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Board diversity and corporate investment oversight

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  • Harjoto, Maretno A.
  • Laksmana, Indrarini
  • Yang, Ya-wen

Abstract

Drawn from theories in group diversity and group performance, this study examines the association between board diversity, measured in both relation-oriented dimension (i.e., gender, race, and age) and task-oriented dimension (i.e., tenure and expertise), and board performance in corporate investment oversight. We assess suboptimal investment by measuring how much firms deviate from the expected level of capital expenditures, R&D expenses, and acquisition spending within their industry. Using a sample of 15,125 firm-year across 1898 firms from 1998 to 2014, we find that task-oriented diversity attributes, such as tenure and expertise, are negatively associated with suboptimal investment, suggesting that diverse boards in terms of firm specific experience and functional expertise are more effective in overseeing corporate investment activities than homogeneous boards. Our results shed light on the recent regulatory requirements on board diversity and recommend greater task-oriented diversity in corporate boardrooms.

Suggested Citation

  • Harjoto, Maretno A. & Laksmana, Indrarini & Yang, Ya-wen, 2018. "Board diversity and corporate investment oversight," Journal of Business Research, Elsevier, vol. 90(C), pages 40-47.
    • Handle: RePEc:eee:jbrese:v:90:y:2018:i:c:p:40-47
    DOI: 10.1016/j.jbusres.2018.04.033
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    More about this item

    Keywords

    Board diversity; Board effectiveness; Board composition; Corporate investment oversight;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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