1 s2.0 S1042443122001299 Main

J. Int. Financ. Markets Inst.
Money 81 (2022) 101657
Contents lists available at ScienceDirect
Journal of International Financial Markets,

Institutions & Money
journal homepage: www.elsevier.com/locate/intfin
Board tenure diversity and investment efficiency: A global analysis

Thao Tran Phuong a, Anh-Tuan Le a, *, Puman Ouyang b
a
International School of Business, University of Economics Ho Chi Minh City, Viet Nam
b
Department of Economics, National Chung-Cheng University, Taiwan, ROC
A R T I C L E I N F O A B S T R A C T
JEL classification: Using an international sample of firms in 45 countries, we find that board tenure diversity is
G31 positively associated with investment efficiency. We alleviate concerns about endogeneity by
G32 using a firm fixed effects model, a two-stage least squares regression, and a matching approach.
G34
Additional analyses show that the relationship between board tenure diversity and investment
Keywords: efficiency is stronger when the directors have longer tenure and when firms face financial con
Board tenure diversity
straints. In addition, better institutional quality, greater shareholder protection, and higher so
Investment efficiency
cietal trust positively moderate the beneficial impact of board tenure diversity on investment
Director tenure
efficiency. Overall, our results highlight the benefits of board tenure diversity in regards to work
group diversity and access to resources when making corporate investment decisions.
1. Introduction
Research on the importance of board diversity has gained momentum in recent years, because boards of directors play a pivotal role
in creating a company’s vision, purpose, and values, as well as developing plans and deciding on strategic choices to improve efficiency
(Zahra & Pearce 1989). Some studies show that board diversity has a critical influence on investment decisions, but the literature on
the effect of board diversity on investment efficiency is inconclusive. In this paper we continue the line of inquiry by providing cross-
border evidence of a previously unexamined association between board tenure diversity and corporate investment efficiency using
international data of 45 countries.
Prior studies distinguish between task-related diversity such as educational or functional background, non–task-related diversity
such as gender, age, race, or nationality, as well as structural diversity such as board independence and CEO non-duality (Ararat et al.
2015). In this paper we focus on board tenure diversity, which relates to heterogeneities in the tenure length of a board due to several
reasons.
First, the task-oriented characteristics of a board, such as tenure, improve cognitive talents and group wisdom. Cognitive capa
bilities are critical for successful decision-making and resource utilization and have a substantial impact on company investment
efficiency. Tenure diversity is different from other aspects of diversity in that it does not assume that directors with various de
mographic and background characteristics will have differing perspectives (Li & Wahid 2018).
Second, tenure diversity relates to the notion of social acceptance, which is seen as a key foundation of diversity. This is because
newcomers are expected to improve the quality of organizational choices with their fresh perspectives, problem-solving abilities, and
inventiveness (Rink & Ellemers 2009). Social acceptance should, however, be determined by whether they are embraced by senior
* Corresponding author at: International School of Business, University of Economics Ho Chi Minh City, Vietnam, 17 Pham Ngoc Thach, District 3,
Ho Chi Minh city, Viet Nam.
E-mail addresses: thao.tran@isb.edu.vn (T. Tran Phuong), tuan.le@isb.edu.vn (A.-T. Le), pouyang@ccu.edu.tw (P. Ouyang).
https://doi.org/10.1016/j.intfin.2022.101657
Received 12 October 2021; Accepted 21 September 2022
Available online 28 September 2022
1042-4431/© 2022 Elsevier B.V. All rights reserved.
T. Tran Phuong et al. Journal of International Financial Markets, Institutions & Money 81 (2022) 101657
employees, who share organizational ideals and experience over a longer period. This social acceptance by senior employees in an
organization has a substantial impact on newcomers’ adaptability and display of strengths (Wagner et al. 1984; Pitts & Jarry 2009) and
therefore influences organizational capability in generating optimal investment decisions.
Third, previous international studies on board diversity mainly focus on the importance of board gender diversity (Ye et al. 2019;
Shoham et al. 2020; Griffin et al. 2021; Mohsni et al. 2021), nationality diversity, and cultural diversity (van Veen & Marsman 2008;
García-Meca et al. 2015; Attah-Boakye et al. 2020). In comparison to other diversity dimensions, director tenure has garnered less
attention in both emerging markets and in developed countries. Notably, the impact of tenure diversity on investment efficiency is
ambiguous. For example, Harjoto et al. (2018) and Ullah et al. (2020) show a positive relationship in the context of the U.S. and China,
respectively, while Kang, Kim, and Oh (2022) indicate that there is no significant impact in the South Korea market. We fill the gap in
the extant literature by presenting large-sample evidence on board tenure diversity in 45 countries, including both developing and
developed economies and thereby making our paper important and unique.
We conjecture that investment efficiency is positively associated with board tenure diversity. The benefits of board tenure diversity
are supported by the work group diversity theory (Wiersema & Bantel 1992; Van Knippenberg et al. 2004) and the access to resources
theory (Hambrick & Mason 1984). Watson et al. (2002) indicate that firms may obtain competitive advantage thanks to diversity,
which leads to a greater knowledge base, creativity, and innovation. Li and Wahid (2018) show that boards with a wide range of tenure
appear to function better in terms of monitoring. The performance of diverse groups therefore outpaces that of homogeneous groups.
From the resource access perspective, tenure diversity could bring a group of diverse individuals together; this could create boards with
both senior and less tenured directors who have access to a larger gathering of information, expertise, skills, and talent (Salancik &
Pfeffer 1978). A board with more diversity is more likely to be informative, have better information processing capacities, and make
better choices (Rindova et al. 2009; Adams et al. 2015). Thus, from these perspectives, board tenure diversity tends to increase firm
investment efficiency.
Using a comprehensive international sample of 81,750 observations from 11,649 unique firms in 45 countries between 1999 and
2019, this paper investigates a hitherto unexplored question of whether the diversity of tenure length impacts firm-level investment
efficiency. Following Biddle et al. (2009), we measure investment inefficiency by using abnormal investment, or the deviation from
optimal investment to actual investment. Specifically, we take absolute values of residuals of the regression of total investment on sales
growth to measure investment inefficiency. In terms of board tenure diversity, we employ the coefficients of variation of board member
tenure lengths and the standard deviation of board member tenure lengths as suggested by Bernile et al. (2018) and Li and Wahid
(2018). We document that board tenure diversity increases investment efficiency. Specifically, this diversity helps firms reduce
suboptimal decisions in terms of both overinvestment and underinvestment. Notably, we present that the findings still hold true after
employing alternative measures of investment efficiency.
We perform a battery of robustness tests on our baseline findings, which still hold true when accounting for corporate governance,
dividend payout policy, insolvency risk, firm operating cycle, industry-year leverage trends, earnings quality, as well as other country-
level characteristics such as economic policy uncertainty, accounting standard, and financial crisis. To further ascertain the sensitivity
of our results to sample composition, we re-estimate our baseline model after excluding U.S firms, considering country-level clustering
standard errors, and employing the WLS model. We continue to find a positive and significant effect of board tenure diversity on firm
investment efficiency, indicating that our findings are not driven by the overrepresentation of the sample.
We conduct further tests to address endogeneity concerns. First, we take up omitted variables by using the firm fixed effects model.
Second, to deal with the bias stemming from reverse causality, we employ an instrumental variable estimation in the spirit of previous
international studies on board diversity. Specifically, we use the country-industry-year mean of board tenure diversity as an instru
mental variable. The results are robust to these estimation methods, indicating that our findings are unlikely to be driven by endo
geneity by omitted variables and reverse causality. In addition, we execute a propensity score matching to demonstrate that sample
selection bias does not influence our results. Using the matched sample for regressions, we find robust evidence that board tenure
diversity is significantly positively associated with investment efficiency.
In supplementary analyses we shed light on the heterogeneities of both firm- and country-level characteristics. First, we consider
the role of long tenure in the relationship between board tenure diversity and investment efficiency, because the length of tenure
directly shapes board members’ monitoring roles and advising abilities. Moreover, long-serving directors are thought to have more
experience, dedication, and competence due to their knowledge about firm-specific information and skills in management (Vafeas
2003). This implies that longer director tenure strengthens the benefit of board tenure diversity and in turn increases investment
efficiency. Consistent with this conjecture, we find the positive influence of board tenure diversity on investment efficiency is more
pronounced in firms with long director tenure.
Second, to explore the benefits of board tenure diversity, we explicitly consider the role of financial constraints in the linkage
between board tenure diversity and investment efficiency. Intuitively, financial constraints impede optimal investment decisions
(Fazzari et al. 1987). However, one may argue that businesses facing difficulties obtaining external finance will turn inward to satisfy
their investment needs. As board tenure diversity enhances monitoring efficiency, it reduces information asymmetry between firms
and outside capital providers. It follows that firms can overcome financial constraints. Hence, board tenure diversity is more valuable
for financially constrained firms. Consistent with this substitutive relationship between financial condition and diversity imposed by
board tenure length, we see that the relationship between board tenure diversity and firm investment efficiency is greater for firms
with high financial constraints measured by WW index, firm size, and dividend payout policy.
Third, we exploit our institutionally diverse sample and examine how heterogeneities in country-level institutional framework
affect the nexus between board tenure diversity and investment efficiency. Extant literature suggests that institutional framework
enhances firm efficiency, because it works as an external governance mechanism to reduce transaction costs (North 1990b), risk of
2
expropriation (Porta et al. 1998), agency costs (Demirgüç-Kunt & Maksimovic 1999), and asymmetric information problems (Alves &
Ferreira 2011). Confirming this notion that institutional development complements board tenure diversity and investment efficiency
linkage, we find the beneficial influence of board tenure diversity on firm investment efficiency is more pronounced for firms in
countries with high national governance quality and shareholder protection.
Lastly, we examine the moderating influence of societal trust on the linkage between board tenure diversity and investment ef
ficiency. Individuals in high-trust countries are expected to care for the shared group goals and values rather than their personal
interests (Ashforth & Mael 1989). A trusting environment and cooperative social norms mitigate moral hazard issues and instill
trustworthy behavior in businesses. Under this argument, greater societal trust strengthens the impact of board tenure diversity on
investment efficiency. As predicted, we demonstrate that the positive link between board tenure diversity and investment efficiency is
stronger for firms in high-trust countries.
This paper contributes to several areas of finance literature. First, we enrich ongoing literature related to the impact of board
diversity on corporate policy and efficiency in an international setting. Previous studies have documented that board gender diversity
influences stock price informativeness (Gul et al. 2011), innovativeness (Griffin et al. 2021), dividend payouts (Ye et al. 2019), and
firm risk (Sila et al. 2016), while van Veen and Marsman (2008) show a meaningful relationship between nationality diversity and
company factors. In terms of tenure diversity, our findings further corroborate the results of Ji et al. (2021) who note board tenure
diversity reduces firm risk. We document the strong positive effect that tenure diversity has on investment efficiency. Given the
importance of investment efficiency in contributing to corporate success, the results from this study offer valuable insights into the role
of board structure as a crucial determinant of firm outcomes, particularly investment efficiency. Understanding how efficiently firms
allocate resources has recently piqued the interest of both practitioners and academics, because capital investment decisions drive
future cash flows and as a result firm valuation.
Second, we contribute to the current literature in finding the determinants of firm investment efficiency. Although our study is close
to Harjoto et al. (2018), Ullah et al. (2020), and Kang et al. (2022), those studies employ only data from the U.S., China, and South
Korea, respectively. Using an international sample to answer our research question exhibits compelling advantages due to the fact that
empirical evidence from a single country tends to be limited in terms of generalizability; thus, we uncover the global trend on board
diversity. Going beyond Harjoto et al. (2018), we discover that beneficial factors resulting from tenure diversity help firms to overcome
financial constraints, in turn increasing investment efficiency by reducing suboptimal decisions via underinvestment and
overinvestment.
Unlike the single country setting, we can better investigate how national traits influence the link between board tenure diversity
and company efficiency. Specifically, our study augments the body of literature examining the role of institutional framework and
national norms in shaping corporate policy and efficiency (Afriyie & Adza 2019; Attah-Boakye et al. 2020; Dao et al. 2020). We ac
count for the moderating role of country-level drivers of investment efficiency and explain from where the observed cross-border
variations in the level of investment efficiency could stem. We show national governance quality, shareholder protection, and soci
etal trust complement the positive impact of board tenure diversity on investment efficiency. Since institutions shape a firm’s behavior,
including internationalization strategies, having stronger institutions mitigates the opportunistic behavior of managers and leads to
better investment decisions. This finding adds to the recent studies that examine the effect of external governance mechanisms led by
stronger institutions on firm-level outcomes (Brockman et al. 2018; Kanagaretnam et al. 2018; Ho et al. 2020; Ji et al. 2021). We expect
our results to highlight the importance of task-based diversity in terms of board tenure among individuals, firms, and policymakers.
The remainder of the paper is organized as follows. Section 2 reviews the current literature and formulates our hypotheses. Section
3 details the data and research design. Section 4 provides baseline results. Section 5 shows our cross-sectional analysis. Section 6 offers
a battery of tests to verify the robustness of our findings. Section 7 presents our conclusion.
2. Literature review and hypotheses’ development
2.1. Board tenure diversity and investment efficiency
The board of directors’ role in corporate governance has grown in importance. Board diversity is one board quality that has sparked
interest in the business and finance literature. Over the last few decades, corporate boardrooms have become increasingly diverse in
terms of board members’ gender, race, age, and professional expertise. Diversity refers to differences in an individual’s characteristics
or attributes that give the impression that others are not unlike that individual (Van Knippenberg & Schippers 2007). The diversity
literature examines how demographic diversity (e.g., tenure, nationality, experience, gender, and age) and structural diversity (e.g.,
independence) among members of a work group directly influence the group’s process and efficiency. However, the main effect
approach yields mixed empirical results regarding the impact of diversity on corporate policy and efficiency. Notably, despite the
growing interest and effort in exploring the role of board diversity, there has been little interest in board tenure, which refers to the
length of time a director has served on a corporate board. In this paper we formulate hypotheses to understand the relationship be
tween board tenure diversity and investment efficiency.
Board tenure diversity may increase investment efficiency based on the work group diversity perspective (Wiersema & Bantel 1992;
Van Knippenberg et al. 2004) and the access to resources theory (Hambrick & Mason 1984). In congruence with the work group
diversity perspective, Jehn et al. (1999) indicate that the more diversity firms exhibit, the better their discussions and deliberations
are. Indeed, senior directors with longer tenures can better understand firm-specific challenges, while fresh directors with shorter
tenures can provide new perspectives to discussions. As a result, heterogeneous groups fare better in dealing with organizational
change, indicating that these groups may be better prepared to adapt to more dynamic market developments (Erhardt et al. 2003). This
3
may lead to diverse groups outperforming homogeneous groups.

