Diversity on the Board of Directors

Abstract

This current study focuses on the diversity of members on the board of directors. There exist many forms of diversity that affect firm financial and accounting performance as well as organizational behavior of board members. Furthermore, director heterogeneity could have both positive and negative effects on corporate boards. Nowadays, gender diversity is becoming increasingly important in a financial and management context. In the interest of promoting gender diversity, many governments around the world have enacted legislation requiring that state-owned and public companies respect pre-established quotas of women on their board of directors. Other countries have opted for an informal system in which state-owned and public companies must justify the absence of women on the board of directors. Even though there is still room for improvement, firms are taking steps toward fostering more diverse corporate boards. I execute an empirical analysis that examines director heterogeneity’s influence on the market value of U.S. firms. My results indicate that diversity’s positive effects are primarily driven by age. In conclusion, it is fair to say that the outlook for diversity on corporate boards seems to be positive.