“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 outcome) • 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 offered 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.
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