Watson et al. (2002) indicate that firms may enjoy a competitive advantage thanks to diversity, which leads to a greater knowledge
base, creativity, and innovation. Through tenure diversity, boards gain access to broader sets of information, knowledge, skills, and
talent from having both senior and junior directors (Salancik & Pfeffer 1978). A board with more diversity is more likely to be
informative, have better information processing capacities, and make better decisions (Rindova et al. 2009; Adams et al. 2015). Firms
with tenure-diverse boards may benefit from having the best of both worlds, whereby directors with longer tenures may better grasp
firm-specific challenges and prevent CEO capture, while those with shorter tenures may not be entrenched and therefore provide a new
viewpoint to board deliberations. Given that discussions are critical for successful decision-making and resource utilization, higher
tenure diversity thereby generates greater investment efficiency.
In terms of access to resources, studies show that firms with tenure-diverse boards may bring a wide range of talents, backgrounds,
views, and resources to the board, thereby improving its independence and monitoring efficiency. Li and Wahid (2018) show that
tenure-diverse boards are effective in monitoring management, which may influence CEOs’ turnover due to their poor performance,
CEOs’ excess compensation, and financial restatements. It follows that better monitoring can control managers, preventing them from
shirking their duties or engaging in self-dealing activities (Fama & Jensen 1983; La Porta et al. 1997) and thereby constraining sup-
optimal investment decisions. As a result, firms with diverse-tenure directors exhibit higher investment efficiency. Based on the above
two reasons, we assume that tenured diversity increases investment efficiency, because of improving board knowledge and monitoring
efficiency.
One may alternatively argue that diversity adversely affects group performance. Ancona and Caldwell (1992) indicate that the
drawbacks of demographical diversity are because heterogeneous teams impede strategy implementation. Board members with
varying tenures have varying levels of experience, viewpoints, and concerns. This fosters disagreement, lack of cooperation, and
inadequate coordination among directors during the decision-making process. As a result, diversity can exacerbate internal conflict
and divisiveness (Simons & Peterson 2000; Van den Steen 2010), thereby weakening the team consensus.
Lack of consensus may make interactions between subgroups more difficult and disruptive, impeding the process of reaching a
common understanding and commitment on a final decision. As a result, profitable investment projects will be unable to be imple
mented, which will inhibit overall investment efficiency. This line of reasoning then yields an alternative prediction that board tenure
diversity might impede firm investment efficiency. However, considering that optimal investment decisions strongly depend on a
board’s knowledge and monitoring efficiency, we hypothesize that the benefits from board tenure diversity overshadow the detri
mental effect, thereby positively affecting firm investment efficiency as follows.
Hypothesis 1. Investment efficiency is positively associated with board tenure diversity.
2.2. Roles of long tenure
The performance of board functions is influenced by board stability. Longer tenure may have a favorable impact, resulting in
management stability and a better understanding of the firm’s business strategy. This in turn could help the board carry out both
advisory and monitoring tasks better. Vafeas (2003) indicates that senior directors are associated with greater experience, commit
ment, and competence due to their knowledge about the firm-specific information and skills in management. Buchanan (1974)
documents that long-term executives increase organizational commitment and ability to put forth the effort to pursue company ob
jectives. Huang and Hilary (2018) document an inverted U-shape nexus between board tenure and firm value and accounting per
formance. Ji et al. (2021) show that board tenure diversity reduces firm risk, and this effect is more pronounced for firms with more
long-tenured directors. In addition, tenure determines the marginal value of independent directors (Nguyen & Nielsen 2010), and long-
tenured directors facilitate firms to access various resources (de Villiers et al. 2011). Therefore, more senior directors on a board may
have better knowledge about firm perspectives and strategy.
We argue the main benefit of tenure diversity comes from the access to resources perspective from a board’s knowledge. It is
important to test whether a firm’s investment efficiency will be enhanced more when there are more senior directors on the board. If
board tenure diversity and board tenure are complementary to each other, then the impact of board tenure diversity should increase
with tenure. Expanding upon the previous studies on the role of tenure length, we expect that directors with long tenure moderate the
relationship between board tenure diversity and firm efficiency. We propose our second hypothesis as follows.
Hypothesis 2. The positive impact of board tenure diversity on investment efficiency is more pronounced for firms with directors who have
long tenure.
2.3. Roles of financial constraints
Prior studies document that financial difficulties directly affect investment decisions. Fazzari et al. (1987) point out that the
financial condition of a firm determines how its investment projects are financed. Financial constraints due to higher returns required
by external capital providers who lack information can cause underinvestment (Myers 1984). Board tenure diversity enhances
monitoring efficiency (Li & Wahid 2018) and improves financial report quality by reducing earnings management and lowering the
probability of financial reporting restatements (Liu & Sun 2010). This results in a reduction in the information asymmetry that exists
between firms and external capital sources, which in turn reduce the cost of debt (Myers & Majluf 1984). Kang et al. (2022) state that
demographic diversity such as tenure increases board monitoring effectiveness through its impact on cognitive diversity that motivates
directors to vote against value-destroying proposals. Hence, firms experience less earnings management, are less likely to engage in
4
financial report restatements, are more likely to fire poorly performing CEOs, and thereby reduce overinvestment in R&D activities.
This line of reasoning suggests that enhanced monitoring efficiency resulting from board tenure diversity helps firms overcome
financial constraints, which is an important determinant of investment efficiency.
We expect that the relationship between board tenure diversity and firm investment efficiency is heterogenous among firms that
have different levels of financial difficulty. Specifically, the positive impact of tenure diversity on investment efficiency should be more
pronounced for firms with high financial constraints, which leave more room for tenure diversity to enhance financial conditions that
in turn increase investment efficiency. To test this conjecture, we propose the following hypothesis.
Hypothesis 3. The positive impact of board tenure diversity on investment efficiency is more pronounced for financially-constrained firms.
2.4. Roles of institutional quality
Due to a lack of consistency in previous study findings that frequently give fragmented and inconsistent evidence on the rela
tionship between board tenure diversity and investment efficiency, it is critical to investigate if country-level factors have a moderating
influence. The extant literature suggests that institutional framework plays a pivotal role in investment efficiency, because it works as
an external governance mechanism. Institutional theory indicates the role of institutions in mitigating volatility by maintaining a
stable state. Transaction costs in every economy are determined by the structural climate, such as legal, regulatory, or political
processes (North 1990a). Scholars have spent a great deal of effort to show that countries with higher institutional quality have lower
transaction costs (North 1990a), risk of expropriation (Porta et al. 1998), agency problems (Demirgüç-Kunt & Maksimovic 1999), and
asymmetric information problems (Alves & Ferreira 2011). This is due to improved contract regulation, governance, accountability,
and monitoring mechanisms in those countries. Hail and Leuz (2006) document that properly functioning institutional environments
are associated with a lower cost of equity financing as they lower the risk premium. Accordingly, firms in countries with high insti
tutional quality are associated with higher firm investment efficiency (Cao et al. 2020; Dao et al. 2020). Attah-Boakye et al. (2020) find
that country-level institutional quality influences the relationship between boardroom gender diversity and level of investment in
research and development and corporate innovation.
It is argued that countries with greater national governance quality are more likely to have a more investor-friendly economic
climate where openness, accountability, and the rule of law are respected. Such an environment is critical for the board of directors’
monitoring competence and efficacy, as well as board-related submechanisms such as board tenure or gender diversity. Indeed, García-
Meca et al. (2015) indicate that gender diversity enhances bank performance and seems to have higher significant effects in countries
with stronger regulatory and higher investor protection environments. Similarly, Nguyen et al. (2021) document that board gender
diversity positively affects firm performance only in countries with high national governance quality and is irrelevant otherwise.
Doidge (2004) demonstrates in countries with weak investor protection that additional charter provisions are not implemented,
leaving corporations impotent to independently strengthen their oversight of director positions. Given that tenure-diverse boards
benefit from superior monitoring efficiency (Li & Wahid 2018), firm-level governance matters less in countries with weak legal sys
tems. We expect that better institutional quality strengthens the positive impact of board tenure diversity on firm investment effi
ciency. Hence, we propose the following hypothesis.
Hypothesis 4. The positive impact of board tenure diversity on investment efficiency is more pronounced for firms in countries with high
institutional quality.
2.5. Roles of societal trust
National norms (e.g., national culture and social trust) also impact various organizational practices. Societal trust is a core
dimension of social capital (Hilary & Huang 2015), which has been expressed as a crucial determinant of corporate policy and per
formance (Dudley & Zhang 2016; Lins et al. 2017; Brockman et al. 2018; Álvarez-Botas & González 2021). Trust is a function of a
country’s legal systems, ensuring that agents fulfill their fiduciary responsibilities. Greater societal trust may be beneficial to efficiency,
because it reduces opportunism during collaboration such as knowledge spillover risks and free-rider issues (Brockman et al. 2018).
Therefore, it follows that these factors potentially influence board diversity and the corporate performance and policy nexus. Ji et al.
(2021) show a negative relationship between tenure diversity and firm risk, and this effect is positively moderated by national culture
measured by individualistic and power distance to the extent that greater societal trust reflects beliefs of a group of firms or individuals
(Dudley & Zhang 2016). As societal trust may increase the ties and cooperation between people in a group (La Porta et al. 1997), firms
in high-trust countries are able to produce a higher level of joint output and innovative efficiency (Brockman et al. 2018), obtain a
lower cost of debt financing (Meng & Yin 2019; Álvarez-Botas & González 2021), and have lower default risk (Ho et al. 2020).
In the first hypothesis we argue that greater tenure diversity generates better discussions and deliberations that may benefit firm
efficiency, while a lack of consensus may make interactions between subgroups more difficult and disruptive, slowing the process of
establishing a shared understanding and committing to a final decision. It is argued that individuals in high-trust countries are ex
pected to care about the shared group goals and values rather than their personal interests (Ashforth & Mael 1989). Therefore, societal
trust enhances discussion performance as well as the group consensus. As a result, in a high-trust society, tensions between junior and
senior board directors are reduced, and tenure diversity will lower board coordination costs, making it easier to achieve predictable
team performance, particularly investment efficiency. We predict that societal trust strengthens the positive impact of board tenure
diversity on firm investment efficiency. Taken together, we propose our testable hypothesis as follows.
5
Hypothesis 5. The positive impact of board tenure diversity on investment efficiency is more pronounced for firms in countries with high
societal trust.
3. Data and research design
3.1. Sample selection
We collect firm accounting data from Compustat North America and Global annual databases between 1999 and 2019. Next, we
merge the Compustat data with board characteristics from Boardex. To ensure our sample is comparable across countries, we exclude
firms with total assets less than $10 million and firms with negative sales or book value of equity. In addition, financial and utility firms
are dropped from the sample as regulations in these industries are different from those in other sectors. We then drop all missing
observations, remove countries with fewer than 50 observations, and winsorize all continuous variables at the top and bottom 1 % to
eliminate any outlier influence. We utilize a final panel data of 81,750 firm-year observations of 11,649 unique firms across 45
countries from 1999 to 2019. Regarding country-level variables, we employ national governance quality from World Governance
Indicators, macro-level characteristics from the World Development Index, societal trust from the World Value Survey (WVS),
shareholder protection from Guillén and Capron (2016), and economic policy uncertainty from Baker et al. (2016).
3.2. Measure of variables
3.2.1. Board tenure diversity

Following Bernile et al. (2018) and Li and Wahid (2018), we measure board tenure diversity in two ways. First, tenure diversity is
gauged as a coefficient of the variation of board member tenure lengths (BTD). Specifically, we calculate BTD as the standard deviation
(σijt ) over the mean (μijt ) of board member tenure lengths of firm i in country j in year t as follows:
σijt
BTDijt = (1)
μijt
Second, we use the standard deviation of board member tenure lengths to measure board tenure diversity (BTD_STD).1
3.2.2. Investment efficiency

