DIVERSITY OF THE BOARD AND CAPITAL STRUCTURE

Nisiyama, Edelcio Koitiro; Nakamura, Wilson Toshiro

doi:10.1590/S0034-759020180604

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ARTICLES • Rev. adm. empres. 58 (6) • Nov-Dec 2018 • https://doi.org/10.1590/S0034-759020180604 copy

DIVERSITY OF THE BOARD AND CAPITAL STRUCTURE

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

Board diversity has been a recurring theme for discussions in both the academic and corporate environments. The concept of diversity is broad and encompasses not only gender and ethnic variety but also cultural, social, and professional diversity. 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 policy decisions. The results suggest that board diversity improves monitoring effectiveness and is positively related to firm leverage, in line with the effects of reducing managerial entrenchment by means of stronger monitoring.

KEYWORDS
Board diversity; board of directors; capital structure; leverage; managerial entrenchment

	Category	Indicator	References
Structural	Independence of BD	Percentage of independent board members	Ararat et al. (2010)Ararat, M., Aksu, M. H., & Cetin, A. T. (2010). The impact of board diversity on boards' monitoring intensity and firm performance: Evidence from the istanbul stock exchange. Recuperado de http://ssrn.com/abstract=1572283 http://ssrn.com/abstract=1572283... ¹ (1) uses the Blau index , Ben-Amar et al. (2013)Ben-Amar, W., Francoeur, C., Hafsi, T., & Labelle, R. (2013). What makes better boards? A closer look at diversity and ownership. British Journal of Management, 24(1), 85-101. doi:10.1111/j.1467-8551.2011.00789.x https://doi.org/10.1111/j.1467-8551.2011... , Fraga and Silva (2012)Fraga, J. B., & Silva, V. A. B. (2012). Board diversity and firm performance: An empirical investigation in the Brazilian market. Brazilian Business Review, 9(Special Ed), 55-77. doi:10.15728/bbrconf.2012.3 https://doi.org/10.15728/bbrconf.2012.3... ,⁶ (6) considered as a dichotomic variable Mendes-da-Silva et al. (2007)Mendes-da-Silva, W., Famá, R., & Martelanc, R. (2007). Governança corporativa e decisões de estrutura de capital em empresas brasileiras listadas. XXXI Encontro da ANPAD, Rio de Janeiro, RJ.
Structural	Duality of CEO	Dummy, 0 if the CEO of the company is also the Board President	Ben-Amar et al. (2013)Ben-Amar, W., Francoeur, C., Hafsi, T., & Labelle, R. (2013). What makes better boards? A closer look at diversity and ownership. British Journal of Management, 24(1), 85-101. doi:10.1111/j.1467-8551.2011.00789.x https://doi.org/10.1111/j.1467-8551.2011... , Harford et al. (2008)Harford, J., Li, K., & Zhao, X. (2008). Corporate boards and the leverage and debt maturity choices. International Journal of Corporate Governance, 1(1), 3-27. doi:10.1504/IJCG.2008.017648 https://doi.org/10.1504/IJCG.2008.017648... , Mendes-da-Silva et al. (2007)Mendes-da-Silva, W., Famá, R., & Martelanc, R. (2007). Governança corporativa e decisões de estrutura de capital em empresas brasileiras listadas. XXXI Encontro da ANPAD, Rio de Janeiro, RJ.
Social	Age	Coefficient of variation of ages of board members	Ali, Ng, & Kulik (2014)Ali, M., Ng, Y. L., & Kulik, C. T. (2014). Board age and gender diversity: A test of competing linear and curvilinear predictions. Journal of Business Ethics, 125(3), 497-512. doi:10.1007/s10551-013-1930-9 https://doi.org/10.1007/s10551-013-1930-... , Anderson et al. (2011)Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The economics of director heterogeneity. Financial Management, 40(1), 5-38. doi:10.1111/j.1755-053X.2010.01133.x https://doi.org/10.1111/j.1755-053X.2010... , Ararat et al. (2010)Ararat, M., Aksu, M. H., & Cetin, A. T. (2010). The impact of board diversity on boards' monitoring intensity and firm performance: Evidence from the istanbul stock exchange. Recuperado de http://ssrn.com/abstract=1572283 http://ssrn.com/abstract=1572283... ¹ (1) uses the Blau index , Fraga and Silva (2012)Fraga, J. B., & Silva, V. A. B. (2012). Board diversity and firm performance: An empirical investigation in the Brazilian market. Brazilian Business Review, 9(Special Ed), 55-77. doi:10.15728/bbrconf.2012.3 https://doi.org/10.15728/bbrconf.2012.3... ⁷ (7) considers diversity to be the number of categories, based on five age intervals
