Finance Faculty Publications and Presentations
Document Type
Article
Publication Date
3-2013
Abstract
We investigate whether diversity in points of view within corporate boards, as captured by the diversity in political ideology of board members, can affect a firm's performance. We employ personal political contributions' data to measure political ideology distance among groups of inside, outside directors and the CEO. Our empirical evidence strongly supports the notion that outside directors' monitoring effectiveness is more likely to be enhanced when their viewpoints are distinct from those of management. We find that ideologically diverse boards are associated with better firm performance, lower agency costs and less insiders' discretionary power over the firm's Political Action Committee (PAC) spending. Taken together, our results lead us to conclude that multiplicity of standpoints in corporate boardrooms is imperative for board effectiveness.
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Publication Title
Journal of Empirical Finance
DOI
10.1016/j.jempfin.2013.02.002
Recommended Citation
Kim, I., Pantzalis, C. and Park, J.C., 2013. Corporate boards' political ideology diversity and firm performance. Journal of Empirical Finance, 21, pp.223-240. https://doi.org/10.1016/j.jempfin.2013.02.002
Comments
Original published version available at https://doi.org/10.1016/j.jempfin.2013.02.002