Following previous studies related to investment efficiency, we employ abnormal investment developed by Biddle et al. (2009) to
measure investment efficiency at the firm-level. Specifically, abnormal investment is the deviation from optimal investment to actual
investment. Thus, higher abnormal investment is associated with lower investment efficiency. Empirically, we run the following
model:
INV ijt = β0 + β1 SGijt− 1 + ∈ijt , (2)
where i, j, and t denote firm, country, and year, respectively; INV is total investment, calculated as the sum of R&D expenditure, capital
expenditure, and acquisition expenditure less cash receipts from sale of property, plant, and equipment, scaled by lagged total assets;
and SG is the percentage change in sales.
Eq. (2) is estimated cross-sectionally for each country in a given year based on Fama and French’s (1997) 48 industry classifica
tions. Following Biddle et al. (2009), we require at least 20 observations in a given country-industry-year. The residuals from the
regression model reflect the deviation from the expected investment level. Under this setting, a firm overinvests if its residual from Eq.
(2) is positive and underinvests if its residual is negative. We take absolute values of residuals as our main proxy for firm investment
efficiency (|AB_INV|), an so higher values of |AB_INV| mean higher inefficiency.
In robustness checks we also use the capital expenditure ratio (CAPX) measured by capital expenditures scaled by the lagged book
value of assets, the sum of yearly growth in property, plants, and equipment, plus growth in inventory, plus research and development
expenditure (R&D), deflated by the lagged book value of assets, in order to measure investment efficiency. Higher values of CAPX and
R&D denote higher investment efficiency. For consistency, we multiply these variables by − 1, where – (1) × CAPX and – (1) × R&D
indicate higher investment inefficiency. Finally, we use absolute abnormal investment from the models of Richardson (2006) and Chen
et al. (2011) as alternative proxies of investment inefficiency.
3.2.3. Control variables

We include a rich set of board-level, firm-level, and country-level variables that influence firm investment efficiency as suggested in
prior studies (Li & Wahid 2018; Ji et al. 2021). First, to control for board characteristics, we capture board size, which is the natural
logarithm of the total number of directors on the board (B_SIZE); CEO duality, which is an indicator variable that equals 1 if the CEO
also chairs the board and 0 otherwise (B_DUAL); the proportion of non-executive directors on the board (B_IDD); and the proportion of
1
For robustness check, we split director tenure into 10 deciles of tenure, with 1 being the shortest tenure and 10 the longest tenure, based into
which decile each director’s tenure falls. Next, we employ the 10 deciles to create the tenure diversity measure for each firm-year as shown by this
∑10 (Totaldirectorsindecilex )2
equation: BTD HHIijt = 1 − x=1 Totaldirectors . We find that the results remain unaltered.
6
female directors (B_GENDER). In addition, we take into account other aspects of board diversity such as standard deviation of directors’
ages (B_DIV_AGE), standard deviation of the number of directorships in any firm held by the directors of the listed firm (B_DIV_EXP),
and the proportion of foreign directors on the board (B_DIV_ETH).
Turning to firm characteristics, we include firm size, defined as the natural logarithm of total assets (SIZE), and firm age, defined as
the natural logarithm of the number of years since incorporation (AGE). Small and young firms exhibit higher agency costs (Jensen &
Meckling 1976), which highly correlate to investment efficiency. We also capture growth opportunities as in Biddle et al. (2009) by
including Tobin’s Q (TOBIN Q) as the market value of equity minus the book value of equity plus the book value of assets, all scaled by
the book value of assets. The pecking order theory indicates that firms with high financial leverage and low asset tangibility are more
likely to face high external financing costs (Myers & Majluf 1984). We include the ratio of net property, plants, and equipment to total
assets (TANGIBLE) and the ratio of total debt to total assets (LEVERAGE). Cash-rich firms tend to have higher available resources (Chen
et al. 2017), thereby increasing investment efficiency. We include the ratio of cash and short-term investment to net assets (CASH). We
also control for economic conditions and loss (Gomariz & Ballesta 2014) by including LOSS, which is an indicator variable that equals 1
if the firm experiences a negative return on assets and 0 otherwise. Furthermore, we control for business uncertainty, which distorts
firm investment efficiency (Minton & Schrand 1999), with the following variables: VOL_CF, the standard deviation of revenue divided
by total assets over a 4-year period, and VOL_ROA, the standard deviation of return on assets over a 4-year period.
To control for the effects of macroeconomic development on firm investment efficiency we include the rule of law index (RLE),
which influences perceptions of the extent to which agents have confidence in and comply with the rules of society, and in particular
the quality of contract enforcement, property rights, the police and the courts, as well as the likelihood of crime and violence. GDP
GROWTH is the GDP growth rate (in constant US dollars). CAPITA is the natural logarithm of GDP per capita, following Gu et al.
(2019).
3.3. Model specifications
To investigate the relationship between board tenure diversity and firm investment efficiency, we employ panel data regression
analysis as follows:
(3)
′ ′
|AB INV|ijt = α + β1 BTDmeasureijt + ρ Xijt + θ Zjt + FEs + εijt ,
where i, j, and t denote firm, country, and year, respectively. The dependent variable, |AB_INV|, is the absolute abnormal investment
estimated from the Biddle et al. (2009) model. BTD measure covers board tenure diversity, including BTD and BTD_STD. X is the set of
board and firm characteristics as described in Section 3.2. Additionally, Z is a vector of country-level characteristics, including RLE,
GDP GROWTH, and CAPITA. Finally, FEs is a set of industry, country, and year dummy variables to control for industry, country, and
time fixed effects. Industries are classified based on the Fama and French 48 industry codes. All standard errors are clustered at the firm
level.2 Note that β1 in Eq. (3) gauges the effect of board tenure diversity on firm investment efficiency. If higher tenure diversity leads
to higher investment efficiency (i.e., a lower abnormal investment), then we expect β1 to be negative and significant.
4. Empirical results
4.1. Descriptive statistics
Table 1 reports the sample distribution and summary statistics by country. We find that the number of unique firms and obser
vations varies significantly across countries. For example, UAE has the fewest observations at 83, while the U.S. accounts for the most
with 32,714 observations of 4,713 unique firms.3 In addition, firms in Spain, Singapore, and Italy have the highest investment effi
ciency on average, whereas Israel, Denmark, and Canada are the top countries with firms that have the highest suboptimal in
vestments. Table 1 also reports that the variations in board tenure diversity (BTD) across countries range from 0.402 in the Cayman
Islands to 0.792 in Japan. In terms of country-level characteristics, it appears that, on average, institutional quality in developing
countries is worse than that in developed countries. An aggregate index of WGI is − 6.514 in Nigeria whereas it is over 10 in Norway,
Sweden, and Switzerland. This raises an interesting question of whether and how these factors influence the linkage between board
tenure diversity and investment efficiency.
Table 2 reports summary statistics for the full sample. Our main dependent variable, abnormal investment (|AB_INV|), has a mean
(standard deviation) of 0.092 (0.095). The mean BTD for the whole sample is 0.565, while the mean and the standard deviation of
BTD_STD are 3.893 and 3.558, respectively. Firms in our sample have an independent director’s ratio of 36.3 %, and 9.7 % of board
members are female.
2
We obtain qualitatively similar results when using alternative sets of fixed effects such as firm, country-industry, and industry-year joint fixed
effects and clustered at country and year levels.
3
In the robustness check, we exclude U.S. firms and find qualitatively similar results.
7
Table 1
Summary statistics by country.
Economy Firms Obs Per |AB_INV| BTD BTD_STD WGI SP TRUST
Argentina 50 149 0.182 0.097 0.560 3.133 − 2.663 5.750 0.191

Australia 621 3,738 4.572 0.104 0.589 3.231 9.513 6.750 0.515
Austria 35 317 0.388 0.101 0.623 4.096 9.154 6.030 N/A
Belgium 71 663 0.811 0.094 0.732 5.921 7.799 5.539 N/A
Bermuda 101 382 0.467 0.079 0.601 4.875 6.649 N/A N/A
Brazil 100 583 0.713 0.059 0.643 3.108 − 0.448 5.500 0.074
Canada 753 3,275 4.006 0.108 0.501 3.641 9.756 6.750 0.394
Cayman Islands 276 1,141 1.396 0.071 0.402 2.390 5.401 N/A N/A
Chile 20 128 0.157 0.089 0.760 6.161 6.598 4.250 0.128
China 130 641 0.784 0.063 0.669 2.974 − 2.778 6.660 0.589
Cyprus 26 89 0.109 0.087 0.653 4.271 2.953 5.305 0.093
Denmark 53 412 0.504 0.109 0.733 4.543 10.653 3.000 N/A
Finland 97 599 0.733 0.074 0.656 3.636 10.901 6.276 0.575
France 395 3,921 4.796 0.073 0.671 5.124 7.073 7.166 0.186
Germany 326 2,756 3.371 0.089 0.707 4.236 8.975 6.308 0.377
Greece 23 251 0.307 0.049 0.730 4.780 2.627 4.993 0.083
Hong Kong 61 492 0.602 0.055 0.646 5.626 8.697 6.899 0.433
India 406 2,723 3.331 0.078 0.682 5.390 − 1.336 6.701 0.177
Indonesia 86 360 0.440 0.069 0.628 4.079 − 1.345 4.253 0.248
Ireland 23 199 0.243 0.096 0.643 4.590 8.882 N/A N/A
Israel 43 551 0.674 0.112 0.665 4.117 3.887 N/A 0.229
Italy 106 772 0.944 0.051 0.678 4.739 3.191 6.811 0.275
Japan 311 1,726 2.111 0.068 0.792 4.681 8.027 7.000 0.357
Luxembourg 20 105 0.128 0.079 0.483 3.783 10.250 6.229 N/A
Malaysia 153 918 1.123 0.052 0.632 5.550 2.193 6.250 0.117
Mexico 51 337 0.412 0.058 0.586 5.880 − 1.508 5.476 0.121
Netherlands 85 836 1.023 0.065 0.681 3.994 10.091 4.612 0.508
New Zealand 41 190 0.232 0.080 0.612 3.783 10.962 6.750 0.545
Nigeria 20 117 0.143 0.092 0.778 4.181 − 6.514 5.250 0.148
Norway 103 1,026 1.255 0.083 0.693 3.338 10.403 5.551 0.717
Philippines 48 191 0.234 0.058 0.557 5.451 − 1.963 3.150 0.038
Poland 25 157 0.192 0.062 0.716 3.252 4.605 7.348 0.213
Portugal 29 312 0.382 0.054 0.587 3.821 6.240 6.252 N/A
Saudi Arabia 29 89 0.109 0.058 0.734 3.649 − 1.594 N/A N/A
Singapore 237 1,283 1.569 0.046 0.533 4.223 9.413 7.250 0.342
South Africa 173 1,215 1.486 0.064 0.667 4.399 1.307 5.667 0.285
South Korea 41 169 0.207 0.101 0.656 2.485 4.801 7.750 0.306
Spain 85 724 0.886 0.047 0.705 5.339 5.075 4.750 0.197
Sweden 216 1,612 1.972 0.085 0.703 4.405 10.503 5.826 0.637
Switzerland 137 1,201 1.469 0.083 0.636 4.605 10.541 4.543 0.467
Thailand 102 426 0.521 0.081 0.649 3.952 0.568 5.448 0.334
Turkey 31 186 0.228 0.070 0.771 4.619 − 1.575 5.930 0.118
UAE 20 83 0.102 0.089 0.610 3.053 3.776 4.482 N/A
United Kingdom 1,201 11,991 14.668 0.082 0.615 3.841 8.616 6.695 0.298
United States 4,689 32,714 40.017 0.106 0.460 3.456 7.951 7.070 0.374
This table reports sample distribution and the means of main variables by countries used in this paper. The sample covers the period between 1999
and 2019. Variable definitions and sources are in Appendix 1.
4.2. Board tenure diversity and investment efficiency
We first examine the general association between board tenure diversity and investment efficiency using ordinary least squares
(OLS) estimation. Table 3 reports the results from estimating Eq. (4). We use BTD as a measure of board tenure diversity in columns (1)
and (2) whereas BTD_STD is employed in columns (3) and (4). In columns (2) and (4) we include country, industry, and year fixed
effects to control for country-level heterogeneity, industry, and time-invariant factors that may correlate with the level of investment
efficiency. Industry classification is based on Fama and French’s 48 industry codes. Across all the model specifications, we observe that
the coefficients of BTD and BTD_STD are negative and statistically significant at the conventional level, supporting our Hypothesis 1a
that board tenure diversity enhances firm investment efficiency.
In terms of economic significance, as Column (2) reports, the coefficient on BTD is − 0.006, implying that a one standard deviation
change in board tenure diversity is associated with a 2.12 % decrease in abnormal investment, which is equivalent to 23.04 % of the
sample mean. Our findings complement the results from previous studies on board diversity (Harjoto et al. 2018; Ullah et al. 2020).
These studies document a positive relationship between task-oriented diversity and investment efficiency. Harjoto et al. (2018) only
use a U.S. data sample while Ullah et al. (2020) investigate China’s market. In addition, these papers measure task-based diversity by
combining both tenure and expertise diversity that cannot explicitly analyze the role of diverse-tenure length in decision-making
related to investment projects. In a later section, we also investigate how tenure diversity mitigates overinvestment and underin
vestment problems and delve further into the mechanisms leading to such effects.
8
Table 2
Descriptive statistics.
N Mean SD P25 P50 P75 P95
Investment inefficiency
|AB_INV| 81,750 0.092 0.095 0.027 0.060 0.116 0.303
− (1) × CAPX 81,750 − 0.046 0.045 − 0.059 − 0.031 − 0.014 − 0.002
− (1) × R_D 81,750 − 0.036 0.070 − 0.044 − 0.006 − 0.004 − 0.002
|AB_CHEN| 81,750 0.065 0.076 0.027 0.052 0.075 0.183
|AB_RICH| 81,750 0.103 0.098 0.031 0.077 0.136 0.289
Board tenure diversity
BTD 81,750 0.565 0.326 0.358 0.602 0.778 1.031
BTD_STD 81,750 3.893 3.558 1.400 2.900 5.310 11.902
BTD_HHI 81,750 0.683 0.702 0.598 0.663 0.792 0.850
Board characteristics
B_SIZE 81,750 2.020 0.412 1.792 2.079 2.303 2.639
B_DUAL 81,750 0.009 0.095 0.000 0.000 0.000 0.000
B_IDD 81,750 0.363 0.333 0.000 0.333 0.571 0.923
B_GENDER 81,750 0.097 0.128 0.000 0.000 0.182 0.333
B_DIV_AGE 81,750 7.905 2.438 6.200 7.600 9.610 12.000
B_DIV_EXP 81,750 1.858 1.435 1.000 1.600 2.500 4.100
B_DIV_ETH 81,750 0.188 0.242 0.000 0.000 0.400 0.600
Firm characteristics
SIZE 81,750 6.592 2.687 4.712 6.482 8.091 11.32
AGE 81,750 1.998 0.765 1.609 2.118 2.565 2.996
TOBIN Q 81,750 2.418 1.870 1.704 2.121 2.462 6.170
TANGIBLE 81,750 0.254 0.218 0.078 0.253 0.360 0.723
CASH 81,750 0.176 0.181 0.046 0.118 0.233 0.595
LEVERAGE 81,750 0.204 0.191 0.029 0.174 0.315 0.559
LOSS 81,750 0.281 0.449 0.000 0.000 1.000 1.000
VOL_CF 81,750 0.003 0.017 0.000 0.000 0.000 0.004
VOL_ROA 81,750 0.098 0.159 0.018 0.041 0.089 0.329
IO 69,482 0.658 0.168 0.495 0.594 0.672 0.890
PAYOUTS 81,750 0.601 0.487 0.000 0.526 1.000 1.000
ZSCORE 78,394 3.062 0.631 2.958 3.157 3.256 4.159
CYCLE 81,648 4.014 1.145 3.125 3.658 4.965 5.354
LEV_INS 81,750 0.204 0.073 0.160 0.187 0.241 0.333
ACCRUAL 81,750 0.067 0.158 0.032 0.057 0.068 0.083
Macro characteristics
RLE 81,750 1.431 0.536 1.443 1.602 1.696 1.891
GDP GROWTH 81,750 0.022 0.022 0.014 0.024 0.032 0.057
CAPITA 81,750 10.521 0.761 10.614 10.730 10.812 11.041
WGI 81,750 7.433 2.915 7.465 7.956 9.208 10.211
SP 79,939 6.722 0.731 6.625 6.875 7.250 7.250
TRUST 78,676 0.356 0.112 0.298 0.359 0.393 0.552
EPU 70,869 4.838 0.488 4.506 4.851 5.042 5.758
IFRS 81,750 0.452 0.497 0.000 0.000 1.000 1.000
CRISIS 81,750 0.112 0.316 0.000 0.000 0.000 1.000
This table reports the number of observations, means, standard deviations, and the 25th, 50th, 75th, and 95th percentiles for the variables used in this
paper. The sample covers the period between 1999 and 2019. Variable definitions and sources are in Appendix 1.
Referring to the control variables, the positive coefficients of B_SIZE and B_DIV_ETH support the notion that larger board size and
more ethnic diversity are associated with lower investment efficiency (Zou et al. 2021). We find the presence of female directors
benefits firms by reducing abnormal investment, which is consistent with previous studies (Chen et al. 2016; Griffin et al. 2021). In line
with Biddle et al. (2009), the coefficient estimates are significantly negative for firm size, firm age, and leverage. and they are
significantly positive for Tobin’s Q, tangibility, the standard deviations of sales, and ROA. Since other control variables exhibit
insignificant effects (e.g., B_DUAL and B_IDD) or mixed signs (e.g., CASH), we thus have weak evidence corresponding to their effects
on firm investment efficiency in this study.
We further investigate the effect of board tenure diversity on specific forms of investment inefficiencies, including overinvestment
(positive residuals) and underinvestment (negative residuals). We estimate Eq. (4) for these subsamples and report the results in
Table 4. We find that board tenure diversity benefits firms by reducing inefficiencies in both overinvestment and underinvestment.
Interestingly, the coefficients on BTD and BTD_STD are larger in the overinvestment group than in the underinvestment group. This is
consistent with the notion that boards with different durations of director tenure may benefit from having both senior and less tenured
directors, who may act as checks and balances on one another, thus enhancing board monitoring, which mitigates empire-building and
prevents non-positive NPV investments (Hu et al. 2020). Thus, investment efficiency will rise, especially when it comes to eliminating
overinvestment.
9
Table 3
Board tenure diversity and investment efficiency.
Dep. Var.: |AB_INV|
(1) (2) (3) (4)
BTD − 0.007*** − 0.006***

