TY - JOUR
T1 - Board Diversity and Firm Performance
T2 - The Role of Business Group Affiliation
AU - Aggarwal, Raj
AU - Jindal, Varun
AU - Seth, Rama
PY - 2019/12
Y1 - 2019/12
N2 - There is little consensus globally on the relationship between board diversity and firm performance. Using the resource dependence and agency views, this paper examines how business group affiliation influences the relationship between board diversity and firm performance as a contextual/confounding factor. Based on data for listed firms in India, we find that board demographic diversity is positively associated with the firm performance (Tobin’s Q) of standalone firms, but this association is negative for group-affiliated firms. This negative effect of group affiliation is confirmed in a test based on a novel measure of firm performance using the stock market reaction to the announcement of mergers and acquisitions. For both measures of performance, we show that business group affiliation impairs the positive firm value effects of board demographic diversity. These findings imply that the relationship between board diversity and firm performance requires re-examination in the many countries where group affiliation is common. Our results also provide evidence of a new cost of group affiliation and show in a fresh context that cross-country studies should account for international variations in ownership and institutional structures.
AB - There is little consensus globally on the relationship between board diversity and firm performance. Using the resource dependence and agency views, this paper examines how business group affiliation influences the relationship between board diversity and firm performance as a contextual/confounding factor. Based on data for listed firms in India, we find that board demographic diversity is positively associated with the firm performance (Tobin’s Q) of standalone firms, but this association is negative for group-affiliated firms. This negative effect of group affiliation is confirmed in a test based on a novel measure of firm performance using the stock market reaction to the announcement of mergers and acquisitions. For both measures of performance, we show that business group affiliation impairs the positive firm value effects of board demographic diversity. These findings imply that the relationship between board diversity and firm performance requires re-examination in the many countries where group affiliation is common. Our results also provide evidence of a new cost of group affiliation and show in a fresh context that cross-country studies should account for international variations in ownership and institutional structures.
KW - Board diversity
KW - Business groups
KW - Corporate governance
KW - India
KW - Institutional structure
KW - Mergers and acquisitions (M&A)
KW - Board diversity
KW - Business groups
KW - Corporate governance
KW - India
KW - Institutional structure
KW - Mergers and acquisitions (M&A)
U2 - 10.1016/j.ibusrev.2019.101600
DO - 10.1016/j.ibusrev.2019.101600
M3 - Journal article
SN - 0969-5931
VL - 28
JO - International Business Review
JF - International Business Review
IS - 6
M1 - 101600
ER -