Racial, Ethnic and Gender Diversity on Boards of Directors: Implications for Profitability and Analyst Recommendations

• Other Authors: Daniels, Inger M. (author)
• Format: Others
• Language: English; English
• Published: Florida State University
• Subjects: Finance
• Online Access: http://purl.flvc.org/fsu/fd/2019_Spring_Daniels_fsu_0071E_15067

We examine the relationship between the share of ‘non-traditional’ members, such as African-Americans and women, present on a firm’s board of directors and firm value. We also explore the implications of the presence of non-traditional directors and sell-side analyst stock recommendations. Using data collected from Institutional Shareholder Services (ISS), publications such as Black Enterprise Magazine, the US Census, and internet searches, we assign ethnicities to board members of S&P 1,500 firms during 1996-2016. We find a convex relationship between the share of non-traditional directors and firm value: the share of non-traditional directors is negatively related to firm value at “token” levels of participation (no more than 15%); as the share of non-traditional directors moves beyond 25%, the total impact of non-traditional directors on firm value begins to turn positive. To address endogeneity concerns, we use the Sarbanes-Oxley Act and the Supreme Court 2003 Affirmative Action decision (Grutter v. Bollinger) as exogenous shocks to the supply and demand of non-traditional directors. Furthermore, we find non-traditional directors are more effective board members post-2003: their reduced board memberships, improved attendance record, and increased committee services may explain the enhanced impact of non-traditional directors on firm value after 2003. In a separate analysis, we find that firms with non-traditional board members are associated with lower analyst recommendations and a lower percentage of “buy” ratings on its stock. To address endogeneity concerns, we use an instrumental variable related to a firm’s board connectedness to non-traditional members on outside boards, and a diff-in-diff analysis of the addition of non-traditional directors to a firm’s board. We interpret our findings to suggest bias may exist in analyst recommendations associated with racial and gender diversity on boards of directors. === A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy. === Spring Semester 2019. === April 10, 2019. === Analysts, Board of Directors, Diversity, Firm Value === Includes bibliographical references. === Yingmei Cheng, Professor Directing Dissertation; Irene Padavic, University Representative; Baixiao Liu, Committee Member; Irena Hutton, Committee Member.