(-4.896) (-3.620)
BTD_STD − 0.003** − 0.001***
(-2.376) (-3.236)
B_SIZE 0.010*** 0.010*** 0.008*** 0.009***
(7.182) (5.382) (6.466) (5.271)
B_DUAL − 0.000 0.000 − 0.000 − 0.000
(-0.047) (0.002) (-0.119) (-0.014)
B_IDD − 0.000 0.008*** − 0.001 0.008***
(-0.196) (4.338) (-0.392) (4.234)
B_GENDER − 0.008** − 0.006 − 0.008** − 0.006**
(-2.226) (-1.183) (-2.104) (-2.173)
B_DIV_AGE − 0.000 0.000 − 0.000 0.000
(-1.180) (0.437) (-0.681) (0.491)
B_DIV_EXP − 0.002*** − 0.001** − 0.002*** − 0.001**
(-6.076) (-2.126) (-6.065) (-2.036)
B_DIV_ETH 0.013*** 0.008*** 0.014*** 0.008***
(6.205) (3.083) (6.690) (3.138)
SIZE − 0.003*** − 0.004*** − 0.003*** − 0.004***
(-9.173) (-9.786) (-9.106) (-9.719)
AGE − 0.008*** − 0.008*** − 0.008*** − 0.008***
(-9.895) (-8.554) (-10.956) (-8.838)
TOBIN Q 0.009*** 0.008*** 0.009*** 0.008***
(25.779) (24.503) (25.778) (24.485)
TANGIBLE 0.114*** 0.121*** 0.115*** 0.121***
(32.137) (32.012) (32.131) (31.999)
CASH 0.149*** 0.121*** 0.149*** 0.121***
(27.525) (24.792) (27.500) (24.772)
LEVERAGE − 0.031*** − 0.023*** − 0.031*** − 0.023***
(-7.512) (-5.876) (-7.479) (-5.894)
LOSS 0.014*** 0.009*** 0.014*** 0.009***
(11.049) (7.651) (10.916) (7.641)
VOL_CF 0.000*** 0.000*** 0.000*** 0.000***
(3.697) (6.256) (3.640) (6.288)
VOL_ROA 0.061*** 0.055*** 0.060*** 0.054***
(10.384) (9.932) (10.163) (9.869)
RLE 0.012*** 0.000 0.012*** 0.000
(7.997) (0.163) (7.821) (0.163)
GDP GROWTH 0.083*** 0.203*** 0.083*** 0.202***
(4.692) (7.748) (4.671) (7.683)
CAPITA − 0.004*** − 0.049*** − 0.004*** − 0.049***
(-3.321) (-4.785) (-3.138) (-4.832)
CONSTANT 0.052*** 0.539*** 0.051*** 0.545***
(4.408) (5.068) (4.335) (5.120)
Fixed effects – CIY – CIY
Observations 81,750 81,750 81,750 81,750
Adjusted R2 0.232 0.313 0.231 0.313
This table presents the regression results of the impact of board tenure diversity on investment efficiency using two measures of board tenure di
versity, BTD and BTD_STD. The dependent variable is absolute abnormal investment (|AB_INV|). We also include country, industry, and year (CIY)
fixed effects in the model. Variable definitions and sources are in Appendix 1. We report t-statistics based on standard errors clustered by firm.
Significance at the 10%, 5%, and 1% levels is indicated by *, **, and ***, respectively.
4.3. Endogeneity
4.3.1. Omitted variables

Despite the fact that the use of fixed effects and a large array of control variables may have already absorbed the impacts of a vast
set of omitted variables, endogeneity concerns with both omitted variables and reverse causality may remain unresolved. To rule out
the possibility that board tenure diversity may pick up certain macroeconomic factors that affect all firms in a given year, and to
mitigate the concern that some firm-level unobserved time-invariant variables may bias the coefficient estimate on tenure diversity, we
first use the firm fixed effects model to deal with endogeneity caveats due to omitted variables. As shown in Panel A of Table 5, the
10
Table 4
Overinvestment or underinvestment.
Dep. Var.: |AB_INV|
Overinvestment Underinvestment
(1) (2) (3) (4)
BTD − 0.011** − 0.003**

(-2.008) (-2.973)
BTD_STD − 0.007* − 0.004***
(-1.858) (-2.790)
B_SIZE 0.000 0.000 0.004*** 0.004***
(0.114) (0.043) (7.111) (7.595)
B_DUAL 0.005 0.005 − 0.000 − 0.000
(0.623) (0.622) (-0.264) (-0.219)
B_IDD 0.003 0.003 0.000 0.000
(1.076) (0.944) (0.501) (0.641)
B_GENDER − 0.016* − 0.017* − 0.000 − 0.000
(-1.900) (-1.918) (-0.096) (-0.023)
B_DIV_AGE 0.001*** 0.001** − 0.000 − 0.000
(2.609) (2.576) (-1.113) (-0.947)
B_DIV_EXP − 0.001* − 0.001* − 0.000* − 0.000*
(-1.788) (-1.771) (-1.847) (-1.879)
B_DIV_ETH 0.001 0.001 0.001 0.001
(0.300) (0.314) (1.599) (1.603)
SIZE − 0.009*** − 0.009*** 0.001*** 0.001***
(-16.032) (-15.983) (10.796) (10.688)
AGE − 0.010*** − 0.010*** − 0.000 − 0.000
(-7.584) (-7.780) (-1.183) (-0.978)
TOBIN Q 0.006*** 0.006*** 0.001*** 0.001***
(16.799) (16.805) (11.728) (11.708)
TANGIBLE 0.073*** 0.073*** 0.039*** 0.039***
(12.001) (11.982) (29.706) (29.755)
CASH 0.092*** 0.092*** 0.005*** 0.005***
(16.467) (16.465) (3.948) (3.973)
LEVERAGE 0.011** 0.011** − 0.013*** − 0.013***
(2.015) (2.012) (-11.796) (-11.832)
LOSS 0.018*** 0.018*** − 0.005*** − 0.005***
(9.757) (9.800) (-14.137) (-14.232)
VOL_CF 0.000*** 0.000*** 0.000 0.000
(4.093) (4.101) (0.197) (0.193)
VOL_ROA 0.078*** 0.078*** − 0.003*** − 0.004***
(12.670) (12.685) (-2.991) (-3.122)
RLE − 0.003 − 0.003 − 0.001 − 0.001
(-0.912) (-0.906) (-1.513) (-1.508)
GDP GROWTH 0.102* 0.104** 0.060*** 0.059***
(1.935) (1.964) (6.479) (6.350)
CAPITA − 0.025 − 0.026 − 0.005 − 0.005
(-1.466) (-1.498) (-1.503) (-1.530)
CONSTANT 0.446** 0.452** 0.066* 0.067*
(2.480) (2.512) (1.932) (1.955)
Fixed effects CIY CIY CIY CIY
Observations 27,895 27,895 53,855 53,855
Adjusted R2 0.308 0.246 0.309 0.245
This table presents the regression results of the impact of board tenure diversity on investment efficiency using a subsample of overinvestment and
underinvestment groups. The dependent variable is absolute abnormal investment (|AB_INV|). We also include country, industry, and year (CIY) fixed
effects in the model. Variable definitions and sources are in Appendix 1. We report t-statistics based on standard errors clustered by firm. Significance
at the 10%, 5%, and 1% levels is indicated by *, **, and ***, respectively.
coefficient estimates on BTD and BTD_STD are consistently negative in all specifications, regardless of the definition of tenure diversity
usage, suggesting that firms with higher tenure diversity exhibit higher investment efficiency.4
4.3.2. Reverse causality

