IDEAS home Printed from https://ideas.repec.org/a/eee/poleco/v63y2020ics0176268020300318.html
   My bibliography  Save this article

When two tribes go to work: Board political diversity and firm performance

Author

Listed:
  • Rockey, James
  • Zakir, Nadia

Abstract

A substantial literature has studied how increased diversity in terms of gender, age, education, and race amongst members of firms' boards affects decisions and performance. This paper studies whether ideological diversity in the boardroom affects firm performance. We find that whilst a board with a broader range of political opinions and beliefs is correlated with better performance ceteris paribus, that the causal impact of such an increase in diversity is negative and substantial. This negative effect is still present when diversity is measured excluding top management, and when diversity is defined in terms of the difference between firms' management and non-executive directors. In conclusion we consider the implication of these findings given the recent growth in both political polarization and ideological segregation.

Suggested Citation

  • Rockey, James & Zakir, Nadia, 2020. "When two tribes go to work: Board political diversity and firm performance," European Journal of Political Economy, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:poleco:v:63:y:2020:i:c:s0176268020300318
    DOI: 10.1016/j.ejpoleco.2020.101883
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0176268020300318
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejpoleco.2020.101883?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. David Autor & David Dorn & Gordon Hanson & Kaveh Majlesi, 2020. "Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure," American Economic Review, American Economic Association, vol. 110(10), pages 3139-3183, October.
    2. Bonica Adam, 2016. "Avenues of influence: on the political expenditures of corporations and their directors and executives," Business and Politics, De Gruyter, vol. 18(4), pages 367-394, December.
    3. David A. Matsa & Amalia R. Miller, 2013. "A Female Style in Corporate Leadership? Evidence from Quotas," American Economic Journal: Applied Economics, American Economic Association, vol. 5(3), pages 136-169, July.
    4. Anzhela Knyazeva & Diana Knyazeva & Ronald W. Masulis, 2013. "The Supply of Corporate Directors and Board Independence," Review of Financial Studies, Society for Financial Studies, vol. 26(6), pages 1561-1605.
    5. Bernile, Gennaro & Bhagwat, Vineet & Yonker, Scott, 2018. "Board diversity, firm risk, and corporate policies," Journal of Financial Economics, Elsevier, vol. 127(3), pages 588-612.
    6. Marcelo J. Moreira, 2003. "A Conditional Likelihood Ratio Test for Structural Models," Econometrica, Econometric Society, vol. 71(4), pages 1027-1048, July.
    7. Chen, Jie & Leung, Woon Sau & Goergen, Marc, 2017. "The impact of board gender composition on dividend payouts," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 86-105.
    8. Stephen Ansolabehere & James M. Snyder, 2006. "Party Control of State Government and the Distribution of Public Expenditures," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 547-569, December.
    9. Adams, Renée B. & Ferreira, Daniel, 2009. "Women in the boardroom and their impact on governance and performance," Journal of Financial Economics, Elsevier, vol. 94(2), pages 291-309, November.
    10. Ian Gregory‐Smith & Brian G.M. Main & Charles A. O'Reilly III, 2014. "Appointments, Pay and Performance in UK Boardrooms by Gender," Economic Journal, Royal Economic Society, vol. 124(574), pages 109-128, February.
    11. Alford, John R. & Funk, Carolyn L. & Hibbing, John R., 2005. "Are Political Orientations Genetically Transmitted?," American Political Science Review, Cambridge University Press, vol. 99(2), pages 153-167, May.
    12. Lauren Cohen & Joshua Coval & Christopher Malloy, 2011. "Do Powerful Politicians Cause Corporate Downsizing?," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1015-1060.
    13. Lorenz Goette & David Huffman & Stephan Meier, 2006. "The Impact of Group Membership on Cooperation and Norm Enforcement: Evidence Using Random Assignment to Real Social Groups," American Economic Review, American Economic Association, vol. 96(2), pages 212-216, May.
    14. Andrea Weber & Christine Zulehner, 2014. "Competition And Gender Prejudice: Are Discriminatory Employers Doomed To Fail?," Journal of the European Economic Association, European Economic Association, vol. 12(2), pages 492-521, April.
    15. Abhijit Banerjee & Esther Duflo & Maitreesh Ghatak & Jeanne Lafortune, 2013. "Marry for What? Caste and Mate Selection in Modern India," American Economic Journal: Microeconomics, American Economic Association, vol. 5(2), pages 33-72, May.
    16. Huang, Jiekun & Kisgen, Darren J., 2013. "Gender and corporate finance: Are male executives overconfident relative to female executives?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 822-839.
    17. Ronald C. Anderson & David M. Reeb & Arun Upadhyay & Wanli Zhao, 2011. "The Economics of Director Heterogeneity," Financial Management, Financial Management Association International, vol. 40(1), pages 5-38, March.
    18. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 715-753.
    19. David Albouy, 2013. "Partisan Representation in Congress and the Geographic Distribution of Federal Funds," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 127-141, March.
    20. Sila, Vathunyoo & Gonzalez, Angelica & Hagendorff, Jens, 2016. "Women on board: Does boardroom gender diversity affect firm risk?," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 26-53.
