Social diversity in corporate boards and firm outcomes

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.

Automated summary

This study examines the relationship between firm performance and social diversity among corporate directors in India, using religion and caste as proxies for diversity. The study finds that Indian corporate boards were highly homogeneous during 1999-2015. Utilizing four instrumental variable strategies, the study reveals a negative association between board homogeneity and firm performance. This negative impact is attributed to the overlapping views and networks of caste-proximate directors, as well as cronyism that impairs their monitoring and advising roles.