Skip to main content
Disciplines
Automotive Business IT + Informatics Construction + Real Estate Electrical Engineering + Electronics Energy + Sustainability Insurance + Risk Finance + Banking Management + Leadership Marketing + Sales Mechanical Engineering + Materials
Events
DE
EN
Books
Journals
Topic Page
Marketing
Start single access now
Access for companies
EXTENDED SEARCH
Log in
Top
Published in:
Where Are the Shareholders’ Mansions? CEOs’ Home Purchases, Stock Sales, and Subsequent Company Performance Read chapter Read first chapter

2012 | OriginalPaper | Chapter

Board Diversity as a Shield During the Financial Crisis

Authors : Peter-Jan Engelen, Annette van den Berg, Gerwin van der Laan

Published in: Corporate Governance

Publisher: Springer Berlin Heidelberg

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

This chapter examines the link between board diversity and firm financial performance for a sample of Dutch listed companies during the recent financial crisis. We examine seven dimensions of diversity: nationality diversity, gender diversity, diversity with respect to the level of education, diversity with respect to the field of education, expertise diversity, socioeconomic background diversity and age diversity. Our empirical results show a hyperbolic relation between the focal variables age diversity, expertise diversity and background diversity and firm financial performance. We also find that gender diversity, nationality diversity and diversity with respect to education have no impact on firm performance during crisis times. Our empirical results show that focusing on only one dimension of the full diversity vector or on linear effects only can lead to detrimental economic effects.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

inform now
previous chapter Are Busy Boards Effective Monitors?
next chapter What Are Friends for? CEO Networks, Pay and Corporate Governance
Appendix
Available only for authorised users
Footnotes
1
The Netherlands have a two-tier board structure, consisting of a management board (Raad van Bestuur) in charge of the day-to-day operations of the firm and a supervisory board (Raad van Commissarissen). Dutch corporate law requires that all members of the supervisory board are non-executives.
 
2
This is not to say that the difference in diversity is the sole factor to explain the difference in the buy and hold return between both banks.
 
3
An alternative is the Teachman entropy measure (Teachman 1980). Instead of absolute proportions, this indicator uses a log-transformation. Essentially, the two indicators are very similar (Van der Laan et al. 2012).
 
4
Board size is also used in one-tier systems as a traditional corporate governance variable to measure the strength of monitoring (Yermack 1996). In our dataset the correlation between board size and relative board size is only −0.24, indicating that both variables are not substitutes for the strength of monitoring. In the empirical part board size has to be dropped from the regression model due to its high correlation with firm size (see infra).
 
5
In case of a missing data field for one or more board members, we cannot calculate the Blau indicator for this dimension. The company is therefore dropped from the dataset.
 
