Examination of the Role of Peer Effect on Board Diversity Among US-Listed Companies
Abstract
Traditionally, government mandates and investor activism influence board diversity in the United States. This study proposes peer effects as a third important determinant of board diversity. The results suggest that companies consider the progress made by their peers when deciding their own diversity. Interestingly, companies only match the performance of their peers and will spend comparable efforts in improving their diversity according to their peer's progress. Meanwhile, the peer effect has grown stronger in recent years, and companies are more likely to track the performance of mid-level peers. The results provide evidence on a new channel that can affect board diversity and additional evidence on how peer performance affects firms' decisions.