One major concern in our analysis is the possibility of endogeneity bias due to reverse causality. Our evidence thus far indicates that
tenure diversity reduces abnormal investment, but this effect attenuates once firms with lower investment efficiency replace directors
to make their board more diverse. One may raise doubts about the extent to which tenure diversity drives our results, as unobserved
4
In a later section we also account for omitted variables by controlling for institutional ownership, payout policy, financial distress, firm life cycle,
leverage trends, financial report quality, economic policy uncertainty, and financial crisis. The reported findings remain unchanged.
11
Table 5
Endogeneity.
Panel A. Firm fixed effects
Dep. Var.: |AB_INV|
(1) (2)
BTD − 0.011***
(-3.289)
BTD_STD − 0.006**
(-2.418)
Control variables as in Table 3 Yes Yes
Fixed effects FY FY
Observations 81,750 81,750
Adjusted R2 0.685 0.726
Panel B. Instrumental variable regressions
Dep. Var.: First stage Second stage
BTD BTD_STD |AB_INV|
(1) (2) (3) (4)
BTD_INDUS 0.913***
(46.078)
BTD_STD_INDUS 0.962***
(69.480)
Fitted BTD − 0.038**
(-3.262)
Fitted BTD_STD − 0.018***
(-3.053)
Control variables as in Table 3 Yes Yes Yes Yes
Observations 81,750 81,750 81,750 81,750
Adjusted R2 0.716 0.749 0.306 0.313
Cragg-Donald F statistic 240.470 110.058
LM statistic 214.291*** 99.703***
This table presents the regression results of the impact of board tenure diversity on investment efficiency
using a firm fixed effects model in Panel A and the IV regression in Panel B. The dependent variable is
absolute abnormal investment (|AB_INV|). BTD_INDUS (BTD_STD_INDUS) is the country-industry-year
mean of BTD (BTD_STD) as an instrumental variable for board diversity. In Panel B we include coun
try, industry, and year (CIY) fixed effects in the models. Variable definitions and sources are in Ap
pendix 1. We report t-statistics based on standard errors clustered by firm. Significance at the 10%, 5%,
and 1% levels is indicated by *, **, and ***, respectively.
firm factors may drive tenure diversity and investment efficiency simultaneously. Thus, higher abnormal investment might not be due
to the incremental benefits of tenure heterogeneities as we argue thus far, but may simply be the result of the tenure diversity variable
proxying for the firm’s unobservable quality. To address this potential concern, we introduce an instrumental variable methodology.
We perform the instrumental variable estimation procedure that employs the industry-year-country mean of board tenure diversity
as an instrumental variable for a board diversity measure. Industry classification is based on the Fama and French 48 industry codes.
Numerous studies in corporate finance use the industrial average to construct an exogenous instrument variable. For example, in a
global analysis, Ye et al. (2019) employ country-industry-year average of female directors as an ideal instrument for board gender
diversity. Under this condition, the instrument is associated with board tenure diversity, but unlikely to correlate with firm investment
efficiency. The idea is that firms tend to follow their peers in the same country in diversifying the tenure of directors on their boards.5
The estimation results are provided in Panel B of Table 5. In the first stage we regress BTD and BTD_STD on the instrument, all
control variables, and fixed effects as in the baseline regression. As shown in columns (1) and (2), there are highly significant and
positive coefficients on the instrumental variable. In addition, the Cragg and Donald (1993) F-statistics are 240.470 and 110.058,
which are much higher than the approximate cutoff of 10 as suggested by Wooldridge (2016). We therefore reject the null hypothesis
and strongly conclude that the instruments (BTD_INDUS and BTD_STD_INDUS) are not weak. Furthermore, we find that the χ2 values
for the Anderson canonical correlations test are statistically significant at the 1 % level for all specifications; thus, we reject the null
hypothesis that our models are underidentified.
In the second stage we regress abnormal investment on the fitted value of board tenure diversity and all control variables. As shown
5
We acknowledge and give thanks to anonymous referees for this suggestion.
12
in columns (3) and (4), the coefficients on fitted BTD and BTD_STD load negatively and significantly. Hence, we strongly support the
positive relationship between board tenure diversity and investment efficiency after controlling for endogeneity.6
4.3.3. Selective bias

Our findings are likely to be influenced by sample selection bias. Because of the limitations of the original data, the study’s sample
comprises numerous U.S. companies; hence, our results are substantially impacted by U.S. corporations. In addition, our sample covers
11,649 unique firms across 45 countries. One may argue that our findings are driven by heterogeneities in firm characteristics, but are
unlikely so through board tenure diversity. To solve this issue, we employ the propensity score matching method.7 We match treated
firms that have high board tenure diversity with control firms that have low board tenure diversity. In the first step we employ a probit
regression model and regress an indicator variable to determine whether the firm has board tenure diversity in the top quartile on
control variables, industry, and year dummies to estimate the propensity score. Using these predicted probabilities and propensity
scores, we now find a control observation for each treated observation by using PSM with replacement (a caliper set at 0.001). We also
require control firms to have the same Fama and French 48 industry codes and the same year as treated firms. This results in 36,792
observations in the matched sample.
As shown in Panel A of Table 6, none of the mean values of firm characteristics are significantly different between treated and
control firms, indicating that the matching is done effectively. Using the matched sample, we re-run the OLS regressions and report the
results in Panel B of Table 6. As before, the estimated coefficients on BTD and BTD_STD are negative and significant. These results
suggest that endogeneity induced by sample selection bias does not affect our results. Taken all together, the findings lend strong
support to the positive association between board tenure diversity and investment efficiency, and this effect is less likely to be
influenced by potential endogeneity caveats.
5. Cross-Sectional analyses
5.1. Role of long tenure
To investigate whether the deterrent effects on investment efficiency by tenure diversity on the board could be moderated by firm-
level variation in tenure length, we define an indicator of a long-tenured board (LONG TENURE) taking the value 1 when board tenure
is above each of these respective medians and zero otherwise. We modify our baseline model by including the interaction terms be
tween LONG TENURE and board tenure diversity measures (BTD and BTD_STD). We also include all control variables and fixed effects
as in Eq. (3).
The results of this analysis are reported in Panel A of Table 7. In columns (1) and (2) we use the median of board tenure by country
and year to define the long tenure group, whereas it is defined by the median of board tenure by country, industry, and year in columns
(3) and (4). We observe that the coefficients on the interaction terms are negative and significant across all specifications. Taking
column (1) as an example, the coefficient on the interaction term is − 0.006, indicating that compared to firms with directors who have
short tenures, firms with long-tenure directors have 0.006 percentage points lower abnormal investment. These results confirm that
the effect of board tenure diversity on firm investment efficiency is stronger in firms with longer average board tenure and support
Hypothesis 2. We complement the recent findings of Ji et al. (2021), who indicate that firms with longer tenure benefit more from the
negative impact of board tenure diversity on firm risk. This is consistent with the expertise hypothesis and suggests that long-term
director engagement is associated with greater experience, commitment, and competence; therefore, firms with long-tenured di
rectors enjoy a higher beneficial effect on investment decisions.
5.2. Role of financial constraints
Previous research has shown that financial difficulties have a direct impact on investing decisions. According to Fazzari et al.
(1987), a firm’s financial condition impacts how investment projects are funded. As a result, the impact of board tenure diversity on
investment efficiency should vary among firms with diverse levels of financial constraint. To proxy for financial constraints, we use
three commonly proposed measures in the literature: (1) WW index (Whited & Wu 2006), (2) firm size (Hadlock & Pierce 2010), and
(3) dividend policy (Fazzari et al. 1987).8 Higher values of the WW index imply greater levels of financial constraint. Small firms are
considered financially constrained as they have difficulty in obtaining external financing. Empirically, we create a dummy variable for
a financially-constrained firm (FC) if a firm’s WW index (firm size) is greater (lower) than the sample median in a given year, valuing it
with 1 and zero otherwise. In addition, financially-constrained firms are less likely to pay dividends.
6
It is worth noting that our findings are quantitatively similar when we use the first-order lag of independent variables (Gul et al. 2011), a change-
on-change regression, and a two-stage system GMM (Arellano & Bond 1991; Blundell & Bond 1998) to deal with reverse causality and dynamic
panel data models.
7
The results from a later section indicate that our findings remain unchanged when we exclude U.S. companies from the sample and re-run the
regression.
8
WW index is calculated as − 0.091×C_F − 0.062×PAYOUTS + 0.021×ltd − 0.044×SIZE + 0.102×S_SIC − 0.035×S, where C_F is a ratio of cash
flow divided by total assets; PAYOUTS is a dummy variable that equals 1 if the firm pays a dividend and zero otherwise; ltd is long-term debt to total
assets; SIZE is the natural log of total assets; S_SIC is three-digit SIC sales growth; and S is the firm’s sales growth.
13
Table 6
Matching approach.
Panel A. Differences in firm characteristics in matched sample
Treated Control Difference t -statistic
B_SIZE 2.183 2.188 − 0.005 − 0.817

B_DUAL 0.011 0.014 − 0.003 − 0.287
B_IDD 0.458 0.458 0.000 1.609
B_GENDER 0.119 0.117 0.002 1.052
B_DIV_AGE 8.226 8.207 0.019 0.805
B_DIV_EXP 1.528 1.530 − 0.002 − 0.078
B_DIV_ETH 0.145 0.138 0.007 0.514
SIZE 7.302 7.312 − 0.010 − 1.112
AGE 2.341 2.340 0.001 0.170
TOBIN Q 2.327 2.321 0.006 0.390
TANGIBLE 0.257 0.258 − 0.001 − 0.360
CASH 0.162 0.156 0.006 0.572
LEVERAGE 0.207 0.211 − 0.004 − 1.011
LOSS 0.255 0.216 0.039 0.814
VOL_CF 4.130 4.121 0.009 0.616
VOL_ROA 0.077 0.076 0.001 0.770
Panel B. Results’ regression on matched sample
Dep. Var.: |AB_INV|
(1) (2)
BTD − 0.006**
(-2.328)
BTD_STD − 0.002***
(-3.005)
Fixed effects CIY CIY
Adjusted R2 0.267 0.269
This table reports the results of regressions using a propensity score matching method. We match treated firms (firms that have board tenure diversity
in the top quartile in a given year) to control firms. First, we estimate a prediction logit model that regresses the likelihood of being a treatment firm on
the firm-level control variables used in our primary analysis. We ensure that our treatment firms appear in the same Fama and French 48 industry code
and year. Second, we match treatment firms with benchmark firms with replacement by year. Panel A compares the differences in firm characteristics
between treated firms and control firms in the matched sample. Panel B shows estimation results using the matched sample. We also include all
control variables, country, industry, and year (CIY) fixed effects in the model. Variable definitions and sources are in Appendix 1. We report t-statistics
based on standard errors clustered by firm. Significance at the 10%, 5%, and 1% levels is indicated by *, **, and ***, respectively.
The variable of interest is the interaction term, BTD × FC (BTD_STD × FC), which captures the impact of financial constraint on the
association between board tenure diversity and firm investment efficiency. Panel B of Table 7 presents the result of this analysis. We
observe that the coefficient on FC is positive and statistically significant in almost all models, indicating that financial constraints
increase abnormal investment. However, the signs of the coefficients of the interaction terms in all models (except column (5)) are
negative and statistically significant; this is consistent with the notion that firms can take advantage of board tenure diversity to reduce
the negative effect of financial difficulties on investment efficiency. These findings support Hypothesis 3 in that the positive effect of
board tenure diversity on investment efficiency is more pronounced for financially-constrained firms.
5.3. Role of institutional quality
In this section we investigate the moderating role of institutional quality on board tenure diversity and investment efficiency
linkage. We employ-two measures of institutional quality: (1) an aggregate index of six national governance indicators from the
Worldwide Governance Indicators by the World Bank (Kaufmann et al. 2010) and (2) shareholder protection from Guillén and Capron
(2016). The six governance indicators are voice and accountability, political stability, government effectiveness, regulatory quality,
the rule of law, and control of corruption. Each indicator varies from − 2.5 to 2.5, with a higher score indicating better institutional
development. Detailed information about these six dimensions is presented in the Appendix.
Following Meng and Yin (2019), we empirically use a dummy variable for firms in countries with high institutional quality (HIGH
WGI) if a country’s aggregate index of national governance quality is greater than the yearly sample median; otherwise, the value is 0.
Second, we employ the shareholder protection index (Guillén & Capron 2016), which measures the degree of protection of minority
shareholder rights based on a list of 10 basic legal provisions (e.g., mandatory disclosure of major share ownership, prohibition of
multiple voting rights, and the feasibility of directors’ dismissal). This index ranges between 0 and 10, with a higher value denoting
better protection. Similarly, we create an indicator variable for firms in countries with high shareholder protection (HIGH SP) if
countries’ shareholder protection index is greater than the sample median in a given year; otherwise, the value is 0. We then interact
HIGH WGI and HIGH SP with board tenure diversity measures, which capture the impact of institutions on the association between
14
Table 7
Roles of long tenure and financial constraints.
Panel A. The role of long tenure
Dep. Var.: |AB_INV|
(1) (2) (3) (4)
BTD − 0.001 − 0.004*

(-0.501) (-1.768)
BTD_STD − 0.001* − 0.000
(-1.747) (-0.615)
BTD × LONG TENURE − 0.006* − 0.007***
(-1.907) (-3.188)
BTD_STD × LONG TENURE − 0.001*** − 0.001*
(-2.648) (-1.740)
LONG TENURE 0.006*** 0.007*** 0.002 0.005***
(2.738) (3.731) (0.873) (2.926)
Observations 81,750 81,750 79,939 79,939
Adjusted R2 0.314 0.314 0.310 0.314
Panel B. The role of financial constraints
Dep. Var.: |AB_INV|
WW INDEX FIRM SIZE NO DIVIDEND
(1) (2) (3) (4) (5) (6)
BTD − 0.002 − 0.003** − 0.003

