Board Nationality Diversity and Firm Value

Chen, Jing; Dedman, Elisabeth; Kim, Ja Ryong; Metwally, Tarek; Stark, Andrew W.

Abstract

Using management, finance and social psychology theories, we challenge the common perception that demographic diversity on boards of directors is unequivocally beneficial for firms. Employing a sample of 3826 UK firm‐years, we analyse the dual nature of nationality diversity, recognizing its potential to contribute expertise and reduce groupthink, while also posing risks of conflict and reduced cohesion. We construct measures of the positive and negative aspects of diversity to provide robust evidence that nationality diversity‐as‐variety within a board of directors is positively associated with firm value, whereas diversity‐as‐separation has a negative moderating effect on this relationship. Additionally, board longevity weakens the negative effects of diversity‐as‐separation. This comprehensive approach improves our understanding of the complex relationship between board diversity and firm performance. Our results are informative for researchers because they demonstrate the importance of adopting less simplistic diversity measures in empirical studies. They are also instructive for policymakers, who can benefit from a more nuanced understanding of the issues raised when firms are mandated to increase demographic diversity on their boards. Finally, our study provides information to boards to help them maximize the benefits of diversity while minimizing potential costs.

Citation

Chen, J., Dedman, E., Kim, J. R., Metwally, T., & Stark, A. W. (2024). Board Nationality Diversity and Firm Value. British Journal of Management, https://doi.org/10.1111/1467-8551.12872

• Journal Article Type: Article
• Acceptance Date: Sep 9, 2024
• Online Publication Date: Oct 10, 2024
• Publication Date: Oct 10, 2024
• Deposit Date: Sep 30, 2024
• Publicly Available Date: Oct 15, 2024
• Journal: British Journal of Management
• Print ISSN: 1045-3172
• Electronic ISSN: 1467-8551
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1111/1467-8551.12872
• Public URL: https://nottingham-repository.worktribe.com/output/40253948
• Publisher URL: https://onlinelibrary.wiley.com/doi/10.1111/1467-8551.12872
• Additional Information: Received: 2022-11-12; Accepted: 2024-09-09; Published: 2024-10-10