We investigate the potential costs and benefits of firms constituting a heterogeneous pool of directors relative to more homogeneous boards. We measure director heterogeneity along six separate dimensions and divide board heterogeneity into occupational and social components. Our empirical analysis indicates that corporate complexity and managerial control exhibit significant influence on board heterogeneity. Using the heterogeneity of the county population of the firm's headquarters as an instrument, we also find that investors place valuation premiums on heterogeneous boards in complex firms but discount heterogeneity in less complex firms. Overall, our analysis indicates greater heterogeneity may not necessarily improve board efficacy.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.