Social Diversity in Corporate Boards and Firm Outcomes

The authors examine how firm performance is associated with social diversity among corporate directors, proxied by diversity along religion and caste, a deep-rooted institution dividing India’s Hindu society into hundreds of communities. To identify directors’ social identities, the authors build one of the first data-driven mappings of last names to caste and religion. The authors find that Indian corporate boards are strikingly homogeneous (i.e. lack diversity) during 1999-2015. Using four instrumental variable strategies, the authors find that board homogeneity is negatively related to firm performance. These perverse outcomes appear to be due to overlapping views and networks of caste-proximate directors and cronyism impairing their monitoring and advising roles.