Board Diversity, Firm Risk, and Corporate Policies

97 Pages Posted: 18 Feb 2016 Last revised: 15 Jul 2017

See all articles by Gennaro Bernile

Gennaro Bernile

University of Miami - Department of Finance

Vineet Bhagwat

George Washington University - Department of Finance

Scott E. Yonker

Cornell University - Dyson School of Applied Economics and Management

Date Written: March 6, 2017

Abstract

We examine the effects of diversity in the board of directors on corporate policies and risk. Using a multi-dimensional 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 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.

Keywords: diversity, board of directors, risk, financial policies, innovation, performance

JEL Classification: G30, G32, G34

Suggested Citation

Bernile, Gennaro and Bhagwat, Vineet and Yonker, Scott E., Board Diversity, Firm Risk, and Corporate Policies (March 6, 2017). Available at SSRN: https://ssrn.com/abstract=2733394 or http://dx.doi.org/10.2139/ssrn.2733394

Gennaro Bernile (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Vineet Bhagwat

George Washington University - Department of Finance ( email )

2023 G Street
Washington, DC 20052
United States

Scott E. Yonker

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

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