Board Diversity and Corporate Performance: Family Firms vs Non- - - PowerPoint PPT Presentation

“Board Diversity and Corporate Performance: Family Firms vs Non-Family Firms” by Andriy Boytsun Discussant: Melsa Ararat Sabanci University

What the Paper is about?

• Studies the relation between board diversity and accounting performance in

family firms and non family firms

– RQ 1: Whether board diversity in listed family firms is related to performance in a manner different than that in non-family firms. – RQ 2: Whether different types of diversity have different consequences for firm performance.

• Two hypothesis

– TYPE 1 diversity is more associated with performance in family firms – TYPE 2 diversity is more associated with performance in family firms

• Conclusion: TYPE 1 diversity is more associated with performance in family firms

– Policy Implication: If diversity does matter for one type of firm but not for the other, targeted policies may work better

IV-Diversity

• TYPE 1 diversity (innate characteristics, possessed at birth?) :determine affective

conflict and board cohesion – Gender – Age – Nationality

• TYPE 2 diversity (acquired characteristics) : cognitive conflict (did you mean

substantive?) – Education type – Education level – Background – Functional expertise – International expertise Why are these characteristics cause conflict?

Theory on diversity > performance?

• Why are these characteristics have a different affect? What is the theory

behind this classification?

• “Affective” conflict refers to interpersonal disagreements and nearly always

disruptive, however, it is argued that affective conflict matters for performance because

– “Innately diverse groups are more stringent monitors” ( ref: Adams for gender) – “Presence of more than one generation may mitigate agency conflict” (?) – “In family firms Board’s monitoring role may be important due to a variety of agency problems” (?)>>>>> Hypothesis 1

• Acquired diversity (presented as the source of “cognitive” conflict) is argued

to be conducive to “ creativity and more thorough evaluation of decisions”! It is then argued that it matters for family firms more, because

– “They are guided by longer time horizons” ( ref: Hambrick et al: diversity has a negative affect when decisions ought to be made quickly) >>>> Hypothesis 2 The model is not based on a strong theoretical framework All diversity attributes are proxies for cognitive diversity which may lead to conflict of richness

Theory on Diversity > Family Firms? 3 arguments

• 1. Some wording issues, but argues that family firms

have weak governance, therefore they would benefit from better monitoring, hence diversity is good for them!

• 2. Family firms are more closely held(but your sample

consists of listed firms)and they may be constrained bin performing strategic roles. Diversity may help.

• 3. Family firms have longer horizons, diverse boards can

support long term strategies since they have less time constrain for decision making.

Measuring Innate Diversity?

• Gender Diversity: % of women (any firms with

>50% women?)

• Age diversity : coefficient of variation of

directors’ ages ( it measures the extent if variability in relation to the mean, however the means are different and the mean affects the

• utcome)
• National Diversity: Number of different

nationalities ( 1 German + 5 French = 3 German + 3 French?)

Diversity measures are problematic

Measuring Acquired Diversity?

• Education Type: 25 different types! (management, business,

marketing, business and technology, EMBA…)

• Education Level: 4 types
• Primary background: 6 types
• Functional expertise: 19 types
• International expertise: number of directors with international

experience Says: “calculated in the same way as national diversity” , but then : “education type diversity is measured by the number of directors with a distinct education type” (first one has the same problem as measurement of national diversity, second one measures variety, not diversity) A lawyer, who studied law, with a law background !

DATA?

• USING DATA ON continuously listed in Brussels

Stock Exchange between 2001-2008 (55 family versus 42 non-family firms)

• Hand collected data, but how? 1000 firms, say 7

members: 7000 CVs dating back to 2001?

• Sources of financial data?
• ROE and ROA, why not market performance?
• Limited control variables: Firm size (2 market cap

definitions in the table, Dummy variable for BEL- 20 and 4 categories, but you do not measure market performance), age, industry.

STATISTICS

• I don’t understand the descriptives;

– Number of observations change for each variable? – Background diversity: 1.48? – Education Type: 3.57 – “Family firms are more profitable”, family firms in this sample ! – “Innate characteristics significantly differ”, I don’t see that,

• 0.07 and 0.06 for gender, 1.34 and 1.53 for national diversity (we can’t

conclude that the difference significant by looking at the statistical significance of sample differences)

• If you are measuring variety, why do you scale it for board size?

– “Acquired characteristics”

• Family firms has more variety of education level; the explanation
• ffered is that founders are self made and did not go to university.

Perhaps their children have PhDs?

REGRESSIONS

• Regressions on innate diversity; Nothing

significant except gender which is the only meaningful measurement.

• On acquired diversity: Nothing

SUGGESTIONS

• IV: Diversity or variety?
• Theory, citations must be relevant.