Drivers of diversity on boards: The impact of the Sarbanes-Oxley act

摘要

This study investigates how firm structure, chief executive officer (CEO) power, and federal legislation influence hiring of corporate directors from a diverse background. Combining the value-in-diversity hypothesis and the similarity-attraction paradigm, we examine the impact of economically rational (i.e., business need) and social preference (i.e., similar-to-me bias) drivers of board diversity post-the Sarbanes-Oxley Act of 2002 (SOX). Using a sample of S&P 1500 firms from an eight-year period spanning SOX, we find that SOX is positively correlated with board diversity. Although SOX was not intended to increase board diversity, the changes it put in place have subsequently facilitated more board diversity. Results show that the economically rational predictor (firm operational complexity) had a positive and statistically significant effect on board diversity pre-SOX but that effect disappeared post-SOX. Meanwhile, CEO power, a social preference inhibitor of board diversity, had a negative and statistically significant relationship with board diversity pre-SOX which also disappeared post-SOX. It appears that SOX has mitigated both economically rational drivers to want more diversity as well as social preference drivers to want less diversity. Implications of these findings for research and practice are discussed.