Improving board diversity around the world: the role of institutional investors

This study aims to examine the role of institutional investors in improving board diversity for the companies in which they invest (investee companies) using evidence from corporate board characteristics across the globe. Additionally, this study also investigates the association between institutional investors and board diversity under various institutional settings, including varying economic conditions (pre-crisis, crisis and post-crisis), legal systems and ownership structures.

Using a sample collected from 15 countries for the period 2006 to 2012, the paper uses panel data analysis to examine the association between institutional investors and board diversity.

The study provides evidence that institutional investors do not promote board diversity and show that in general there is no association between institutional ownership and various board diversity attributes such as gender, age, nationality and education. However, the study finds that institutional investors are positively associated with the educational diversity of boards during times of crisis and are negatively associated with board age diversity during pre-crisis and post-crisis periods. Furthermore, while in common law countries institutional investors are found to be negatively associated with board age diversity, they do not influence board diversity outcomes (i.e. gender, age, nationality and education) in civil law countries. The results also show that the associations between institutional investors and board diversity are mixed and insignificant according to different ownership structures (family and non-family owned firms). The main findings of the study are robust and apply to various estimation methods.

This study provides a unique perspective on the impact of institutional investors on board diversity using a sample collected from 15 countries. Furthermore, the study provides an insight that the institutional settings should be considered when investigating the activism of institutional investors in improving governance practices.