When Diversity Aligns: From Boardrooms to Supply Chains

Abstract

We find that ethnically diverse boards are more inclined to diversify their geographic supplier base, driven by the information advantage that ethnic minority directors possess in their culturally connected regions. Following the initial appointment of an ethnic minority director, a firm is 8.7% more likely to establish connections with suppliers from her culturally aligned regions. Leveraging a California bill as an exogenous shock to board ethnic diversity, we observe a 5.5% to 8.4% increase in supply chain diversification. This effect is more pronounced in firms with limited ex-ante knowledge about their suppliers, supporting the information advantage hypothesis. As a subsequent result of information enhancement, firms with ethnically diverse boards achieve greater inventory management efficiency.

Keywords: information advantage, ethnic diversity, supply chain, board of directors

JEL Classification: G30, G34, L14, M14, M41