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Social diversity in corporate boards and firm outcomes

Author

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  • Bhagavatula, Suresh
  • Bhalla, Manaswini
  • Goel, Manisha
  • Vissa, Balagopal

Abstract

We examine how firm performance is associated with social diversity among corporate directors, proxied by diversity along religion and caste, a deep-rooted institution dividing India’s Hindu society into hundreds of communities. To identify directors’ social identities, we build one of the first data-driven mappings of last names to caste and religion. We find that Indian corporate boards are strikingly homogeneous (i.e. lack diversity) during 1999–2015. Using four instrumental variable strategies, we find that board homogeneity is negatively related to firm performance. We find that the negative impact of board homogeneity is due to overlapping views and networks of caste-proximate directors and cronyism impairing their monitoring and advising roles.

Suggested Citation

  • Bhagavatula, Suresh & Bhalla, Manaswini & Goel, Manisha & Vissa, Balagopal, 2023. "Social diversity in corporate boards and firm outcomes," Journal of Corporate Finance, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:corfin:v:83:y:2023:i:c:s0929119923001487
    DOI: 10.1016/j.jcorpfin.2023.102499
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    More about this item

    Keywords

    Diversity; Firm performance; Corporate governance; Caste; Corporate culture;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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