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Diversity Matters: A Study on the Relationship between Board Career Diversity and Firm Performance

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  • Daniel Sungyeon Kim

    (CAU Business School, Chung-Ang University, Seoul 06974, Korea)

  • Hong Kee Sul

    (CAU Business School, Chung-Ang University, Seoul 06974, Korea)

Abstract

Are shareholders better off hiring directors with in-depth specialties in the company’s core business or hiring directors with broader perspectives? This study addresses the question by investigating the relationship between directors’ career diversity and firm performance. It employs Tobin’s Q, total shareholder return, and return on equity as measures of firm performance. Accordingly, board career diversity has a significant and positive effect on firm performance. Moreover, we find that board directors with diverse industry experiences create value for firms via advisory (e.g., R&D and capital expenditures) and monitoring (e.g., equity compensation) roles. Given that diversity in career matters, corporations can seriously consider board composition and promote career diversity among board members.

Suggested Citation

  • Daniel Sungyeon Kim & Hong Kee Sul, 2021. "Diversity Matters: A Study on the Relationship between Board Career Diversity and Firm Performance," Sustainability, MDPI, vol. 13(17), pages 1-24, August.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:17:p:9674-:d:623784
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    1. Yang, Hanping & Xue, Kunkun, 2023. "Board diversity and the marginal value of corporate cash holdings," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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