Diversity in corporate boards and firm outcomes

Abstract

We examine firm performance effects of mindset diversity among corporate directors, proxied by diversity along religion and caste, a deep-rooted institution that divides India’s Hindu society into hundreds of communities. To identify directors’ caste, we build the first data-driven mapping of last names to religion and caste at different levels of granularity. Indian corporate boards strikingly lack diversity during 1999-2015. Lower board diversity worsens firm performance and value. The strongest negative effects are for the finest caste measure, along which mindsets are likely most similar. This shows that the estimated effects of diversity depend upon the granularity of its measure.