Board diversity and firm's risk-taking behaviour

Abstract

This study provides empirical evidence that firms with high board diversity engage in higher corporate risk-taling than do other firms. The results indicate that board diversity is positively associated with the variability of annual return on assets, Tobin's Q and their corresponding industry-adjusted measures. However, there is no significant relationship with the variability of monthly stock returns. Firm complexity mitigates that positive relationship, while growth opportunities increment it. These results are consistent with the view that increasing board diversity can bring diverse information, perspectives and talent to a board, and increase board independence. This can improve the advising and monitoring role of directors so that a board can engage in more thorough decision-making, act in the interests of shareholders, and make riskier but value-enhancing investments.