Challenging Homophily: Redefining Caste Diversity on Indian Corporate Boards and Its Impact on Information Asymmetry

This study examines how caste diversity within corporate boards affects information asymmetry between a firm and the market. Drawing on social identity theory and the principle of homophily, we argue that how caste diversity is conceptualized matters for its governance implications. We operationalize caste diversity using two measures: discrete caste diversity, which captures variety across multiple caste categories, and privilege-based caste diversity, which contrasts historically caste-privileged directors with those outside this group. Using three market-based proxies for information asymmetry, our analysis of 115 of the largest nonfinancial Indian firms over a 4-year period (2019–2023) reveals that privilege-based caste diversity is consistently associated with lower information asymmetry, whereas discrete caste diversity shows no significant association. The findings suggest that meaningful caste diversity emerges when entrenched privilege is disrupted in ways that weaken homophilic ties among historically caste-privileged directors and foster transparent information flow, rather than when numerical heterogeneity alone is present.