(-1.351) (-2.225) (-1.309)
BTD_STD − 0.000 − 0.000 0.000
(-0.924) (-0.851) (0.085)
BTD × FC − 0.002*** − 0.016** − 0.003*
(-3.218) (-2.221) (-1.826)
BTD_STD × FC − 0.001** − 0.004*** − 0.001***
(-2.147) (-3.946) (-3.521)
FC 0.010*** 0.011*** 0.002 0.002** 0.025*** 0.026***
(7.310) (10.576) (1.429) (2.041) (12.957) (14.243)
Control variables as in Table 3 Yes Yes Yes Yes Yes Yes
Fixed effects CIY CIY CIY CIY CIY CIY
Observations 81,750 81,750 81,750 81,750 81,750 81,750
Adjusted R2 0.315 0.315 0.313 0.313 0.318 0.318
This table presents the results on the effect of board tenure diversity on investment efficiency conditional on long tenure in Panel A and on financial
constraints in Panel B. The dependent variable is absolute abnormal investment (|AB_INV|). In Panel A, LONG TENURE is an indicator that equals 1 if
the board tenure length is longer than each of the following median values and 0 otherwise: the median by country and year in columns (1) and (3),
and the median by country, year, and industry in columns (2) and (4). In Panel B, FC is an indicator that equals one if a firm’s WW index (total assets)
is greater (lower) than the sample median in a given year and zero otherwise. In columns (4) and (5), FC is an indicator that equals 1 for firm without
dividends and 0 otherwise. We also include country, industry, and year (CIY) fixed effects in the model. Variable definitions and sources are in
Appendix 1. We report t-statistics based on standard errors clustered by firm. Significance at the 10%, 5%, and 1% levels is indicated by *, **, and ***,
respectively.
15
Table 8
Roles of institutional quality and societal trust.
Panel A. The role of institutional quality
Dep. Var.: |AB_INV|
IQ = HIGH WGI IQ = HIGH SP
(1) (2) (3) (4)
BTD 0.002 − 0.002

(0.916) (-0.783)
BTD_STD − 0.001*** − 0.001***
(-3.613) (-4.044)
BTD × IQ − 0.008*** − 0.001*
(-4.165) (-1.847)
BTD_STD × IQ − 0.001*** − 0.001***
(-5.231) (-4.840)
IQ − 0.009*** − 0.007*** − 0.003 − 0.001
(-5.181) (-5.369) (-1.382) (-0.441)
Observations 81,750 81,750 79,939 79,939
Adjusted R2 0.314 0.314 0.326 0.326
Panel B. The role of societal trust
Dep. Var.: |AB_INV|
(1) (2)
BTD − 0.002
(-0.559)
BTD_STD − 0.000
(-1.366)
BTD × HIGH TRUST − 0.002*
(-1.787)
BTD_STD × HIGH TRUST − 0.001**
(-2.282)
HIGH TRUST 0.010** 0.012***
(2.551) (3.886)
Fixed effects CIY CIY
Adjusted R2 0.318 0.318
This table presents the results on the effect of board tenure diversity on investment efficiency conditional on intuitional quality in Panel A and societal
trust in Panel B. The dependent variable is absolute abnormal investment (|AB_INV|). In Panel A, HIGH WGI (HIGH SP) is an indicator that equals 1 if a
country’s the aggregate index of national governance quality (shareholder protection index) is greater than the sample median in a given year and
0 otherwise. In Panel B, HIGH TRUST is an indicator that equals 1 if a country’s trust index is greater than the sample median in a given year and
0 otherwise. We also include country, industry, and year (CIY) fixed effects in the model. Variable definitions and sources are in Appendix 1. We
report t-statistics based on standard errors clustered by firm. Significance at the 10%, 5%, and 1% levels is indicated by *, **, and ***, respectively.
board tenure diversity and firm investment efficiency.

The regression results are reported in Panel A of Table 8. The coefficient estimates on the interaction term BTD × HIGH WGI and
BTD × HIGH SP are negative and significant at the 1 % level in columns (1), (2), and (4) and at the 5 % level in column (3). Thus, this
finding indicates that the beneficial influence of board tenure diversity on firm investment efficiency is more pronounced for firms in
countries with high institutional quality, thus supporting Hypothesis 4. In line with the institutional theory (Scott 1987; Zucker 1987),
corporate governance quality is conditioned by the level of institutional quality prevailing in a country. Honoré et al. (2015) show that
poor regulatory institutional environments can stifle board investment intensity. Better institutional quality thus strengthens the
positive impact of tenure diversity on firm investment efficiency.
5.4. Role of societal trust
We thus far document a positive relationship between board tenure diversity and investment efficiency. A mix of long- and short-
tenure directors enables firms to obtain better knowledge and facilitate better discussions to make optimal investments. Greater social
trust, which represents the views of a group of businesses or individuals (Dudley & Zhang 2016), may strengthen ties and cooperation
among people in a group (La Porta et al., 1997). Individuals in high-trust nations are expected to prioritize communal aims and ideals
over personal interests (Ashforth & Mael 1989). We expect in nations with strong societal trust that the impact of board tenure di
versity on investment efficiency will be more prominent.
We follow previous studies (La Porta et al. 1997; Dudley & Zhang 2016; Meng & Yin 2019) by employing data from the World
Values Survey (WVS) and the European Value Survey (EVS) to proxy for trust. We focus on the question, “Generally speaking, would you
16
say that most people can be trusted or you need to be very careful in dealing with people?” Empirically, trust is the proportion of people who
replied to the survey with the answer “most people can be trusted” over the total people who conducted the survey. For years between
two adjacent surveys, we fill in the missing values using the most recent survey results (Brockman et al. 2018; Álvarez-Botas &
González 2021). We then create an indicator variable for high-trust countries (HIGH TRUST) if a country’s trust index is greater than
the yearly sample median; otherwise, the value is 0.
The regression results are reported in Panel B of Table 8. In column (1) the coefficient estimates on the interaction term BTD ×
HIGH TRUST are negative and significant at the conventional level. This finding is consistent with our predictions that the impact of
board tenure diversity is more pronounced for firms in countries with high societal trust. We obtain similar results when using BTD_STD
as a measure of board tenure diversity in column (2). In sum, we support Hypothesis 5 that the beneficial impact of board tenure
diversity on firm investment efficiency is more pronounced for firms in countries with high societal trust. These results complement
previous empirical studies such as Afriyie and Adza (2019) who indicate societal trust negatively correlates to a firm’s underinvest
ment. Our results augment this narrative by suggesting that societal trust becomes more valuable in environments characterized by
Table 9
Robustness checks.
Panel A. Alternative measures of investment efficiency
− (1) × CAPX − (1) × R_D Richardson (2006) |AB_RICH| Chen et al. (2011) |AB_CHEN| Chen et al. (2018)
(1) (2) (3) (4) (5)
BTD − 0.012*** − 0.014*** − 0.013** − 0.013** − 0.008***

(-2.978) (-3.691) (-2.429) (-2.281) (-2.998)
Control variables as in Table 3 Yes Yes Yes Yes Yes
Fixed effects CIY CIY CIY CIY CIY
Observations 81,750 81,750 81,750 81,750 81,750
Adjusted R2 0.289 0.363 0.194 0.150 0.256
Panel B. Additional firm-specific characteristics
IO PAYOUTS ZSCORE CYCLE LEV_INS ACCRUAL
(1) (2) (3) (4) (5) (6)
BTD − 0.008*** − 0.007** − 0.010*** − 0.013** − 0.004** − 0.002***

(-2.816) (-2.489) (-2.991) (-2.485) (-2.328) (-3.035)
Additional controls − 0.035*** − 0.024*** 0.001 0.002*** − 0.068*** 0.086***
(-13.633) (-27.341) (0.945) (3.958) (-12.944) (21.864)
Observations 69,482 81,750 78,394 81,648 81,750 81,750
Adjusted R2 0.337 0.313 0.318 0.314 0.315 0.405
Panel C. Further analyses
EPU IFRS CRISIS Excluding the US Clustering at WLS

country-level and year-level
(1) (2) (3) (4) (5) (6)
BTD − 0.003*** − 0.010*** − 0.003*** − 0.007*** − 0.004*** − 0.009**

(-2.907) (-2.537) (-2.546) (-2.901) (-3.178) (-2.547)
Additional controls 0.005*** − 0.000 0.000
(3.643) (-0.065) (0.035)
Observations 70,808 81,750 81,750 49,036 81,750 81,750
Adjusted R2 0.323 0.313 0.313 0.239 0.313 0.370
This table shows additional robustness tests of our results to alternative measures of investment efficiency, additional firm-specific and country-
specific characteristics, and other estimation methods. In Panel A we employ-four alternative proxies of investment efficiency: (1) capital expen
ditures scaled by the lagged book value of assets multiplied by − 1; (2) the sum of yearly growth in property, plants, and equipment, plus growth in
inventory, plus research and development expenditure, deflated by the lagged book value of assets multiplied by − 1; (3) absolute abnormal in
vestment from Richardson’s (2006) model; (4) absolute abnormal investment from Chen et al. (2011) model; an (5) use the Chen et al. (2018)
approach by regressing abnormal investment on both the first- and the second-stage regressors. In Panel B we include additional firm characteristics:
(1) the fraction of institutional investors (IO); (2) dividend policy (PAYOUTS); (3) insolvency risk (ZSCORE); (4) length of the operating cycle
(CYCLE), (5) industry leverage trends (LEV_INS); an (6) absolute discretionary accrual (ACCRUAL). In Panel C we control for economic policy un
certainty (EPU) in column (1); international financial report standard (IFRS) in column (2); and financial crisis (CRISIS) in column (3). We exclude U.
S. firms in column (4), cluster standard error at the country-level in column (5) and use WLS in column (6). The dependent variable in Panels B and C is
abnormal investment (|AB_INV|). We include all control variables as in Table 3. We also include country, industry, and year (CIY) fixed effects in the
model. Variable definitions and sources are in Appendix 1. We report t-statistics based on standard errors clustered by firm (except column (5) of
Panel C). Significance at the 10 %, 5 %, and 1 % levels is indicated by *, **, and ***, respectively.
17
higher director tenure diversity, which helps firms to avoid both overinvestment and underinvestment.
6. Robustness checks
6.1. Alternative measures investment efficiency
In this section we use a battery of sensitivity tests to verify the robustness of our findings. First, we use several alternative measures
of investment efficiency as suggested in prior studies (Chen et al. 2011; Gomariz & Ballesta 2014; Chen et al. 2017; González 2020).
Second, we consider the capital expenditure ratio measured by capital expenditures scaled by the lagged book value of assets
multiplied by − 1; namely, − (1) × CAPX. Third, we employ the sum of yearly growth in property, plants, and equipment, plus growth
in inventory, plus research and development expenditure deflated by the lagged book value of assets, multiplied by − 1; namely, − (1)
× R&D. Fourth, we estimate abnormal investment from the model of Richardson (2006) as follows:
INV ijt = β0 + β1 SGijt− 1 + β2 LEVERAGEijt− 1 + β3 CASH ijt− 1 + β4 SIZEijt− 1 + β5 RET ijt− 1 + β6 INV ijt− 1 + ∈ijt , (4)
where RET is earnings before interests and taxes deflated by total assets. All other variables are defined in the Appendix. We also take
the absolute values of the residuals of Eq. (4) to measure investment inefficiency.
The fourth alternative measure of investment efficiency follows the Chen et al. (2011) model to estimate abnormal investment. The
authors suggest that the association between investment and sales growth could differ between sales increase and sales decrease. We
augment Eq. (2) with the interaction term of SG and an indicator variable NEG that takes 1 for negative sales growth and zero
otherwise. Empirically, we retrieve absolute residuals from the following model:
INV ijt = β0 + β1 NEGijt− 1 + β2 SGijt− 1 + β3 NEGijt− 1 *SGijt− 1 + ∈ijt , (5)
Chen et al. (2018) indicate that two-stage estimations, where the first-stage residual is used as the dependent variable in the second-
stage regression, generate biased coefficients. The authors further suggest a solution that includes regressing the residual estimated
from the first stage of regression on both the first- and second-stage regressors. Following this suggestion, we regress abnormal in
vestment on both the first- and second-stage regressors that are all control variables of Eqs. (2) and (3).
Panel A of Table 9 shows the results of this analysis. We also include all baseline controls and fixed effects as in Table 3. We
document that the findings are unaltered by using alternative proxies of investment efficiency. The coefficients on BTD are negative
across specifications and highly significant, indicating that board tenure diversity tends to improve investment efficiency.9
6.2. Additional firm-specific characteristics
Although we employ a rich set of control variables that may influence investment efficiency, we further address omitted variables
by controlling for the following: (1) corporate governance practice by including the percentage of the firm’s shares held by institu
tional investors (IO); (2) dividend payout policy (PAYOUTS); and (3) insolvency risk (ZSCORE), the length of the operating cycle
(CYCLE), and industry leverage trends (LEV_INS). More importantly, we also control information asymmetries between firms and
capital providers by including absolute discretionary accrual (ACCRUAL) constructed by Jones (1991). The data on institutional
ownership are from Factset Ownership Tools. These variables are also defined in the Appendix.
Our results in Panel B of Table 9 show that investment efficiency positively and significantly correlates with corporate governance,
dividend policy, and leverage trends. Firms also appear to have lower efficiency once they have higher bankruptcy risk, higher
operating cycles, and lower earnings quality. Most importantly, our primary variable of interest, BTD, remains negative and highly
significant. We conduct the same analysis with BTD_STD and find similar results; however, these are not tabulated in the table for sake
of space.10 In sum, we find robust evidence that board tenure diversity is positively associated with investment efficiency.
6.3. Other sensitivity analyses
Panel C of Table 9 shows the impact of board tenure diversity on investment efficiency when we capture relevant macro-economic
variables, such as economic policy uncertainty (EPU), accounting report standard (IFRS), and financial crisis (CRISIS). The data on EPU
(Baker et al. 2016) are taken from the website policyuncertainty.com. Furthermore, we take into consideration sample variations by
excluding U.S. firms, using the country and year-level clusters for standard errors, as well as using the WLS model where we weight the
model by the number of observations by country. Again, our robust results indicate that board tenure diversity increases firm in
vestment efficiency. However, this effect tends to be weaker for countries with high economic policy uncertainty.
9
Note that our findings remain unchanged when we use BTD_STD to gauge board tenure diversity. For the sake of brevity, we do not report these
results in this table; however, they are available upon request.
10
The results still hold when we include all additional variables in this section in one regression.
18
7. Conclusion
The topic of board diversity is one of the most critical issues facing organizations in recent years. This is due to companies
discovering that, by supporting and promoting a diverse and inclusive workplace, they gain benefits that go beyond optics. In this
paper we investigate the impact of board tenure diversity on firm investment efficiency. Using an international sample of firms located
in 45 countries over a 20-year period, we find that board tenure diversity is positively associated with investment efficiency. Board
tenure diversity benefits firms, because it reduces suboptimal investments in both forms of overinvestment and underinvestment. We
also see that the relationship between board tenure diversity and investment efficiency is stronger when the directors have longer
tenure and when firms face financial constraints.
In additional analyses we show that the relationship between board tenure diversity and investment efficiency is more pronounced
for firms in countries with greater institutional quality and societal trust. Our study provides the first international evidence about the
role of corporate governance induced by board tenure diversity that enhances the efficiency of investment at the firm level. Overall,
our results highlight the benefits of board tenure diversity in shaping corporate investment efficiency.
This study offers several managerial insights and policy suggestions. Companies should consider a mix of long- and short-tenure
directors to enable firms to gain information, knowledge, skills, and talent in the boardroom. Thus, increased diversity may foster
optimal investment decisions by taking advantage of long-tenure directors and eliminating financial constraints. Similarly, govern
ments and market regulators should impose timely and appropriate policies aimed at directors’ tenure, with corporate board diversity
being encouraged and expanded via laws or regulations. This is particularly crucial now, as board diversity will likely become even
more powerful, because it may be perceived by the market as a signal of corporate resilience to the COVID-19 shock.
Despite these contributions and implications, our analysis is not without limitations. First, the study concentrates on only one
dimension of task-oriented diversity, which is tenure diversity. Future studies may investigate the far-reaching impact of other di
mensions of task-based diversity (e.g., expertise or education), non-task-related diversity (e.g., gender, age, race, or nationality), as
well as structural diversity (i.e., board independence and CEO non-duality) on investment efficiency. The interaction of many di
mensions of diversity might be an intriguing empirical subject to investigate. For example, how do board gender diversity and tenure
diversity affect investment efficiency in the case of female newcomers?
Second, future studies could consider the board tenure diversity – investment efficiency nexus by comparing developed and
emerging economies as well as pre-pandemic and during the pandemic. It also may be worthwhile to test whether the governance role
of boardroom diversity will vary among countries with different economic development periods. In addition, scholars should consider
the interaction between board diversity and other corporate governance variables such as ownership structure and takeover provisions
to explicitly explore whether the effect on investment efficiency is complemented or substituted. In this way, future works can expand
upon our understanding of global corporate governance phenomena.
Declaration of Competing Interest
The authors declare that they have no known competing financial interests or personal relationships that could have appeared to
influence the work reported in this paper.
Data availability
Data will be made available on request.
Appendix
See Table A1 and Table A2.
Table A1
Definition of variables.
Variable Definition Source
BTD Coefficient of variation of directors’ tenure lengths Boardex

