Gender and ethnic diversity on boards and corporate information environment

Prior studies argue that demographic diversity on a firm's board impacts its information environment, yet there is limited empirical evidence regarding the relation between board diversity and corporate opacity. We extend this line of research by examining whether gender and ethnic diversity of directors impacts corporate opacity. Using a Herfindahl Index based on directors' gender and ethnicities to measure board diversity, and an opacity index based on analyst following, analyst forecast error, bid–ask spread, and share turnover to measure corporate opacity, we find that board diversity is negatively associated with corporate opacity. Our results are robust to alternative measures of board diversity and the various tests we employ to address potential endogeneity concerns.