The value of board diversity in banking: evidence from the market for corporate control

We examine the value of board diversity in the US banking industry as a mechanism to enhance the decision-making capabilities of a board. We employ a sample of mergers to assess if measures of diversity as displayed by the bidding bank's board are linked to the market performance of acquisitions. We find positive announcement returns to mergers approved by boards whose members are diverse in terms of their occupational background. By contrast, age and tenure diversity are associated with wealth losses surrounding acquisition announcements, while gender diversity does not lead to measurable value effects. Interestingly, boards with more banking expertise are not more effective at monitoring bank managers. Our results do not support calls for more representation of industry-specific expertise on bank boards and, instead, show that occupational diversity may play an important role in protecting shareholder wealth.