Abstract
There is a significant debate on the real contribution of board diversity in corporate strategies. The objective of this study is to analyse the influence of board diversity on the disclosure process within a firm by focusing on risk reporting. The disclosure of this kind of information has become crucial in recent years in capital markets. Results show that gender and ethnic diversity in the boards positively influence the disclosure of information on risks. These findings contribute towards the debate about why diversity matters. Our study has important implications for the director-selection process since our results highlight the importance of considering the diverse background of board members. Regulators can also benefit from this evidence in order to issue recommendations and/or rules on the composition of boards of directors, as mechanisms to improve the disclosure practices of companies.
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Introduction
In the corporate governance literature, the concept of diversity refers to the variety in the composition of the board of directors (Kang et al. 2007). Board diversity has been a recent subject of discussions of best practices in corporate governance and has become an issue of major interest for firms, stakeholders and regulators. In theory, the quality of boards of directors is expected to improve with the diversity of their members (Harjoto et al. 2014) and, therefore, international governance codes support diversity in boards. Nevertheless, there is a significant debate on the real contribution of board diversity in corporate strategies and, in recent years, controversy has centred on whether and why diversity matters.
In the previous literature, diversity has been advocated as a means of improving organizational value by providing the board with new insights and perspectives (Carter et al. 2003). In addition, since the function of the board is to protect the interests of the various stakeholders of a firm, board members should be representative of these stakeholders (Huse and Rindova 2001). In this sense, prior research recognizes that diversity increases the board’s ability to understand the interests of stakeholders (Harjoto et al. 2014). Particularly, stakeholders generally demand the disclosure of useful information for their decision-making process. Since boards of directors are responsible for the disclosure practices and must be aware that adequate disclosure of information is essential to judge the opportunities and risks of investment (Al-Janadi et al. 2012), diverse boards can be expected to disclose value-relevant information for stakeholders in order to improve decision-making processes. Nevertheless, the influence of board diversity on disclosure practices still remains largely unexplored and requires further research since a firm disclosure strategy is crucial to satisfy its investors’ information needs and therefore reduce information asymmetries in the capital markets. This is a relevant issue for the understanding of the benefits of board diversity, since the previous literature generally assumes that voluntary disclosures help to improve transparency and enhance firm outcomes and market efficiency.
The objective of this study is to analyse the influence of board diversity on the disclosure process within a firm by focusing on risk reporting. In recent years, improvements in corporate risk disclosure have constituted an important part of the agenda for the reformation of corporate governance (Hernández-Madrigal et al. 2012) and information on risks has received a great deal of attention by regulators, academics and stakeholders in general. Corporate risk information is considered fundamental for both improving investment decisions and assisting in other stakeholders’ decision-making processes (Eccles et al. 2001; Oliveira et al. 2013). In theory, diverse boards are more sensitive to stakeholders’ concerns and therefore contribute towards an increase in risk disclosures.
The sample of this study is made up of the manufacturing firms that are listed in Standard and Poor’s (S&P) 500 in the year 2009. In order to measure the level of information, each annual report was individually and manually examined. Manual analysis allows an increase in the reliability in the coding process and in the quality of the results since it enables a better understanding of disclosures than any machine-based analysis (Milne and Adler 1999; Beattie and Thomson 2007). The selection of the year 2009 is particularly relevant in understanding the role of board diversity in the disclosure process, specifically in risk disclosures, for several reasons. First, the risk exposure was particularly high for the manufacturing industry, thereby enhancing information asymmetries. Second, periods of financial crisis may make listed firms place a greater emphasis on risk disclosure, and this can alleviate agency conflicts (Abraham and Cox 2007). Third, in 2009, several US organizations recognized an important concern regarding how companies should manage risk information and highlighted the need for boards of directors to understand the risks associated with a firm and to effectively convey them. Moreover, board diversity was explicitly considered by US regulators in 2009 as a mechanism to improve board effectiveness (SEC Release 33-9089). For the purpose of this study, three observable diversity characteristics of board members were analysed: gender, ethnicity and age.
