Diversity of the board and capital structure

Abstract

Board diversity has been the recurring theme for discussions both in the academic and corporate environments. The concept of diversity is broad and encompasses not only gender and ethnic variety, but also the diversity of cultural, social, and professional aspects. This research aims to contribute to the understanding of the influence of company boards on corporate policies, by analyzing the effects of board diversity on firms’ financial/ capital structure decisions. The results suggest that board diversity improves monitoring effectiveness and is positively related with firm leverage, in line with the effects of reduction of managerial entrenchment by means of stronger monitoring.

Keywords

• Board diversity
• board of directors
• capital structure
• leverage
• managerial entrenchment