BTD_STD Standard deviation of directors’ tenure lengths Same as above
BTD_HHI The tenure length of each director is sorted into one of 10 categories based on deciles. We then calculate the Same as above
following equation:
)
∑10 (Totaldirectorsindecilex 2
BTD HHIijt = 1 − x=1
Totaldirectors
B_SIZE Natural logarithm of total number of directors on the board Same as above
B_DUAL Dummy variable that is 1 if the CEO also chairs the board and zero otherwise Same as above
B_IDD Ratio of independent directors to total board size Same as above
B_GENDER Ratio of female directors to total board size Same as above
B_DIV_AGE Standard deviation of directors’ ages Same as above
B_DIV_EXP Standard deviation of the number of directorships in any firm held by the directors of the firms Same as above
(continued on next page)
19
Table A1 (continued )
Variable Definition Source
B_DIV_ETH Percentage of foreign directors to board size Same as above

INV Total investment of firm; calculated as the sum of R&D expenditure, capital expenditure, and acquisition Compustat
expenditure less cash receipts from sale of property, plant, and equipment, scaled by lagged total assets
SG Difference of sales in year t and year t-1, divided by sales in year t-1 Same as above
|AB_INV| Investment inefficiency is measured as the absolute residual from an investment model (Biddle et al., 2009) Authors’ calculations based on
that predicts the level of investment based on growth opportunities (measured by sales growth). Deviations Compustat
from the model, as reflected in the error terms of the investment model, represent the investment
inefficiency:
INVijt = β0 + β1 SGijt-1 + εijt
The model’s estimation is made cross-sectionally for each year and industry
CAPX Capital expenditures scaled by the lagged book value of assets Same as above
R_D Sum of yearly growth in property, plants, and equipment, plus growth in inventory, plus research and Same as above
development expenditure, deflated by the lagged book value of assets
|AB_CHEN| Absolute value of abnormal investment from the model of Chen et al. (2011) Same as above
|AB_RIC| Absolute value of abnormal investment from the model of Richardson (2006) Same as above
SIZE Natural log of total assets Same as above
AGE Natural log of number of years since incorporation Same as above
TOBIN Q Market value of equity minus the book value of equity plus the book value of assets, all scaled by the book Same as above
value of assets
TANGIBLE Net property, plant, and equipment (PPE) divided by the value of total assets Same as above
CASH Cash and short-term investment divided by net assets. Net assets are defined as total assets minus cash and Same as above
short-term investment.
LEVERAGE Total debt over total assets Same as above
LOSS Dummy variable that equals 1 if a firm experiences negative return on assets and zero otherwise Same as above
VOL_CF Standard deviation of revenue divided by total assets over a 4-year period. Cash flow is income before Same as above
extraordinary items, plus R&D expenditures, and plus depreciation.
VOL_ROA Standard deviation of return on assets over a 4-year period Same as above
IO Proportion of institutional ownership Factset Ownership Tools
PAYOUTS Indicator variable equal to 1 if a firm paid a dividend Compustat
ZSCORE 1.2*(working capital scaled by total assets) + 1.4*(retained earnings Same as above
scaled by total assets) + 3.3*(earnings before interest and tax scaled
by total assets) + 0.6*(market-to-book ratio) + sales scaled by total
assets
CYCLE Log of receivables to sales plus inventory to COGS multiplied by 360 Same as above
LEV_INS Mean LEVERAGE for firms in each country that are in the same SIC Same as above
3-digit industry
ACCRUAL Absolute value of discretionary accrual, estimated by the modified Jones (1991) model for each industry in Same as above
each year in each country
RLE Index captures perceptions of the extent to which agents have confidence in and comply to the rules of World Governance Indicators
society, and particularly the quality of contract enforcement, property rights, the police and the courts, as
well as the likelihood of crime and violence
EPU Natural log of economic policy uncertainty index Baker et al. (2016)
IFRS Indicator variable equal to 1 starting the year in which mandatory IFRS adoption became effective and
0 otherwise
CRISIS Indicator variable equal to 1 for years 2008 and 2009 and 0 otherwise Same as above
GDP GROWTH GDP growth rate World Development Indicators
(WDI)
CAPITA Natural log of GDP per capita WDI
WW INDEX WW index is calculated as − 0.091*C_F − 0.062*PAYOUTS + 0.021*ltd – 0.044*SIZE + 0.102*S_SIC − Same as above
0.035*S, in which C_F is a ratio of cash flow divided by total assets; PAYOUTS is a dummy variable that
equals 1 if the firm pays a dividend and 0 otherwise; ltd is long-term debt to total assets; SIZE is the natural
log of total assets; S_SIC is the three-digit SIC industry sales growth; and S is the firm’s sales growth
HIGH WGI Dummy variable that takes a value of 1 for countries that have a WGI index greater than the yearly sample The Worldwide Governance
median and 0 otherwise. WGI is measured by an aggregated index of country-level governance quality Indicators, The World
indices, including voice and accountability, political stability, government effectiveness, regulatory quality, Bank
rule of law, and control of corruption; higher WGI denotes higher institutional quality
HIGH SP Dummy variable that takes a value of 1 for countries that have a shareholder protection index greater than Guillén and Capron (2016)
the yearly sample median and 0 otherwise
HIGH TRUST Dummy variable that takes a value of 1 for countries with a trust level that is greater than the yearly sample WVS and EVS
median and 0 otherwise. Level of trust is the percentage of respondents who believe most people can be
trusted
20
Table A2
Matrix of correlations.
Variable (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
(1) |AB_INV| 1.00