These attributes remain a controversial issue in the US context. Despite the attention paid to gender diversity, recent figures consistently demonstrate that women are clearly underrepresented at the top of US firms (only about 20% of S&P 500 board seats are held by women) and organizations are feeling the pressure to change these numbers (Catalyst 2014; Hitt et al. 2017). Moreover, there is an ongoing debate concerning the benefits of ethnic diversity in the boardroom, and recent studies still claim that ethnic minorities are vastly underrepresented on the boards of directors of the largest US companies (Sappal 2016). In addition, at a time when the board refreshment of public companies and director diversity is a key concern of companies and stakeholders, the dispersion of age within the board has largely been ignored. Recent studies indicate that there is little dispersion in the average age of directors between different S&P 500 companies and that the average age of all boards was 62.4 (Barrett and Lukomnik 2017).
Our research is unique because the analysis of the effect of these diversity characteristics on corporate strategy is not common in the literature, and previous research on the influence of diversity on disclosure strategy is still inconclusive. Results show that gender and ethnic diversity in the boards positively influence the disclosure of information on risks. First, this paper extends corporate governance literature by providing a greater understanding of the potential value of board diversity and contributes towards the debate about why diversity matters in relation to firm strategies. Gender and ethnic diversity has an impact on corporate transparency by improving the disclosure of crucial information in the capital markets. Women and ethnic minorities can bring new perspectives and concerns to a board and may allow the environment of a firm to be better understood and the information needs of stakeholders to be better assessed. This study also contributes to the literature on disclosure, since previous research has mainly studied the relationship between risk disclosures and organizational characteristics (Khlif and Hussainey 2016), such as size and leverage, but they have failed to find a clear relationship between the board of directors and the disclosure of information on risks, whereby this constitutes a key element for the enhancement of corporate transparency and its associated benefits. Our findings highlight the importance of involving directors from different backgrounds in disclosure strategy and help towards understanding the reasons behind the disclosure of information on risks.
The remainder of the paper is organized as follows. The literature review and the hypotheses are presented in the next section. “Research method” section describes the sample and explains the research method. “Results” section discusses the results of the empirical analysis, and “Conclusions” section summarizes the contributions of the paper.
Previous literature
Diversity in boardrooms has received a great deal of attention in recent years for both regulators and academics. International organizations have considered diversity as an important goal in most of the reforms of governance codes (Buchwald 2017). In the USA, the Securities and Exchange Commission (SEC) has adopted specific rules that enforce listed companies to disclose whether and how board diversity is considered in the selection process of director nominees (SEC Release 33-9089 issued on 16 December 2009). An ongoing debate has been opened in the literature regarding the potential benefits of boards of greater diversity. Despite a growing literature on the relationship between board diversity and firm performance, the literature still lacks any demonstration of the effect of this diversity on the disclosure process. Nevertheless, the presence of directors of a higher diversity is expected to have an effect on board dynamics and therefore on corporate strategy. The idea that boardroom diversity affects organizational strategies generally arises from resource dependence theory (Pfeffer and Salancik 1978). A greater diversity of directors can bring critical resources to a firm, including different ideas, knowledge, experiences and business contacts (Westphal and Bednar 2005; Baranchuk and Dybvig 2009). These heterogeneous resources can facilitate better appreciation of the complexities of the organization’s external environment, and the decision-making process in boardrooms is expected to improve (Carter et al. 2003). Therefore, diverse directors can provide the board with a variety of experiences and knowledge that can help to implement better disclosure strategies, since it is the board of directors who enacts and oversees disclosure strategies and policies in corporate reports (Gul and Leung 2004; Haniffa and Cooke 2002). In line with this theory, the integration of diverse constituencies into the board improves the organization’s ability to obtain critical resources to cover stakeholders’ concerns (Hafsi and Turgut 2013). It is generally accepted that a diverse board promotes global relations in a more efficient manner (Robinson and Dechant 1997) and can imply a higher degree of commitment with stakeholders since these boards are best positioned to address the concerns of diverse stakeholders (Carroll and Buchholtz 2011).
