Does board diversity influence idiosyncratic risk: Empirical evidence from Chinese listed firms

Abstract

This study examines the relationship between board diversity, measured as cognitive (tenure, expertise, and education) and demographic (age, gender, and nationality) diversities, and idiosyncratic risk for 2000 Chinese non-financial firms from 2008 to 2020. This study highlights that cognitive board diversity has a more significant impact than demographic board diversity in mitigating idiosyncratic risk. After conducting sensitivity analysis and addressing endogeneity, the Capital Asset Pricing Model and Two-Stage-Least-Square findings confirm the robustness of results across different idiosyncratic risk measures, revealing a notable influence of board diversity on idiosyncratic risk. This study's findings provide valuable insights for practitioners that demographic and cognitive-oriented diversities should be perceived as an essential part of corporate governance in influencing overall corporate performance.