Skip to main content Accessibility help
×
Home

Board Ancestral Diversity and Firm-Performance Volatility

  • Mariassunta Giannetti and Mengxin Zhao

Abstract

We proxy for board members’ opinions and values using directors’ ancestral origins and show that diversity has costs and benefits, leading to high performance volatility. Consistent with the idea that diverse groups experiment more, firms with ancestrally diverse boards have more numerous and more cited patents. In addition, their strategies conform less to those of the industry peers. However, firms with greater ancestral diversity also have more board meetings and make less predictable decisions. These findings suggest that diversity may lead to inefficiencies in the decision-making process and conflicts in the boardroom.

    • Send article to Kindle

      To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

      Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

      Find out more about the Kindle Personal Document Service.

      Board Ancestral Diversity and Firm-Performance Volatility
      Available formats
      ×

      Send article to Dropbox

      To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

      Board Ancestral Diversity and Firm-Performance Volatility
      Available formats
      ×

      Send article to Google Drive

      To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

      Board Ancestral Diversity and Firm-Performance Volatility
      Available formats
      ×

Copyright

Corresponding author

*Giannetti (corresponding author), mariassunta.giannetti@hhs.se, Stockholm School of Economics, Center for Economic Policy Research (CEPR), and European Corporate Governance Institute (ECGI); Zhao, zhaom@sec.gov, U.S. Securities and Exchange Commission.

Footnotes

Hide All
1

We thank an anonymous referee, Ken Ahern, Tom Bates, Alon Brav, Aiyesha Dey, Jarrad Harford (the editor), Andrew Karolyi, Alberto Manconi, Ron Masulis, David McLean, Joseph Pacelli, Oliver Spalt, and participants at the 2016 Association of Financial Economics/Allied Social Sciences Association meeting, the 2015 Ackerman Conference on Corporate Governance, the 2016 Society of Financial Studies Cavalcade, the U.S. Securities and Exchange Commission (SEC), the University of Rome III, the University of Lancaster, DePaul University, the University of Central Florida, and the Hong Kong Baptist University for comments. Giannetti acknowledges financial support from the Tom Hedelius and Jan Wallander Foundation. The SEC, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the SEC or of the author’s colleagues on the staff of the SEC.