Specifically, diversity can help the board to improve strategic decisions in relation to external stakeholders (Ali et al. 2014) by improving the disclosure of value-relevant information. The concept of value-relevant information is difficult to determine, but there are specific types of information that have become especially important for stakeholders. In particular, many countries have also encouraged the disclosure of information on risks, and current tendencies emphasize the increasing inclusion of risks and uncertainties in corporate reporting. Information on risks helps stakeholders to identify potential managerial problems and opportunities, and to assess management’s effectiveness in dealing with these issues (Lajili and Zéghal 2005). When a company discloses information on risks, it may be interpreted as a way to show their sensitivity to important influences, which can be in the long-term interests of stakeholders. In the USA, several organizations highlighted the role of board of directors in the improvement of risk reporting. In July 2009, the SEC proposed an enhancement in the disclosures regarding companies’ risk oversight practices and underlined the role of boards of directors in disclosure strategy. In October 2009, the National Association of Corporate Directors (NACD) provided guidance for the board in monitoring potential risks of a company and developing an effective communication of these risks. Moreover, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) also stressed the need for boards of directors to understand and manage the information about the risks of a company. Diverse directors have different human capital, and they are more sensitive to stakeholders’ concerns, and thus, in line with the arguments presented above, can improve the decision-making within a board in order to disclose more information on risks.
Previous research (Harrison et al. 1998; Kang et al. 2007) has traditionally considered two different categories of diversity: observable diversity, based on visible attributes of directors (ethnic background, gender and age), and non-observable diversity, based on less visible attributes (educational, functional and occupational backgrounds, industry experience). In this paper, three attributes of observable diversity are considered: gender, ethnicity and age.
An extent body of literature has focused on the role of gender diversity in the board of directors. It is increasingly accepted that diversity in gender makes a significant contribution to a board and the importance of gender diversity has been raised in the majority of corporate governance codes (Liao et al. 2015). The literature underlines that the presence of women on boards brings a fresh perspective on complex issues, and this can help in strategy formulation (Francoeur et al. 2008). Women may also help corporations to better understand and solve problems arising from the environment (Bear et al. 2010), for instance, those related to the increasing information needs of stakeholders. They offer resources that may allow a board to better understand the environment of a firm and to better assess the needs of stakeholders. The participation of women in management may positively influence an organization’s socially responsible behaviour (Barako and Brown 2008). Women also exhibit psychological characteristics that make them more likely to listen to the claims of certain stakeholders since they seem to be particularly sensitive to organizational practices in order to satisfy stakeholders’ demands (Zhang et al. 2013). These arguments point out that gender diversity enhances stakeholder management, and this should lead to an increase in the disclosure of value-relevant information. Therefore, we expect that boards with higher gender diversity are more likely to have better capabilities in order to perceive the need of disclosing information on risks and to promote the disclosure of this information as a valuable corporate strategy. Hence, the next hypothesis is formulated:
H1
Gender diversity leads to an increase in the disclosure of information on risks.