Social	Gender	Percentage of women on the BD	Ali et al. (2014)Ali, M., Ng, Y. L., & Kulik, C. T. (2014). Board age and gender diversity: A test of competing linear and curvilinear predictions. Journal of Business Ethics, 125(3), 497-512. doi:10.1007/s10551-013-1930-9 https://doi.org/10.1007/s10551-013-1930-... ¹ (1) uses the Blau index , Anderson et al. (2011)Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The economics of director heterogeneity. Financial Management, 40(1), 5-38. doi:10.1111/j.1755-053X.2010.01133.x https://doi.org/10.1111/j.1755-053X.2010... , Ben- Amar et al. (2013)Ben-Amar, W., Francoeur, C., Hafsi, T., & Labelle, R. (2013). What makes better boards? A closer look at diversity and ownership. British Journal of Management, 24(1), 85-101. doi:10.1111/j.1467-8551.2011.00789.x https://doi.org/10.1111/j.1467-8551.2011... , Ararat et al. (2010)Ararat, M., Aksu, M. H., & Cetin, A. T. (2010). The impact of board diversity on boards' monitoring intensity and firm performance: Evidence from the istanbul stock exchange. Recuperado de http://ssrn.com/abstract=1572283 http://ssrn.com/abstract=1572283... ,¹ (1) uses the Blau index Fraga and Silva (2012)Fraga, J. B., & Silva, V. A. B. (2012). Board diversity and firm performance: An empirical investigation in the Brazilian market. Brazilian Business Review, 9(Special Ed), 55-77. doi:10.15728/bbrconf.2012.3 https://doi.org/10.15728/bbrconf.2012.3... ,
Social	Nationality	Percentage of foreigners on the BD	Anderson et al. (2011)Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The economics of director heterogeneity. Financial Management, 40(1), 5-38. doi:10.1111/j.1755-053X.2010.01133.x https://doi.org/10.1111/j.1755-053X.2010... ⁴ (4) here, expertise is defined as experience in law, consultancy, accounting and investment banks (or venture capital) , Ararat et al. (2010)Ararat, M., Aksu, M. H., & Cetin, A. T. (2010). The impact of board diversity on boards' monitoring intensity and firm performance: Evidence from the istanbul stock exchange. Recuperado de http://ssrn.com/abstract=1572283 http://ssrn.com/abstract=1572283... ¹ (1) uses the Blau index , Ben-Amar et al. (2013)Ben-Amar, W., Francoeur, C., Hafsi, T., & Labelle, R. (2013). What makes better boards? A closer look at diversity and ownership. British Journal of Management, 24(1), 85-101. doi:10.1111/j.1467-8551.2011.00789.x https://doi.org/10.1111/j.1467-8551.2011... ,
Occupational	Education: area of qualification	Blau Index considering area of undergraduate classification	Anderson et al. (2011)Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The economics of director heterogeneity. Financial Management, 40(1), 5-38. doi:10.1111/j.1755-053X.2010.01133.x https://doi.org/10.1111/j.1755-053X.2010... , Kim (2014)Kim, K. (2014). Board heterogeneity: Double-edged sword? Focusing on the moderating effects of risk on heterogeneity-performance linkage. Academy of Strategic Management Journal, 13(1), 129-145., Fraga and Silva (2012)Fraga, J. B., & Silva, V. A. B. (2012). Board diversity and firm performance: An empirical investigation in the Brazilian market. Brazilian Business Review, 9(Special Ed), 55-77. doi:10.15728/bbrconf.2012.3 https://doi.org/10.15728/bbrconf.2012.3... ⁸ (8) considers diversity as the number of different areas of formal education (maximum = number of board members)
Occupational	Education: level of schooling	Blau Index considering area of undergraduate classification (up to doctoral level)	Anderson et al. (2011)Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The economics of director heterogeneity. Financial Management, 40(1), 5-38. doi:10.1111/j.1755-053X.2010.01133.x https://doi.org/10.1111/j.1755-053X.2010... ,² (2) uses the Herfindahl index Ararat et al. (2010)Ararat, M., Aksu, M. H., & Cetin, A. T. (2010). The impact of board diversity on boards' monitoring intensity and firm performance: Evidence from the istanbul stock exchange. Recuperado de http://ssrn.com/abstract=1572283 http://ssrn.com/abstract=1572283...
Occupational	Professional: CEO	Percentage of members who hold, or have held, the role of CEO	Anderson et al. (2011)Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The economics of director heterogeneity. Financial Management, 40(1), 5-38. doi:10.1111/j.1755-053X.2010.01133.x https://doi.org/10.1111/j.1755-053X.2010... ³ (3) considers only those who simultaneously hold the position of CEO
Occupational	Professional: experience on the job	Number of different areas of expertise represented among the BD members	Anderson et al. (2011)Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The economics of director heterogeneity. Financial Management, 40(1), 5-38. doi:10.1111/j.1755-053X.2010.01133.x https://doi.org/10.1111/j.1755-053X.2010... ,⁴ (4) here, expertise is defined as experience in law, consultancy, accounting and investment banks (or venture capital) Kim (2014)Kim, K. (2014). Board heterogeneity: Double-edged sword? Focusing on the moderating effects of risk on heterogeneity-performance linkage. Academy of Strategic Management Journal, 13(1), 129-145.⁵ (5) uses the Blau index, considering functional experience based on exit (marketing and sales), functions of production (operations, R&D and engineering) and peripheral functions (law, finance, and accounting)
Occupational	Experience on BDs	Coefficient of variation of the number of seats on BDs apart from that of the company considered	Anderson et al. (2011)Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The economics of director heterogeneity. Financial Management, 40(1), 5-38. doi:10.1111/j.1755-053X.2010.01133.x https://doi.org/10.1111/j.1755-053X.2010...

