Board ethnic diversity, director age and firm value

Purpose This study explores the nuanced interaction effect between a firm’s board ethnic diversity and director age on its value. Design/methodology/approach We utilize 9,592 firm-year observations from S&P 1500 companies between 2007 and 2019 and employ multiple regression analyses, including propensity score matching and two-stage least squares methods. Findings Our analysis reveals a robust positive relationship between board ethnic diversity and firm value, with director age as a significant negative moderator. Specifically, the positive impact of diversity diminishes with increasing director age, suggesting an age-related moderating effect on the benefits of diversity. Research limitations/implications The findings highlight the importance of considering diverse board composition. However, the scope of the study, which focused on US firms, may limit generalizability. Future research could examine these dynamics in different regulatory and cultural contexts. Practical implications To optimize firm value, shareholders should strive for ethnic diversity and a balanced age distribution within boards. Moreover, corporate governance strategies may need to address biases linked to older directors to unlock the innovative potential of diverse boards. Social implications Policymakers might consider emphasizing ethnicity as a distinct element of diversity in their guidelines to foster more inclusive and effective boardrooms. Our findings also offer insights for policymakers, emphasizing that promoting ethnic diversity alone is insufficient. Other social attributes, such as directors’ age, must also be considered to maximize the benefits of diversity on boards. Originality/value This research pioneers examining the combined effects of board ethnicity and director age on firm value in the context of the S&P 1500. It suggests that the full potential of ethnic diversity is realized when coupled with thoughtful consideration of age dynamics, offering a novel perspective for enhancing board effectiveness and firm value.