In addition, ethnic diversity brings a variety of backgrounds to boards which results in the ability to consider a broader range of issues and produces better decisions and ideas of a higher quality (Jackson 1992; McLeod et al. 1996). Ethnically diverse directors are also expected to improve the link between boards and the firm’s stakeholders since these directors can better understand the different environmental dependencies (Hafsi and Turgut 2013). The ability of an ethnically diverse board to provide legitimacy for the corporation with both external and internal constituencies is of particular relevance in countries such as the USA due to their increasing growth in the proportion of ethnic minority groups (Carter et al. 2010). The previous literature indicates that ethnic groups tend to be more collectivistic in their social orientations (Cox et al. 1991; Louis and Osemeke 2017), and, therefore, ethnically diverse directors may influence a board’s decision on better servicing stakeholders’ needs by improving disclosure practices. Therefore, we argue that ethnic diversity will enable boards to understand stakeholders’ needs about the disclosure of information on risks, and a higher ethnic diversity will influence decisions regarding the disclosure of this kind of information. Hence, the next hypothesis is formulated:
H2
Ethnic diversity leads to an increase in the disclosure of information on risks.
Traditionally, most boardroom positions have been shared by middle-aged to retirement-aged members; this perception is slowly changing, however, and there is an active promotion of age diversity in order to encourage the alternative perspectives of a variety of age groups (Kang et al. 2007). However, there is little empirical evidence on the effect of age diversity on corporate strategy, and age remains one of the most important observable background diversity issues for the board of directors. Age diversity is expected to provide a range of perspectives within the board and to lead to a more balanced decision-making process by taking into account the stakeholders needs (Kang et al. 2007; Aguilera and Jackson 2010). The attributes of younger and older directors complement one another, and this can help a board to improve its strategic decision-making (Ali et al. 2014). Younger directors tend to be more sensitive to environmental and ethical issues (Hafsi and Turgut 2013). On the other hand, older directors have valuable experience and knowledge accumulated in the industry (Jhunjhunwala and Mishra 2012; Li et al. 2011). Diversity in age allows the board to understand the variety of concerns and perspectives of the different types of stakeholders (Kang et al. 2007) and therefore should lead to an increase in the disclosure of value-relevant information. According to these arguments, we expect that boards with higher diversity in age will better assess stakeholders’ information needs and will promote the disclosure of information on risks, and hence the next hypothesis can be formulated:
H3
Age diversity leads to an increase in the disclosure of information on risks.
Research method
Sample and data
The sample of this study is composed of the companies listed on the Standard & Poor’s 500 Index in 2009 belonging to the manufacturing industry. The final sample is made up of 90 companies. These firms also exhibit a great separation between ownership and control, and voluntary disclosure is expected to be crucial in the reduction of the information gap between their management and stakeholders (Karamanou and Vafeas 2005). Only one industry was selected because each industry may display a different pattern of disclosure (Botosan 1997). The manufacturing sector is selected because it covers a large sector that faces a broad set of risk factors and risks to be managed (Linsley and Shrives 2006; Dobler et al. 2011). Only 1 year is studied since disclosure practices are expected to remain stable over time (Abraham and Cox 2007). As commented above, the year 2009 provides an interesting scenario to study the effect of board diversity in the US manufacturing firms on risk disclosures because of the high demand of this information from stakeholders, the pressure on boards of directors to improve risk reporting and the explicit consideration by the SEC of board diversity to improve board effectiveness.
The information about risk disclosures was obtained by carefully examining every annual report from 2009 and using manual content analysis techniques. Although sample size tends to be limited in studies using hand-collected data, manual textual content analysis has several advantages over computerized textual content analysis. For example, it allows researchers to better interpret the meaning of specific words and phrases (Deumes 2008). Machine-based procedures introduce problems related to subjectivity in the identification of key words, due to synonyms and words with multiple meanings (Smith and Taffler 2000). For these reasons, it has been argued that electronic word searches are not as reliable as manual readings of the annual reports (Milne and Adler 1999). This may relate to the fact that to understand disclosure, the whole sentence needs to be considered, while individual words are unlikely to convey much meaning (Beattie and Thomson 2007). Moreover, when the subject is complex, for example, “information on risks”, more classification rules and more interpretation skills are required to measure the disclosures, thus making the use of manual content analysis convenient (Abed et al. 2016). In fact, manual content analysis has been adopted in a number of studies on risk disclosures (Beretta and Bozzolan 2004; Lajili and Zéghal 2005; Linsley and Shrives 2006; Abraham and Cox 2007; Elzahar and Hussainey 2012; Miihkinen 2013; Ntim et al. 2013; Carmona et al. 2016; Al-Maghzom et al. 2016 Cordazzo et al. 2017).