Footnotes

References

Hide All
Ahern, K. R., and Dittmar, A. K.. “The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation.” Quarterly Journal of Economics, 127 (2012), 137197.
Alam, Z. S.; Chen, M. A.; Ciccotello, C. S.; and Ryan, H. E.. “Does the Location of Directors Matter? Information Acquisition and Board Decisions.” Journal of Financial and Quantitative Analysis, 49 (2014), 131164.
Alesina, A.; Giuliano, P.; and Nunn, N.. “On the Origins of Gender Roles: Women and the Plough.” Quarterly Journal of Economics, 128 (2013), 469530.
Alesina, A., and La Ferrara, E.. “Ethnic Diversity and Economic Performance.” Journal of Economic Literature, 43 (2005), 762800.
Alesina, A.; Michalopoulos, S.; and Papaioannou, E.. “Ethnic Inequality.” Journal of Political Economy, 124 (2016), 428488.
Algan, Y., and Cahuc, P.. “Inherited Trust and Growth.” American Economic Review, 100 (2010), 20602092.
Algan, Y.; Hemet, C.; and Laitin, D. D.. “The Social Effects of Ethnic Diversity at the Local Level.” Journal of Political Economy, 124 (2016), 696733.
Anderson, R. C.; Reeb, D.; Upadhyay, A.; and Zhao, W.. “The Economics of Director Heterogeneity.” Financial Management, 40 (2011), 538.
Arrow, K. Social Choice and Individual Values. New York, NY: John Wiley and Sons (1951).
Arrow, K. J. Collected Papers of Kenneth J. Arrow, Vol. 1: Social Choice and Justice. Cambridge, MA: Belknap Press (1984).
Ashraf, Q., and Galor, O.. “The ‘Out of Africa’ Hypothesis, Human Genetic Diversity, and Comparative Economic Development.” American Economic Review, 103 (2013), 146.
Ashraf, Q.; Galor, O.; and Klemp, M.. “Heterogeneity and Productivity.” Working Paper, Brown University (2015).
Bernile, G.; Bhagwat, V.; and Yonker, S. E.. “Board Diversity, Firm Risk, and Corporate Policies.” Journal of Financial Economics, 127 (2018), 588612.
Campbell, J. Y.; Lettau, M.; Malkiel, B. G.; and Xu, Y.. “Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk.” Journal of Finance, 56 (2001), 143.
Carhart, M.On Persistence in Mutual Fund Performance.” Journal of Finance, 52 (1997), 5782.
Desmet, K.; Ortuño-Ortín, I.; and Wacziarg, R.. “Culture, Ethnicity and Diversity.” American Economic Review, 107 (2017), 24792513.
Dichev, I. D., and Tang, V. W.. “Earnings Volatility and Earnings Predictability.” Journal of Accounting and Economics, 47 (2009), 160181.
Dohmen, T.; Falk, A.; Huffman, D.; and Sunde, U.. “The Intergenerational Transmission of Risk and Trust Attitudes.” Review of Economic Studies, 79 (2012), 645677.
Eisfeldt, A., and Kuhnen, C. M.. “CEO Turnover in a Competitive Assignment Framework.” Journal of Financial Economics, 109 (2013), 351372.
Ellahie, A.; Tahoun, A.; and Tuna, I.. “Do Common Inherited Beliefs and Values Influence CEO Pay?Journal of Accounting and Economics, 64 (2017), 346367.
Fama, E. F., and French, K. R.. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 356.
Fernandez, R.Does Culture Matter?” In Handbook of Social Economics, Vol. 1A, Benhabib, J., Jackson, M. O., and Bisin, A., eds. Amsterdam, Netherlands: North-Holland (2011).
Field, L.; Lowry, M.; and Mkrtchyan, A.. “Are Busy Boards Detrimental?Journal of Financial Economics, 109 (2013), 6382.
Finkelstein, S., and Hambrick, D. C.. “Top-Management-Team Tenure and Organizational Outcomes: The Moderating Role of Managerial Discretion.” Administrative Science Quarterly, 35 (1990), 484503.
Giannetti, M.; Liao, G.; and Yu, X.. “The Brain Gain of Corporate Boards: Evidence from China.” Journal of Finance, 70 (2015), 16291682.
Gompers, P. A.; Mukharlyamov, V.; and Xuan, Y.. “The Cost of Friendship.” Journal of Financial Economics, 119 (2016), 626644.
Gormley, T. A., and Matsa, D. A.. “Playing It Safe? Managerial Preferences, Risk, and Agency Conflicts.” Journal of Financial Economics, 122 (2016), 431455.
Guiso, L.; Sapienza, P.; and Zingales, L.. “Does Culture Affect Economic Outcomes?Journal of Economic Perspectives, 20 (2006), 2348.
Gul, F. A.; Srinidhi, B.; and Ng, A.. “Does Board Gender Diversity Improve the Informativeness of Stock Prices?Journal of Accounting and Economics, 51 (2011), 314338.
Guner, A. B.; Malmendier, U.; and Tate, G.. “Financial Expertise of Directors.” Journal of Financial Economics, 88 (2008), 323354.
Hofstede, G. Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations across Nations, 2nd ed. Thousand Oaks, CA: Sage (2001).
Inglehart, R. Modernization and Postmodernization: Cultural, Economic, and Political Change in 43 Societies. Princeton, NJ: Princeton University Press (1997).
Inglehart, R., and Baker, W.. “Modernization, Cultural Change, and the Persistence of Traditional Values.” American Sociological Review, 65 (2000), 1951.
Irvine, P. J., and Pontiff, J.. “Idiosyncratic Return Volatility, Cash Flows, and Product Market Competition.” Review of Financial Studies, 22 (2009), 11491177.
Kerr, W. R.Ethnic Scientific Communities and International Technology Diffusion.” Review of Economics and Statistics, 90 (2008), 518537.
Knyazeva, A.; Knyazeva, D.; and Masulis, R. W.. “The Supply of Corporate Directors and Board Independence.” Review of Financial Studies, 26 (2013), 15611605.
Kogan, L.; Papanikolaou, D.; Seru, A.; and Stoffman, N.. “Technological Innovation, Resource Allocation, and Growth.” Quarterly Journal of Economics, 132 (2017), 665712.
Liu, X.Corruption Culture and Corporate Misconduct.” Journal of Financial Economics, 122 (2016), 307327.
Masulis, R. W.; Wang, C.; and Xie, F.. “Globalizing the Boardroom—The Effects of Foreign Directors on Corporate Governance and Firm Performance.” Journal of Accounting and Economics, 53 (2012), 128.
Mateos, P. Names, Ethnicity and Populations. Tracing Identity in Space. Berlin, Germany: Springer (2014).
Page, S. E. The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies. Princeton, NJ: Princeton University Press (2007).
Pan, Y.; Siegel, S.; and Wang, T. Y.. “The Cultural Origin of Preferences: CEO Cultural Heritage and Corporate Investment.” Working Paper, University of Minnesota (2014).
Pan, Y.; Siegel, S.; and Wang, T. Y.. “Corporate Risk Culture.” Journal of Financial and Quantitative Analysis, 52 (2017), 23272367.
Pan, Y.; Wang, T. Y.; and Weisbach, M. S.. “Learning about CEO Ability and Stock Return Volatility.” Review of Financial Studies, 28 (2015), 16231666.
Ruggles, S.; Alexander, J. T.; Genadek, K.; Goeken, R.; Schroeder, M. B.; and Sobek, M.. “Integrated Public Use Microdata Series: Version 5.0.” Minneapolis, MN: University of Minnesota (2010).
Schwartz-Ziv, M., and Weisbach, M. S.. “What Do Boards Really Do? Evidence from Minutes of Board Meetings.” Journal of Financial Economics, 108 (2013), 349366.
Spolaore, E., and Wacziarg, R.. “The Diffusion of Development.” Quarterly Journal of Economics, 124 (2009), 469529.
Spolaore, E., and Wacziarg, R.. “How Deep Are the Roots of Economic Development?Journal of Economic Literature, 51 (2013), 325369.
Staiger, D., and Stock, J. H.. “Instrumental Variables Regression with Weak Instruments.” Econometrica, 65 (1997), 557586.
Stern, L.“A Learning-Based Approach to Evaluating Boards of Directors.” Working Paper, University of Washington (2015).
Stock, J., and Yogo, M.. “Testing for Weak Instruments in Linear IV Regression.” In Identification and Inference for Econometric Models: Essays in Honor of Thomas Rothenberg, Andrews, D. W. K., Stock, J. H., and Rothenberg, T. J., eds. New York, NY: Cambridge University Press (2005).
Wooldridge, J. M. Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press (2002).

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed