When Does Board Diversity Benefit Shareholders? Strategic Deadlock as a Commitment to Monitor

36 Pages Posted: 24 Sep 2020 Last revised: 2 Jun 2023

See all articles by Alexander Ljungqvist

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI)

Konrad Raff

Norwegian School of Economics (NHH)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2, 2023


We ask how and when a diverse board can benefit shareholders. Board diversity may be value-increasing even if some directors have agendas that are not perfectly aligned with shareholders' interests. Diversity commits the board to a high information standard because directors with opposing agendas are deadlocked unless they generate persuasive information in support of the optimal course of action. Moreover, diversity serves as a blocking device against directors' joint pursuit of private benefits. Consequently, diversity strengthens directors' incentives to gather information and can mitigate free-riding behavior. Our model predicts that diverse boards exhibit more disagreements, but also more information acquisition. Diversity is more likely desirable if the firm's information environment is poor and if directors have intermediate incentives for value maximization.

Keywords: Boards of Directors, Diversity, Monitoring, Deadlock, Moral hazard in teams

JEL Classification: G34

Suggested Citation

Ljungqvist, Alexander and Ljungqvist, Alexander and Raff, Konrad, When Does Board Diversity Benefit Shareholders? Strategic Deadlock as a Commitment to Monitor (June 2, 2023). Swedish House of Finance Research Paper No. 20-24, Available at SSRN: https://ssrn.com/abstract=3672521 or http://dx.doi.org/10.2139/ssrn.3672521

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR)

United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Konrad Raff (Contact Author)

Norwegian School of Economics (NHH) ( email )

Department of Finance
Helleveien 30
Bergen, 5045

HOME PAGE: http://sites.google.com/site/raffkonrad/

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