Annual reports were downloaded from the companies’ websites. Data about directors were extracted from the Risk Metrics Directors database, which is commonly used in empirical research on board characteristics and board diversity (Srinidhi et al. 2011; Carter et al. 2010; Harjoto et al. 2014). A total number of 933 directors were examined. Data regarding company characteristics were obtained from Compustat.
Risk disclosure level
This paper focuses on the voluntary risk disclosures in firms’ annual reports. The annual report is considered to be the most important source of information for stakeholders (Lang and Lundholm 1993; Lehavy et al. 2011; Al-Janadi et al. 2012) and is commonly employed in studies that use content analysis to measure the level of voluntary disclosure. This report is the most reliable source of information to gather all corporate communications on risk issues during an entire year, and the researcher can be certain of the completeness of annual data, as well as its consistency (Gray et al. 1995; Hanson and White 2004).
The level of risk disclosures (RD_level) is calculated through the number of sentences with risk information (Linsley and Shrives 2006; Oliveira et al. 2011; Dobler et al. 2011; Elzahar and Hussainey 2012; Hassan 2014). In line with disclosure literature and with recent risk disclosure studies (Beretta and Bozzolan 2004; Linsley and Shrives 2006; Abraham and Cox 2007; Amran et al. 2009; Dobler et al. 2011; Hassan 2014), the sentence is considered as the unit of analysis in this paper. Sentences as coding units appear to be more reliable than do words since words cannot be interpreted and coded without the context of a sentence (Milne and Adler 1999; Linsley and Shrives 2006).
The definition provided by Linsley and Shrives (2006, p. 389) is adopted in this paper for the identification of risk-related sentences in the annual reports. These authors refer to risk disclosures as “any opportunity or prospect, or of any hazard, danger, harm, threat or exposure, that has already impacted upon the company or may impact upon the company in the future or of the management of any such opportunity, prospect, hazard, harm, threat or exposure”. Likewise, other researchers have based their work on similar definitions of risk in order to design a measure of the level of this information (Amran et al. 2009; Dobler et al. 2011; Elzahar and Hussainey 2012; Cordazzo et al. 2017).
Content analysis is used in this paper, and every annual report is manually coded by looking for risk-related sentences. Since content analysis is inevitably subjective, the reliability of the coding method needs to be analysed in order to draw valid conclusions (Krippendorff 1980). Initially, the main criteria for the coding process were discussed by two researchers and several rules were set up to minimize ambiguity (Linsley and Shrives 2006). Two annual reports, randomly selected from the sample, were initially examined independently by two different researchers, and the results on the reliability of the coding process satisfactory (Linsley and Shrives,2006; Abraham and Cox 2007).
Board diversity
Following Harrison et al. (1998) and Harjoto et al. (2014), diversity in gender and ethnicity was measured using a Blau index of heterogeneity, calculated as \(1 - \sum {Pi^{2} }\), where P is the proportion of individuals (directors) in a category and i is the number of categories. GENDER is the index of heterogeneity for gender with two categories: male and female. ETHNIC is the index of heterogeneity for race with five categories: Asian, Black, Caucasian, Hispanic and Native American. Consistent with the previous studies, age was measured in years, and the coefficient of variation was used to capture diversity in age (AGE).
Control variables
Based on the previous literature and specific meta-analyses of risk disclosure studies (Khlif and Hussainey 2016), several variables that are considered to be related to the disclosure of this kind of information were also included in the statistical analysis. According to these studies, four variables, which are expected to be positively associated with risk reporting, are included: corporate size (SIZE), leverage ratio (LEV), profitability (PROF) and board independence (BIND). According to agency theory, larger firms will have a higher number of stakeholders and the disclosure of a higher level of risk-related information serves to explain the causes and the management of high risk and mitigate information asymmetries (Hassan 2009; Dobler et al. 2011). Corporate size is measured by the log of the total assets of a company (in millions of dollars). On the other hand, agency costs are greater for highly leveraged firms, which need to disclose more information to satisfy creditors’ needs (Jensen and Meckling 1976; Hassan 2009; Dobler et al. 2011). The leverage ratio is calculated as total debt to total assets. Furthermore, firms with a high profitability have greater incentives to signal the quality of their performance and their ability to manage risks successfully (Elshandidy et al. 2013). Profitability is measured by the return on equity. Finally, under an agency perspective, independent directors are expected to reduce agency problems and thus lessen the need for regulatory intervention in corporate reporting (Abraham and Cox 2007). Board independence is represented by the percentage of independent directors on the board.
Results
The descriptive statistics are reported in Table 1, and the Pearson coefficients for the main variables included in the model are shown in Table 2. Every company discloses information on risks in their annual reports. On average, companies release over 16 risk-related sentences in their annual report. The average board is diverse in gender, but it is largely homogeneous in ethnicity. The variability in the values of gender and ethnic diversity is high. Gender diversity is higher than ethnic diversity since the majority of the firms have women in their boards, but there are several firms whose boards are composed only of Caucasian directors (and therefore there is no diversity in ethnicity). The diversity in age is relatively low for the firms included in our sample. Most of the explanatory variables also show a significant variability. In relation to the correlation analysis, the disclosure of information on risks is positively associated with gender and ethnic diversity. All the control variables show the expected correlation with the level of risk disclosures. The presence of multicollinearity is discarded since the correlation values among independent variables are low. In general, multicollinearity is considered to be a problem if a correlation is higher than 0.7 (Cooper and Schindler 2003).
Table 3 contains the results obtained in the multivariate analysis. Ordinary least squares (OLS) regressions were performed, and several models were estimated in order to test the hypothesis of the paper. The dependent variable in each model is the disclosure of information on risks. The F test shows that all the models are statistically significant at 1%. Column 1 includes only control variables for risk disclosures that have been traditionally considered in prior literature. The objective of this model is to confirm that there are no contradictory findings with previous studies, which could affect analysis at a later stage. The results indicate that, for our sample, leverage and profitability positively affect the disclosure of information on risks. Firms characterized by a high leverage ratio tend to be riskier, and they may be more likely to provide information on risks in order to show their financial position and reduce agency costs with their debt holders. Furthermore, for a high-profitability firm, risk disclosure may reduce uncertainty regarding future cash flows and economic environment, which will have a positive effect on the firm’s valuation.
On the other hand, Columns 2, 3 and 4 individually include every variable related to board diversity. As a sensitivity analysis, Column 5 includes all the variables related to board diversity and all the control variables together. These models confirm that board diversity affects the disclosure of information on risks. In particular, boards with a higher diversity in gender and ethnicity are more likely to disclose information on risks. Gender diversity and ethnic diversity are significantly associated with the disclosure of information on risks, at the 10 and 5% levels, respectively. This information has become crucial for assisting the various stakeholders’ decision-making processes, and its disclosure is promoted by boards with a higher gender and ethnic diversity. Boards that are gender and ethnically diverse are more aware of stakeholders concerns and this would affect corporate strategies. In particular, diverse directors may better understand the importance of satisfying stakeholders’ needs in relation to the disclosure of information on risks. The presence of women and different ethnicities in the boards appears to be significant for the disclosure of this kind of information.
Nevertheless, there is no association between age diversity and risk disclosures. Several explanations are suggested for these findings. First, the variation in age is relatively low for the companies in our sample. Moreover, the presence of young directors in these companies is low. The average age of a director on a board in our sample is almost 63 years old. The demand for information on risks has become especially significant for stakeholders in recent years, and precisely, it is the younger directors who are expected to be more sensitive to stakeholders.
However, in an OLS model, endogeneity concerns may arise due to omitted unobservable variables (Adams and Ferreira 2009). Consistent with the previous literature (Carter et al. 2010; Amer Al-Jaifi et al. 2017; Gordini and Rancati 2017), an additional analysis based on a two-stage least squares (2SLS) method to control for endogeneity is employed. This method requires the use of instrumental variables that are related to the endogenous independent variable and unrelated to the dependent variable (Larcker and Rusticus 2010). Exogenous instruments require that they are determined outside of the model and not correlated with the error (exclusion condition). In this study, two instrumental variables are used to predict the board diversity: firm age and board interlocks. The previous literature has documented an association between both variables and board diversity (Miller and del Carmen Triana 2009; Joecks et al. 2013). Firm age is measured as the number of years the company has existed in 2009. The variable board interlocks are calculated as the average number of board memberships a board member holds besides the one on the board under consideration. Table 4 shows the results from the 2SLS regression analysis. The Sargan test confirms the validity of the instrumental variables. Moreover, in line with the findings reported in the OLS regressions, both gender and ethnic diversity appear to be positively related to the disclosure of information on risks. The association between these variables is significant at the 5% level. Therefore, hypotheses H1 and H2 are supported.
Conclusions
The potential advantages and disadvantages of diversity have been widely discussed in the literature. Board diversity remains a controversial issue, and there is an ongoing debate on the effects of diversity in the boardroom (Galia et al. 2017; Lending and Vähämaa 2017). Some studies have claimed that those board members placed as tokens for diversity in ethnicity and gender make only marginal contributions. Nevertheless, an increasing stream of research advocates that diverse boards are more sensitive to stakeholders’ concerns and that this may have an effect on corporate strategy. Effective stakeholder management is a critical requirement for the success of a firm (Harjoto et al. 2014). In particular, this study demonstrates that gender and ethnic diversity has a positive effect on the disclosure of information on risks, since this kind of information is extremely value-relevant for all the stakeholders of a firm.
This paper responds to the unanswered question in the existing literature in relation to the effects of board diversity on disclosure strategies, which is a significant issue given the relevance of voluntary disclosure in capital markets. In particular, risk information is considered fundamental in the markets to provide assistance for the majority of the stakeholders in their decision-making processes. Understanding the influence of diversity on corporate strategy is important for academics, organizations and regulators. Our findings contribute towards the debate about why diversity matters. Our study has significant implications for the director-selection process since our results highlight the relevance of considering the diverse background of board members. Regulators can also benefit from this evidence in order to issue recommendations and/or rules on the composition of boards of directors, as mechanisms to improve the disclosure practices of companies.
There are limitations inherent in this study. One of the common handicaps of studies that employ content analysis of annual reports by using hand-collected data is the sample size. However, manual analysis increases the reliability of the coding process and leads to a higher quality of the results. In the disclosure literature, a number of previous studies analyse samples of a similar size (Abraham and Cox 2007; Oliveira et al. 2011; Elzahar and Hussainey 2012; Hassan 2014; Salehi and Shirazi 2016; Neifar and Jarboui 2017). This research focuses only on demographic diversity for US large companies. Nonetheless, these findings create encouraging opportunities for future research. First, research on this topic may be extended by analysing different institutional contexts. Second, different kinds of voluntary disclosures can be analysed. Additionally, researchers may also examine the influence of other directors’ characteristics related to the diversity of board members.
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Bravo, F. Does board diversity matter in the disclosure process? An analysis of the association between diversity and the disclosure of information on risks. Int J Discl Gov 15, 104–114 (2018). https://doi.org/10.1057/s41310-018-0040-4
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DOI: https://doi.org/10.1057/s41310-018-0040-4