Toward an alternative measure of board diversity: an exploratory study on board polarization in German stock exchange-listed companies

Abstract

PurposeThe effects of board composition on performance have long been discussed in management research using fractionalization measures. In this study, we propose an alternative measurement approach based on board polarization.Design/methodology/approachUsing an exploratory analysis and applying the polarization measure to German Deutscher Aktienindex (DAX)-, Midcap-DAX (MDAX)- and Small Cap-Index (SDAX)-listed companies, this paper applies the polarization index to examine the relationship between board diversity and performance.FindingsThe results show that the polarization concept is well suited to measure principal-agent problems between the members of the management and supervisory boards. We reveal that board polarization is negatively associated with firm performance, as measured by return on investment (ROI).Originality/valueThis exploratory study shows that the measurement of board polarization can be linked to performance differences between companies, which offers promising starting points for further research.