6
Regression results not presented here to save on space. Tables are available upon request.
 
Literature
Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94, 291–309.CrossRef
Adams, R. B., Hermalin, B. E., & Weisbach, M. S. (2010). The role of boards of directors in corporate governance: A conceptual framework and survey. Journal of Economic Literature, 48(1), 58–107.CrossRef
Agrawal, A., & Knoeber, C. R. (1996). Firm value and mechanisms to control agency problems between managers and shareholders. Journal of Financial and Quantitative Analysis, 31, 377–397.CrossRef
Agrawal, A., & Knoeber, C. R. (2001). Do some outside directors play a political role? Journal of Law and Economics, 44, 179–199.CrossRef
Ahern, K. R., & Dittmar, A. K. (2012). The changing of the boards: The impact on firm valuation of mandated female board representation. The Quarterly Journal of Economics, 127(1), 137–197.CrossRef
Bae, K.-H., Kang, J.-K., & Kim, J.-M. (2002). Tunneling or value added? Evidence from mergers by Korean business group. Journal of Finance, 57(6), 2695–2740.CrossRef
Bantel, K. (1993). Strategic clarity in banking: Role of top management team demography. Psychological Reports, 73, 1187–1203.CrossRef
Baysinger, B. D., & Butler, H. N. (1985). Corporate governance and the board of directors: Performance effects of changes in board composition. Journal of Law, Economics and Organization, 1(1), 101–124.
Beltratti, A., & Stulz, R. M. (2009). Why did some banks perform better during the credit crisis? A cross-country study of the impact of governance and regulation. NBER working paper series no. 15180.
Bhagat, S., & Black, B. (1999). The uncertain relationship between board independence and long term firm performance. The Business Lawyer, 54, 921–963.
Blau, P. M. (1977). Inequality and heterogeneity. New York: Free Press.
Bohren, O., & Strom, R. O. (2010). Governance and politics: Regulating independence and diversity in the board room. Journal of Business Finance and Accounting, 37(9/10), 1281–1308.CrossRef
Boone, C., Van Olffen, W., Van Witteloostuijn, A., & De Brabander, B. (2004). The genesis of top management team diversity: Selective turnover among top management teams in Dutch newspaper publishing, 1970–94. Academy of Management Journal, 47(5), 633–656.CrossRef
Booth, J. R., & Deli, D. N. (1999). On executives of financial institutions as outside directors. Journal of Corporate Finance, 5, 227–250.CrossRef
Brammer, S., Millington, A., & Pavelin, S. (2007). Gender and ethnic diversity among UK corporate boards. Corporate Governance: An International Review, 15(2), 393–403.CrossRef
Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. The Financial Review, 38, 33–53.CrossRef
Carter, D. J., D’Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5), 396–414.CrossRef
Chaganti, R. S., Mahajan, V., & Sharma, S. (1985). Corporate board size, composition and corporate failures in retailing industry. Journal of Management Studies, 22(4), 400–417.CrossRef
Daily, C. M., & Dalton, D. R. (1994). Bankruptcy and corporate governance: the impact of board composition and structure. Academy of Management Journal, 37(6), 1603–1617.CrossRef
Daily, C. M., & Dalton, D. R. (2003). Women in the boardroom: A business imperative. Journal of Business Strategy, 24(5), 8–10.
Dalton, D. R., Daily, C. M., Ellstrand, A. E., & Johnson, J. L. (1998). Meta-analytic reviews of board composition, leadership structure, and financial performance. Strategic Management Journal, 19(3), 269–290.CrossRef
Dalton, D. R., Daily, C. M., & Ellstrand, A. E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42(6), 674–687.CrossRef
Dowell, G. W. S., Shackell, M. B., & Stuart, N. V. (2011). Boards, CEOs, and surviving a financial crisis: Evidence from the internet shakeout. Strategic Management Journal, 32(10), 1025–1045.CrossRef
Durnev, A., & Kim, E. H. (2005). To steal or not to steal: Firm attributes, legal environment, and valuation. Journal of Finance, 60(3), 1461–1493.CrossRef
Engelen, P. J.,& Van Essen, M. (2010). Vulnerability to the financial crisis: The roles of firm- and country-level governance mechanisms in Europe. International corporate finance and governance conference, University of Twente, the Netherlands, 14–16 Oct 2010.
Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board of director diversity and firm financial performance. Corporate Governance: An International Review, 11(2), 102–111.CrossRef
Faccio, M., & Lang, L. H. P. (2002). The ultimate ownership of western European corporations. Journal of Financial Economics, 65(3), 365–395.CrossRef
Fahlenbrach, R., & Stulz, R. M. (2010). Bank CEO incentives and the credit crisis. Journal of Financial Economics, 99(1), 11–26.CrossRef
