Cultural Diversity in the Boardroom and Corporate Social Performance
44 Pages Posted: 5 Jun 2019
Date Written: May 17, 2019
We examine the impact of cultural diversity in corporate boards on a firm’s corporate social performance. Using a novel approach to identify a director’s cultural roots based on ancestry, we estimate the degree of cultural diversity at the board level. We find that board cultural diversity is positively associated with corporate social performance, consistent with the view that board cultural diversity enhances a firm’s ability to satisfy the needs of broader groups of stakeholders. The results are robust to addressing endogeneity concerns and the use of different culture frameworks. The positive relation between board cultural diversity and corporate social performance is particularly strong for firms that have higher needs for stakeholder management (i.e. firms that operate in industries with high visibility to consumers and in highly competitive industries) and for firms that have boards with strong positive diversity beliefs (captured using the board’s gender diversity, age diversity and independence).
Keywords: cultural diversity, corporate social responsibility, board of directors, board diversity, corporate social performance
JEL Classification: M14, G3, G34, G39
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