The Impact of Cultural Diversity of the Corporate Board on the Firm's Performance: Evidence From Australia
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We examine the impact of cultural diversity in corporate boards on firm performance of the Australian large companies using the measure of national cultural diversity. We quantify the cultural scores based on Hofstede's 6-dimension culture framework (Hofstede, 2001). Our results suggest that the cultural diversity of directors has positive impacts on firm performance measured by Tobin’s Q and ROA. We suggest that boards with a higher level of cultural diversity will provide resources that are more valuable to the firm and brings the benefit that outweighs the cost of potential relationship conflict caused by cultural differences. Our findings hold after controlling for time-invariant firm-specific factors and year fixed effects, and after implementing an instrumental variables approach. Furthermore, our results are further robust to controlling for different measures of "foreignness" both of the board and the firm, as well as to the use of alternative culture frameworks. Lastly, we find that different aspects of cultural differences have a different impact on the firm performance, and it is predominately the diversity in masculinity, uncertainty avoidance, and long-term orientation dimensions that have a positive impact on firm performance.