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When two tribes go to work: Board political diversity and firm performance

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  • Rockey, James
  • Zakir, Nadia

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.

Suggested Citation

  • Rockey, James & Zakir, Nadia, 2020. "When two tribes go to work: Board political diversity and firm performance," European Journal of Political Economy, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:poleco:v:63:y:2020:i:c:s0176268020300318
    DOI: 10.1016/j.ejpoleco.2020.101883
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    Cited by:

    1. Javidan, Mansour & Cotton, Rick & Kar, Anirban & Kumar, Medha Satish & Dorfman, Peter W., 2023. "A new leadership challenge: Navigating political polarization in organizational teams," Business Horizons, Elsevier, vol. 66(6), pages 729-740.

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    More about this item

    Keywords

    Diversity; Corporate governance; Political polarization; Firm performance; Ideology;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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