    21. Bonica, Adam, 2016. "Avenues of influence: on the political expenditures of corporations and their directors and executives," Business and Politics, Cambridge University Press, vol. 18(4), pages 367-394, December.
    22. Lee, Jongsub & Lee, Kwang J. & Nagarajan, Nandu J., 2014. "Birds of a feather: Value implications of political alignment between top management and directors," Journal of Financial Economics, Elsevier, vol. 112(2), pages 232-250.
    23. Kim, Incheol & Pantzalis, Christos & Park, Jung Chul, 2013. "Corporate boards' political ideology diversity and firm performance," Journal of Empirical Finance, Elsevier, vol. 21(C), pages 223-240.
    24. Shaun P. Hargreaves Heap & Daniel John Zizzo, 2009. "The Value of Groups," American Economic Review, American Economic Association, vol. 99(1), pages 295-323, March.
    25. Isaiah Andrews, 2016. "Conditional Linear Combination Tests for Weakly Identified Models," Econometrica, Econometric Society, vol. 84, pages 2155-2182, November.
    26. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cardillo, Giovanni & Onali, Enrico & Torluccio, Giuseppe, 2021. "Does gender diversity on banks' boards matter? Evidence from public bailouts," Journal of Corporate Finance, Elsevier, vol. 71(C).
    2. Gattai, Valeria & Natale, Piergiovanna & Rossi, Francesca, 2023. "Board diversity and outward FDI: Evidence from europe," Economic Modelling, Elsevier, vol. 120(C).
    3. Yongqiang Chu & Xinming Li & Daxuan Zhao, 2023. "Gender Diversity: From Wall Street to Main Street," Journal of Business Ethics, Springer, vol. 188(1), pages 151-168, November.
    4. Young Zik Shin & Jeung-Yoon Chang & Kyeongmin Jeon & Hyunpyo Kim, 2020. "Female directors on the board and investment efficiency: evidence from Korea," Asian Business & Management, Palgrave Macmillan, vol. 19(4), pages 438-479, September.
    5. Mollah, Sabur & Liljeblom, Eva & Mobarek, Asma, 2021. "Heterogeneity in independent non-executive directors' attributes and risk-taking in large banks," Journal of Corporate Finance, Elsevier, vol. 70(C).
    6. Huang, Peng & Lu, Yue & Wu, Ji, 2023. "Does board diversity in industry-experience boost firm value? The role of corporate innovation," Economic Modelling, Elsevier, vol. 128(C).
    7. Schopohl, Lisa & Urquhart, Andrew & Zhang, Hanxiong, 2021. "Female CFOs, leverage and the moderating role of board diversity and CEO power," Journal of Corporate Finance, Elsevier, vol. 71(C).
    8. Xing, Lu & Gonzalez, Angelica & Sila, Vathunyoo, 2021. "Does cooperation among women enhance or impede firm performance?," The British Accounting Review, Elsevier, vol. 53(4).
    9. Upadhyay, Arun, 2023. "Rising board gender diversity and incentives of female directors," Journal of Corporate Finance, Elsevier, vol. 80(C).
    10. Tanaka, Takanori, 2019. "Gender diversity on Japanese corporate boards," Journal of the Japanese and International Economies, Elsevier, vol. 51(C), pages 19-31.
    11. Simona Comi & Mara Grasseni & Federica Origo & Laura Pagani, 2020. "Where Women Make a Difference: Gender Quotas and Firms’ Performance in Three European Countries," ILR Review, Cornell University, ILR School, vol. 73(3), pages 768-793, May.
    12. Faccio, Mara & Marchica, Maria-Teresa & Mura, Roberto, 2016. "CEO gender, corporate risk-taking, and the efficiency of capital allocation," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 193-209.
    13. García Lara, Juan Manuel & García Osma, Beatriz & Mora, Araceli & Scapin, Mariano, 2017. "The monitoring role of female directors over accounting quality," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 651-668.
    14. Nemmara K. Chidambaran & Yun Liu & Nagpurnanand Prabhala, 2022. "Director diversity and inclusion: At the table but in the game?," Financial Management, Financial Management Association International, vol. 51(1), pages 193-225, March.
    15. Greene, Daniel & Intintoli, Vincent J. & Kahle, Kathleen M., 2020. "Do board gender quotas affect firm value? Evidence from California Senate Bill No. 826," Journal of Corporate Finance, Elsevier, vol. 60(C).
    16. Shoham, Amir & Lee, Sang Mook & Khan, Zaheer & Tarba, Shlomo Y. & Ahammad, Mohammad Faisal, 2020. "The effect of board gender diversity on cross-listing," Journal of Corporate Finance, Elsevier, vol. 65(C).
    17. Yu, Chang, 2023. "Board gender diversity and investment inefficiency," Journal of Economics and Business, Elsevier, vol. 124(C).
    18. Jarkko Peltomäki & Jukka Sihvonen & Steve Swidler & Sami Vähämaa, 2021. "Age, gender, and risk‐taking: Evidence from the S&P 1500 executives and market‐based measures of firm risk," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1988-2014, October.
    19. Bayly, Nicholas & Breunig, Robert & Wokker, Chris, 2023. "Female Board Representation and Corporate Performance: A Review and New Estimates for Australia," IZA Discussion Papers 16617, Institute of Labor Economics (IZA).
    20. Fang,Sheng & Goh,Chorching & Roberts,Mark & Xu,L. Colin & Zeufack,Albert G., 2020. "Female Business Leaders, Business and Cultural Environment, and Productivity around the World," Policy Research Working Paper Series 9275, The World Bank.

    More about this item

    Keywords

    Diversity; Corporate governance; Political polarization; Firm performance; Ideology;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:poleco:v:63:y:2020:i:c:s0176268020300318. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505544 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.