Falaye, O., Mehrotra, V., & Morck, R. (2006). When labor has a voice in corporate governance. Journal of Financial and Quantitative Analysis, 41(3), 489–510.CrossRef
Farrell, K. A., & Hersch, P. L. (2005). Additions to corporate boards: The effect of gender. Journal of Corporate Finance, 11, 85–106.CrossRef
Fauver, L., & Fuerst, M. E. (2006). Does good corporate governance include employee representation? Evidence from German corporate boards. Journal of Financial Economics, 82(3), 673–710.CrossRef
Goldman, E., Rocholl, J., & So, J. (2009). Do politically connected boards affect firm value? Review of Financial Studies, 22(6), 2331–2360.CrossRef
Hambrick, D. C., Cho, T. S., & Chen, M. J. (1996). The influence of top management team heterogeneity on firms’ competitive moves. Administrative Science Quarterly, 41(4), 659–684.CrossRef
Hermalin, B. E., & Weisbach, M. S. (2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Federal Reserve Bank of New York Economic Policy Review, 9, 7–26.
Judge, W. Q., & Zeithaml, C. P. (1992). Institutional and strategic choice perspectives on board involvement in the strategic decision process. Academy of Management Journal, 35(4), 766–794.CrossRef
Knight, D., Pearce, C. L., Smith, K. G., Olian, J. D., Sims, H. P., Smith, K. A., & Flood, P. (1999). Top management team diversity, group process, and strategic consensus. Strategic Management Journal, 20(5), 445–465.CrossRef
Kroszner, R. S., & Strahan, P. E. (2001). Bankers on boards: Monitoring, conflicts of interest, and lender liability. Journal of Financial Economics, 62(3), 415–452.CrossRef
Laux, V. (2008). Board independence and CEO turnover. Journal of Accounting Research, 46, 137–171.CrossRef
Milliken, F. J., & Martins, L. L. (1996). Searching for common threads: Understanding the multiple effects of diversity in organizational groups. Academy of Management Review, 21, 402–433.
Mitton, T. (2002). A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis. Journal of Financial Economics, 64(2), 215–241.CrossRef
Oxelheim, L., & Randoy, T. (2003). The impact of foreign board membership on firm value. Journal of Banking and Finance, 27, 2369–2392.CrossRef
Peng, M. W., & Jiang, Y. (2010). Institutions behind family ownership and control in large firms. Journal of Management Studies, 47(2), 253–273.CrossRef
Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: a resource dependence perspective. New York: Harper & Row.
Robinson, G., & Deschant, K. (1997). Building a business case for diversity. Academy of Management Executive, 11, 21–31.
Rose, C. (2007). Does female board representation influence firm performance? The Danish evidence. Corporate Governance: An International Review, 15(2), 404–413.CrossRef
Rosenstein, S., & Wyatt, J. G. (1990). Outside directors, board independence, and shareholder wealth. Journal of Financial Economics, 26(2), 175–191.CrossRef
Selby, C. C. (2000). From male locker room to coed board room: A twenty-five year perspective. In R. Burke & M. Mattis (Eds.), Women on corporate boards of directors (pp. 239–251). Dordrecht: Kluwer.
Shrader, C. B., Blackburn, V. B., & Iles, P. (1997). Women in management and firm financial performance: An exploratory study. Journal of Managerial Issues, 9(3), 355–372.
Siciliano, J. I. (1996). The relationship of board member diversity to organizational performance. Journal of Business Ethics, 15(12), 1313–1320.CrossRef
Teachman, J. D. (1980). Analysis of population diversity. Measures of qualitative variation. Sociological measures & research, 8(3), 341–362.
Van der Laan, G., Engelen, P. J., Van den Berg, A., & Jorissen, A. (2012). Measuring heterogeneity change in boards of directors under conditions of institutional constraints. Working paper, Utrecht University School of Economics.
Van der Walt, N., & Ingley, C. (2003). Board dynamics and the influence of professional background, gender and ethnic diversity of directors. Corporate Governance: An international review, 11(3), 218–234.CrossRef
Van Essen, M, Van Oosterhout, J. H., Carney, M. (2012). Corporate boards and the performance of Asian firms: A meta-analysis. Asia Pacific Journal of Management (forthcoming).
Williams, K. Y., & O’Reilly, C. A. (1998). Demography and diversity in organizations: A review of 40 years of research. In L. L. Cummings & B. M. Staw (Eds.), Research in organizational behavior 20 (pp. 77–140). Greenwich: JAI Press.
Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185–211.CrossRef
Metadata
Title
Board Diversity as a Shield During the Financial Crisis
Authors
Peter-Jan Engelen
Annette van den Berg
Gerwin van der Laan
Copyright Year
2012
Publisher
Springer Berlin Heidelberg
Book
Corporate Governance

Print ISBN: 978-3-642-31578-7

Electronic ISBN: 978-3-642-31579-4

Copyright Year: 2012

DOI
https://doi.org/10.1007/978-3-642-31579-4_11