Cultural diversity of the corporate board and stock price informativeness

Abstract

This study aims to investigate the impact of the cultural diversity of the corporate board on stock price Informativeness. The study provides empirical evidence from Pakistan stock exchange. We examine how cultural dimensions (individualism, masculinity, power distance, and uncertainty avoidance) affect stock Informativeness. Most of the previous studies analyzed culture from an investor’s perspective, but in this study, the cultural dimensions of a corporate board are being explored. The study employs the GMM (generalized method of moment) for empirical analysis because this method eliminates the endogeneity concerns. The study considers the companies from Pakistan stock exchange’s KSE 100 index from 2009 to 2019. The cultural diversity of the board is computed after analyzing 6451 directors from 43 different countries. The results show that the corporate board's cultural diversity has significant and positive impact on stock price informativeness. Furthermore, the boards having members from high power distance and masculine cultures are negatively associated with stock price informativeness, while the individualistic and uncertainty avoidance cultures are positively linked with stock price informativeness. In conclusion, we suggests that regulators should encourage board diversity as it helps companies and corporate boards in eliminating information asymmetries and consequently enhancing the stock price informativeness. Increase in stock infromativenss helps investors in making better investment decisions.