Cultural homophily in corporate boards and firm

Abstract

We show that boards of directors of large Indian firms are characterized by high levels of cultural proximity, with members on a board belonging overwhelmingly to the same religion or caste. Using a unique database of self-reported religions and caste from matrimonial websites, we develop a novel methodology to probabilistically map individuals’ last names to religions and castes. We also develop a new homophily index to measure cultural proximity of board members. Results show few signs of increase in cultural diversity on boards during 1999-2012. Modest heterogeneity exists across firms, sectors, and states, however. Better performing firms have more diverse boards. Board diversity also increased in sectors and states that witnessed the largest increases in output. Rigorous analysis demonstrates that lack of diversity on boards is causally associated with lower firm performance.