Board Diversity and Firm Performance: The Role of Business Group Affiliation

Raj Aggarwal, Varun Jindal, Rama Seth

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Resumé

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.
OriginalsprogEngelsk
Artikelnummer101600
TidsskriftInternational Business Review
Vol/bind28
Udgave nummer6
Antal sider17
ISSN0969-5931
DOI
StatusUdgivet - dec. 2019

Emneord

  • Board diversity
  • Business groups
  • Corporate governance
  • India
  • Institutional structure
  • Mergers and acquisitions (M&A)

Citer dette

@article{e793f03fd2314986b1f89f1713e72b76,
title = "Board Diversity and Firm Performance: The Role of Business Group Affiliation",
abstract = "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.",
keywords = "Board diversity, Business groups, Corporate governance, India, Institutional structure, Mergers and acquisitions (M&A), Board diversity, Business groups, Corporate governance, India, Institutional structure, Mergers and acquisitions (M&A)",
author = "Raj Aggarwal and Varun Jindal and Rama Seth",
year = "2019",
month = "12",
doi = "10.1016/j.ibusrev.2019.101600",
language = "English",
volume = "28",
journal = "International Business Review",
issn = "0969-5931",
publisher = "Pergamon Press",
number = "6",

}

Board Diversity and Firm Performance : The Role of Business Group Affiliation. / Aggarwal, Raj; Jindal, Varun; Seth, Rama.

I: International Business Review, Bind 28, Nr. 6, 101600, 12.2019.

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

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)

UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954926245534&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes

U2 - 10.1016/j.ibusrev.2019.101600

DO - 10.1016/j.ibusrev.2019.101600

M3 - Journal article

VL - 28

JO - International Business Review

JF - International Business Review

SN - 0969-5931

IS - 6

M1 - 101600

ER -