrepreneurship

Christos Pantzalis

University of South Florida

Jung Chul Park

University of South Florida

Date Written: May 10, 2012

Abstract

We investigate whether diversity in points of view in corporate boards, as captured by the diversity in political ideology of board members, can affect a firm’s performance. We employ personal political contributions’ data to measure political ideology distance among groups of inside, outside directors and the CEO. Our empirical evidence strongly supports the notion that outside directors’ monitoring effectiveness is more likely to be enhanced when their viewpoints are distinct from those of management. We find that ideologically diverse boards are associated with better firm performance, lower agency costs and less insiders’ discretionary power over the firm’s Political Action Committee (PAC) spending. Taken together, our results lead us to conclude that multiplicity of standpoints in corporate boardrooms is imperative for board effectiveness.

Keywords: Corporate board’s diversity, corporate governance, firm performance

JEL Classification: G34, L25

Suggested Citation

Kim, Incheol and Pantzalis, Christos and Park, Jung Chul, Corporate Boards’ Political Ideology Diversity and Firm Performance (May 10, 2012). Journal of Empirical Finance, Vol. 21, 2013, Available at SSRN: https://ssrn.com/abstract=2055800 or http://dx.doi.org/10.2139/ssrn.2055800

Incheol Kim

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - College of Business and Entrepreneurship ( email )

1201 W University Dr
Edinburg, TX 78539
United States

Christos Pantzalis (Contact Author)

University of South Florida ( email )

Tampa, FL 33620-5500
United States
(813) 974-3262 (Phone)

Jung Chul Park

University of South Florida ( email )

Tampa, FL 33620
United States
813-974-9680 (Phone)
813-974-3084 (Fax)

HOME PAGE: http://usf.edu/business/about/bios/park-jung-chul.aspx

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