Board Diversity, Director Dissent, and Monitoring Effectiveness

Using Korean firms’ unique director voting data, we examine how director- and board-level diversity affects director dissension and whether proposal rejection resulting from dissension affects firm value and policies. We find that directors who are dissimilar to other board members are more likely to dissent on management proposals. At the board level, we further find that boards with greater director diversity are more likely to dissent and reject proposals. Following proposal rejection, firms, particularly those with diverse boards, experience improvements in firm value and governance and a decrease in risk, suggesting that board diversity enhances directors’ monitoring effectiveness.