Is There Value in Diversity?: Examining the Linkage Between Corporate Board Diversity and Performance

Abstract

The value-in-diversity theory makes the case that diverse groups contribute to improved business performance in comparison to homogenous groups. Opposing theories argue that diversity actually impedes performance due to conflicting ideas. Using data on S&P 500 companies from the Institutional Shareholder Services database and Compustat’s Fundamentals Annual database, this paper tests three hypotheses that are assumed by the value-in-diversity theory. The hypotheses are that corporate board diversity is associated with increased revenue, net income, and net profit margin across S&P 500 firms. The results support two of the three hypotheses. Overall, I find that corporate board diversity is associated with increased revenue and net income across S&P 500 firms. Conversely, I find that corporate board diversity is associated with decreased net profit margin. The results also show that racial diversity is associated with over 15% higher revenue and net income across S&P 500 firms than gender diversity. Holistically, the findings of this paper make a case for increased corporate board diversity.