When Two Tribes Go To Work: Board Political Diversity and Firm Performance

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Abstract

A substantial literature has studied how increased diversity in terms of gender, age, education, and race amongst members of firms’ boards affects decisions and performance. This paper studies whether ideological diversity in the boardroom affects firm performance. We find that whilst a board with a broader range of political opinions and beliefs is correlated with better performance ceteris paribus, that the causal impact of such an increase in diversity is negative and substantial. This negative effect is still present when diversity is measured excluding top management, and when diversity is defined in terms of the difference between firms’ management and non-executive directors. In conclusion we consider the implication of these findings given the recent growth in both political polarization and ideological segregation.

Figure 1: Impulse responses to an expansionary monetary shock in the New Keynesian model with fairness

Citation

Rockey, James and Nadia Zakir 2021. “When Two Tribes Go To Work: Board Political Diversity and Firm Performance” European Journal of Political Economy 63. https://doi.org/10.1016/j.ejpoleco.2020.101883 .