Variable	Code	Operational definition
Total accounting debt	Debt1	100* (Current liabilities + fixed liabilities) / total assets
Financial debt at accounting values	Debt2	100*Financial Debt / (financial debt + net equity)
Financial debt at market values	Debt3	100*Financial Debt / (financial debt + market value)
Net Debt / EBITDA index	Debt4	(Net financial debts) / EBITDA

Variables	Obs.	Mean	Standard Deviation	Median	Min.	Max.
Debt1	495	54.885	17.465	54.610	8.470	103.340
Debt2	495	40.749	21.752	41.250	0.000	109.070
Debt3	493	31.059	21.928	28.220	0.000	93.890
Debt4	463	2.244	4.681	1.540	0.000	74.370
DivG	495	22.689	3.290	23.000	12.000	31.000
DivE	495	3.196	1.266	3.000	1.000	5.000
DivS	495	7.594	1.629	8.000	5.000	12.000
DivO	495	11.899	2.545	12.000	5.000	18.000
MTB	493	1.712	1.172	1.280	0.340	8.740
Tang	495	0.236	0.216	0.201	0.000	0.899
Profitability	495	0.118	0.119	0.114	-1.429	0.554
Tam	495	15.870	1.323	15.790	12.499	20.492
Depr	495	0.029	0.021	0.028	0.000	0.166
Lcor	495	1.919	1.194	1.677	0.251	12.252
Growth	492	0.448	4.960	0.130	-0.729	109.771

Variable	Total accounting debt	Financial debt at accounting value	Financial debt at market value	Net Debt / EBITDA index
DivG	0.3821^ for 5% and	0.4216^ for 5% and	0.9070^* ***** for 1%,	0.1372^ for 5% and
MTB	-0.0735	-1.3236	-6.0516^* ***** for 1%,	0.4946
Tang	5.7381	5.1198	1.0918	0.9067
Rentb	-8.5379^* * for 10%.	-15.2878^ for 5% and	-25.6667^* ***** for 1%,	-29.8215^* ***** for 1%,
Tam	5.3645^* * for 10%.	8.9167^ for 5% and	8.0525^ for 5% and	0.2342
Depr	13.4244	56.8101	163.7272	-20.3321^* * for 10%.
Lcor	-1.1587^* ***** for 1%,	-0.5756	-1.1258^* * for 10%.	-0.2692^* ***** for 1%,
Cresc	0.2569^* ***** for 1%,	0.0912	0.0901	-0.9391
Contr	0.8244	1.5006	7.1416	0.3192
_cons	-37.8494	-108.9287^* * for 10%.	-111.5693^* * for 10%.	-0.4176
Dummy - Sector	No	No	No	No
Dummy - Year	No	No	No	No

Effects	Fixed	Fixed	Fixed	Random
N	395	395	395	367
r2	0.1705	0.1640	0.3016
r2_b	0.1020	0.1368	0.3715	0.2283
r2_w	0.1705	0.1640	0.3016	0.0730
F	149.2808	18.1963	342.7256
chi²				37.5403

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