Board Diversity and Cost of Equity (CoE)

67 Pages Posted: 9 Jul 2020

See all articles by Ashrafee T Hossain

Ashrafee T Hossain

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Lawrence Kryzanowski

Concordia University, Quebec - John Molson School of Business

Date Written: May 26, 2020

Abstract

We examine the effects of board diversity on corporate cost of equity (CoE). Using a composite index for diversity, we find that greater diversity leads to lower CoE. In further analysis, we report that this association is more prominent when the firm is experiencing lower internal (or external) monitoring or facing higher agency issues or suffering from greater financial constraints. Our results are robust to, e.g. propensity score matching; instrumental variable approach; use of alternate measures of CoE; use of additional (possibly influential omitted) variables, and various other sensitivity and endogeneity tests.

Keywords: Diversity, Board of Directors, Governance, Cost of Equity (CoE)

JEL Classification: G30, G32, G34

Suggested Citation

Hossain, Ashrafee T and Kryzanowski, Lawrence, Board Diversity and Cost of Equity (CoE) (May 26, 2020). Available at SSRN: https://ssrn.com/abstract=3627645 or http://dx.doi.org/10.2139/ssrn.3627645

Ashrafee T Hossain

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada

Lawrence Kryzanowski (Contact Author)

Concordia University, Quebec - John Molson School of Business ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

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