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

Raj Aggarwal, Varun Jindal, Rama Seth

Research output: Contribution to journalJournal articleResearchpeer-review

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.
Original languageEnglish
Article number101600
JournalInternational Business Review
Volume28
Issue number6
Number of pages17
ISSN0969-5931
DOIs
Publication statusPublished - Dec 2019

Keywords

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

Cite this

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

In: International Business Review, Vol. 28, No. 6, 101600, 12.2019.

Research output: Contribution to journalJournal articleResearchpeer-review

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