(2) BTD − 0.07* 1.00
(3) BTD_STD − 0.05* 0.67* 1.00
(4) B_SIZE − 0.06* 0.43* 0.30* 1.00
(5) B_DUAL − 0.01* 0.01* 0.01* − 0.02* 1.00
(6) B_IDD − 0.04* 0.18* 0.23* 0.14* − 0.00 1.00
(7) B_GENDER − 0.05* 0.13* 0.11* 0.05* 0.03* 0.09* 1.00
(8) B_DIV_AGE − 0.03* − 0.10* − 0.01* 0.06* 0.00 0.04* − 0.09* 1.00
(9) B_DIV_EXP − 0.04* − 0.01* − 0.04* 0.13* − 0.02* 0.19* − 0.08* 0.13* 1.00
(10) B_DIV_ETH 0.04* − 0.05* 0.05* 0.13* 0.00 0.18* − 0.14* 0.04* 0.19* 1.00
(11) SIZE − 0.18* 0.17* 0.10* 0.38* − 0.02* 0.13* 0.12* 0.02* 0.06* 0.02* 1.00
(12) AGE − 0.17* 0.31* 0.27* 0.08* 0.02* 0.13* 0.19* − 0.02* − 0.06* − 0.09* 0.28*
(13) TOBIN Q 0.23* − 0.03* − 0.01* − 0.02* − 0.01* − 0.06* − 0.01 − 0.03* − 0.05* 0.02* − 0.02*
(14) TANGIBLE 0.11* 0.00 0.01 0.07* − 0.03* 0.02* − 0.06* 0.03* 0.01* 0.03* 0.21*
(15) CASH 0.32* − 0.05* − 0.03* − 0.11* − 0.00 − 0.04* − 0.03* − 0.03* − 0.03* − 0.03* − 0.26*
(16) LEVERAGE − 0.12* 0.00 − 0.02* 0.09* − 0.00 0.01* − 0.01 0.05* 0.02* 0.05* 0.23*
(17) LOSS 0.17* − 0.05* − 0.09* − 0.14* − 0.00 − 0.02* − 0.07* − 0.01* − 0.00 0.01* − 0.31*
(18) VOL_CF − 0.02* 0.06* 0.01* 0.11* − 0.01* − 0.02* − 0.03* − 0.04* − 0.04* − 0.02* 0.33*
(19) VOL_ROA 0.22* − 0.05* − 0.10* − 0.17* − 0.00 − 0.03* − 0.08* − 0.04* 0.01* 0.02* − 0.36*
(20) RLE 0.09* − 0.08* − 0.07* − 0.21* − 0.01* − 0.08* − 0.05* − 0.16* − 0.07* 0.04* − 0.38*
(21) GDP GROWTH 0.03* 0.07* 0.09* 0.12* − 0.02* 0.13* − 0.02* − 0.00 0.05* 0.02* 0.12*
(22) CAPITA 0.06* − 0.10* − 0.08* − 0.18* 0.01* − 0.10* − 0.00 − 0.16* − 0.10* 0.05* − 0.36*
(12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22)
(12) AGE 1.00
(13) TOBIN Q − 0.07* 1.00
(14) TANGIBLE 0.01* − 0.08* 1.00
(15) CASH − 0.14* 0.17* − 0.33* 1.00
(16) LEVERAGE 0.00 − 0.07* 0.28* − 0.34* 1.00
(17) LOSS − 0.17* − 0.05* − 0.05* 0.20* 0.05* 1.00
(18) VOL_CF 0.08* − 0.02* 0.05* − 0.03* 0.04* − 0.05* 1.00
(19) VOL_ROA − 0.15* 0.05* − 0.12* 0.27* − 0.03* 0.36* − 0.04* 1.00
(20) RLE − 0.09* 0.04* − 0.08* 0.05* − 0.08* 0.09* − 0.19* 0.10* 1.00
(21) GDP GROWTH − 0.07* 0.04* 0.07* − 0.01 0.01* − 0.06* 0.07* − 0.02* − 0.30* 1.00
(22) CAPITA − 0.05* 0.04* − 0.09* 0.07* − 0.06* 0.09* − 0.19* 0.07* 0.48* − 0.41* 1.00
This table reports the correlations matrix of variables used in our main analysis. The sample covers the period between 1999 and 2019. Variable
definitions and sources are in the Appendix 1. Significance at the 5% level is indicated by *.
References
Adams, R.B., de Haan, J., Terjesen, S., van Ees, H., 2015. Board diversity: moving the field forward. Wiley Online Library.
Afriyie, L.O., Adza, S., 2019. Societal trust and corporate investment efficiency. Int. J. Sci. Educ. Res.
Álvarez-Botas, C., González, V.M., 2021. Does trust matter for the cost of bank loans? J. Corporate Financ. 66, 101791.
Alves, P.F.P., Ferreira, M.A., 2011. Capital structure and law around the world. J. Multinational Financ. Manage. 21, 119–150.
Ancona, D.G., Caldwell, D.F., 1992. Bridging the boundary: External activity and performance in organizational teams. Adm. Sci. Q. 634–665.
Ararat, M., Aksu, M., Tansel Cetin, A., 2015. How board diversity affects firm performance in emerging markets: evidence on channels in controlled firms. Corporate
Governance: An Int. Rev. 23, 83–103.
Arellano, M., Bond, S., 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev. Econ. Stud. 58,
277–297.
Ashforth, B.E., Mael, F., 1989. Social identity theory and the organization. Acad. Manag. Rev. 14, 20–39.
Attah-Boakye, R., Adams, K., Kimani, D., Ullah, S., 2020. The impact of board gender diversity and national culture on corporate innovation: a multi-country analysis
of multinational corporations operating in emerging economies. Technol. Forecast. Soc. Chang. 161, 120247.
Baker, S.R., Bloom, N., Davis, S., 2016. Measuring economic policy uncertainty. Q. J. Econ. 131, 1593–1636.
Bernile, G., Bhagwat, V., Yonker, S., 2018. Board diversity, firm risk, and corporate policies. J. Financ. Econ. 127, 588–612.
Biddle, G.C., Hilary, G., Verdi, R.S., 2009. How does financial reporting quality relate to investment efficiency? J. Accounting Econ. 48, 112–131.
Blundell, R., Bond, S., 1998. Initial conditions and moment restrictions in dynamic panel data models. J. Econometrics 87, 115–143.
Brockman, P., Khurana, I.K., Zhong, R., 2018. Societal trust and open innovation. Res. Policy 47, 2048–2065.
Buchanan, B., 1974. Government managers, business executives, and organizational commitment. Public Administration Rev. 339–347.
Cao, Y., Dong, Y., Lu, Y., Ma, D., 2020. Does institutional ownership improve firm investment efficiency? Emerging Markets Financ. Trade 56, 2772–2792.
Chen, R., El Ghoul, S., Guedhami, O., Wang, H., 2017. Do state and foreign ownership affect investment efficiency? Evidence from privatizations. J. Corporate Financ.
42, 408–421.
Chen, W., Hribar, P., Melessa, S., 2018. Incorrect inferences when using residuals as dependent variables. J. Accounting Res. 56, 751–796.
Chen, S., Sun, Z., Tang, S., Wu, D., 2011. Government intervention and investment efficiency: evidence from China. J. Corporate Financ. 17, 259–271.
Chen, S., Ni, X., Tong, J.Y., 2016. Gender diversity in the boardroom and risk management: a case of R&D investment. J. Bus. Ethics 136, 599–621.
Cragg, J.G., Donald, S., 1993. Testing identifiability and specification in instrumental variable models. Econometric Theory 9, 222–240.
Dao, N.H., Marisetty, V.B., Shi, J., Tan, M., 2020. Institutional quality, investment efficiency, and the choice of public–private partnerships. Account. Financ. 60,
1801–1834.
de Villiers, C., Naiker, V., van Staden, C.J., 2011. The Effect of Board Characteristics on Firm Environmental Performance. J. Manage. 37, 1636–1663.
Demirgüç-Kunt, A., Maksimovic, V., 1999. Institutions, financial markets, and firms’ choice of debt maturity. The World Bank.
Doidge, C., 2004. U.S. cross-listings and the private benefits of control: evidence from dual-class firms. J. Financ. Econ. 72, 519–553.
Dudley, E., Zhang, N., 2016. Trust and corporate cash holdings. J. Corporate Financ. 41, 363–387.
21
Erhardt, N.L., Werbel, J.D., Shrader, C.B., 2003. Board of director diversity and firm financial performance. Corporate Governance: An Int. Rev. 11, 102–111.
Fama, E.F., French, K.R., 1997. Industry costs of equity. Journal of Financial Economics 43 (2), 153–193.
Fama, E.F., Jensen, M.C., 1983. Agency problems and residual claims. J. Law Econ. 26, 327–349.
Fazzari, S., Hubbard, R.G., Petersen, B.C., 1987. Financing constraints and corporate investment. National Bureau of Economic Research, Cambridge, Mass., USA.
García-Meca, E., García-Sánchez, I.-M., Martínez-Ferrero, J., 2015. Board diversity and its effects on bank performance: An international analysis. J. Bank. Financ. 53,
202–214.
Gomariz, M.F.C., Ballesta, J.P.S., 2014. Financial reporting quality, debt maturity and investment efficiency. J. Bank. Finance 40, 494–506.
González, F., 2020. Creditor rights, financial health, and corporate investment efficiency. North Am. J. Econ. Financ. 51, 100873.
Griffin, D., Li, K., Xu, T., 2021. Board gender diversity and corporate innovation: International evidence. J. Financ. Quantitative Anal. 56, 123–154.
Gu, Y.J., Filatotchev, I., Bell, R.G., Rasheed, A.A., 2019. Liability of foreignness in capital markets: institutional distance and the cost of debt. J. Corporate Financ. 57,
142–160.
Guillén, M.F., Capron, L., 2016. State capacity, minority shareholder protections, and stock market development. Adm. Sci. Q. 61, 125–160.
Gul, F.A., Srinidhi, B., Ng, A.C., 2011. Does board gender diversity improve the informativeness of stock prices? J. Account. Econ. 51, 314–338.
Hadlock, C.J., Pierce, J.R., 2010. New evidence on measuring financial constraints: moving beyond the KZ index. Rev. Financ. Stud. 23, 1909–1940.
Hail, L., Leuz, C., 2006. International differences in the cost of equity capital: do legal institutions and securities regulation matter? J. Account. Res. 44, 485–531.
Hambrick, D.C., Mason, P.A., 1984. Upper echelons: The organization as a reflection of its top managers. Acad. Manag. Rev. 9, 193–206.
Harjoto, M.A., Laksmana, I., Yang, Y.-W., 2018. Board diversity and corporate investment oversight. J. Bus. Res. 90, 40–47.
Hilary, G., Huang, S., 2015. Trust and contracting (SSRN Scholarly Paper No ID 2604974). Social Science Research Network, Rochester, NY.
Ho, K.-C., Yen, H.-P., Gu, Y., Shi, L., 2020. Does societal trust make firms more trustworthy? Emerging Markets Rev. 42, 100674.
Honoré, F., Munari, F., van Pottelsberghe de La Potterie, B., 2015. Corporate governance practices and companies’ R&D intensity: evidence from European countries.
Res. Policy 44, 533–543.
Hu, J., Li, S., Taboada, A.G., Zhang, F., 2020. Corporate board reforms around the world and stock price crash risk. J. Corporate Financ. 62, 101557.
Huang, S., Hilary, G., 2018. Zombie board: board tenure and firm performance. J. Account. Res. 56, 1285–1329.
Jehn, K.A., Northcraft, G.B., Neale, M.A., 1999. Why differences make a difference: a field study of diversity, conflict and performance in workgroups. Adm. Sci. Q. 44,
741–763.
Jensen, M.C., Meckling, W.H., 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. J. Financ. Econ. 3, 305–360.
Ji, J., Peng, H., Sun, H., Xu, H., 2021. Board tenure diversity, culture and firm risk: cross-country evidence. J. Int. Financial Markets Institutions Money 70, 101276.
Jones, J., 1991. Earnings management during import relief investigations. J. Account. Res. 29, 193–228.
Kanagaretnam, K., Lee, J., Lim, C.Y., Lobo, G., 2018. Societal trust and corporate tax avoidance. Rev. Acc. Stud. 23, 1588–1628.
Kang, J.-K., Kim, S., Oh, S., 2022. Does board demographic diversity enhance cognitive diversity and monitoring? Account. Rev.
Kaufmann, D., Kraay, A., Mastruzzi, M., 2010. The Worldwide Governance Indicators: Methodology and Analytical Issues. Hague J. Rule Law 3, 220–246.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R.W., 1997. Trust in large organizations. Am. Econ. Rev. 333–338.
Li, N., Wahid, A.S., 2018. Director tenure diversity and board monitoring effectiveness. Contemporary Account. Res. 35, 1363–1394.
Lins, K.V., Servaes, H., Tamayo, A., 2017. Social capital, trust, and firm performance: the value of corporate social responsibility during the financial crisis. J. Financ.
72, 1785–1824.
Liu, G., Sun, J., 2010. Director tenure and independent audit committee effectiveness. Int. Res. J. Financ. Econ. 51.
Meng, Y., Yin, C., 2019. Trust and the cost of debt financing. J. Int. Financial Markets Institutions Money 59, 58–73.
Minton, B.A., Schrand, C., 1999. The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing. J. Financ. Econ. 54,
423–460.
Mohsni, S., Otchere, I., Shahriar, S., 2021. Board gender diversity, firm performance and risk-taking in developing countries: The moderating effect of culture. J. Int.
Financial Markets Institutions Money 73, 101360.
Myers, S.C., 1984. The capital structure puzzle. J. Financ. 39, 575–592.
Myers, S.C., Majluf, N.S., 1984. Corporate financing and investment decisions when firms have information that investors do not have. J. Finac. Econ. 13, 187–221.
Nguyen, T., Nguyen, A., Nguyen, M., Truong, T., 2021. Is national governance quality a key moderator of the boardroom gender diversity–firm performance
relationship? International evidence from a multi-hierarchical analysis. Int. Rev. Econ. Financ. 73, 370–390.
Nguyen, B.D., Nielsen, K.M., 2010. The value of independent directors: evidence from sudden deaths. J. Financ. Econ. 98, 550–567.
North, D.C., 1990a. Institutions, institutional change and economic performance. Cambridge University Press.
North, D.C., 1990b. A transaction cost theory of politics. J. Theoretical Politics 2, 355–367.
Pitts, D.W., Jarry, E.M., 2009. Getting to know you: Ethnic diversity, time and performance in public organizations. Public Administration 87, 503–518.
Porta, R.L., Lopez-de-Silanes, F., Shleifer, A., Vishny, R.W., 1998. Law and finance. J. Political Economy 106, 1113–1155.
Richardson, S., 2006. Over-investment of free cash flow. Rev. Acc. Stud. 11, 159–189.
Rindova, V., Barry, D., Ketchen Jr, D.J., 2009. Entrepreneuring as emancipation. Acad. Manag. Rev. 34, 477–491.
Rink, F.A., Ellemers, N., 2009. Temporary versus permanent group membership: How the future prospects of newcomers affect newcomer acceptance and newcomer
influence. Pers. Soc. Psychol. Bull. 35, 764–775.
Salancik, G.R., Pfeffer, J., 1978. The external control of organizations: A resource dependence perspective. Harper & Row, New York.
Scott, W.R., 1987. The adolescence of institutional theory. Adm. Sci. Q. 493–511.
Shoham, A., Lee, S.M., Khan, Z., Tarba, S.Y., Ahammad, M.F., 2020. The effect of board gender diversity on cross-listing. J. Corporate Financ. 65, 101767.
Sila, V., Gonzalez, A., Hagendorff, J., 2016. Women on board: does boardroom gender diversity affect firm risk? J. Corporate Financ. 36, 26–53.
Simons, T.L., Peterson, R.S., 2000. Task conflict and relationship conflict in top management teams: the pivotal role of intragroup trust. J. Appl. Psychol. 85, 102.
Ullah, I., Zeb, A., Khan, M.A., Xiao, W., 2020. Board diversity and investment efficiency: evidence from China. Corporate Governance: Int. J. Bus. Soc. 20, 1105–1134.
Vafeas, N., 2003. Length of board tenure and outside director independence. J. Bus. Financ. Account. 30, 1043–1064.
Van den Steen, E., 2010. On the origin of shared beliefs (and corporate culture). Rand J. Econ. 41, 617–648.
Van Knippenberg, D., Schippers, M.C., 2007. Work group diversity. Annu. Rev. Psychol. 58, 515–541.
Van Knippenberg, D., De Dreu, C.K., Homan, A.C., 2004. Work group diversity and group performance: an integrative model and research agenda. J. Appl. Psychol.
89, 1008.
van Veen, K., Marsman, I., 2008. How international are executive boards of European MNCs? Nationality diversity in 15 European countries. Eur. Manage. J. 26,
188–198.
Wagner, W.G., Pfeffer, J., O’Reilly III, C.A., 1984. Organizational demography and turnover in top-management group. Adm. Sci. Q. 74–92.
Watson, W.E., Johnson, L., Zgourides, G.D., 2002. The influence of ethnic diversity on leadership, group process, and performance: an examination of learning teams.
Int. J. Intercultural Relations 26, 1–16.
Whited, T.M., Wu, G., 2006. Financial Constraints Risk. Rev. Financ. Stud. 19, 531–559.
Wiersema, M.F., Bantel, K.A., 1992. Top management team demography and corporate strategic change. Acad. Manage. J. 35, 91–121.
Wooldridge, J.M., 2016. Introductory econometrics: A modern approach. Nelson Education.
Ye, D., Deng, J., Liu, Y., Szewczyk, S.H., Chen, X., 2019. Does board gender diversity increase dividend payouts? Analysis of global evidence. J. Corporate Financ. 58,
1–26.
Zahra, S.A., Pearce, J.A., 1989. Boards of directors and corporate financial performance: a review and integrative model. J. Manage. 15, 291–334.
Zou, Y., Zhong, Z., Luo, J., 2021. Ethnic diversity, investment efficiency, mediating roles of trust and agency cost. Econ. Anal. Policy 69, 410–420.
Zucker, L.G., 1987. Institutional theories of organization. Ann. Rev. Sociol. 13, 443–464.
22

1 s2.0 S1042443122001299 Main

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1 s2.0 S1042443122001299 Main

Uploaded by

Copyright:

Available Formats

J. Int. Financ. Markets Inst.

Money 81 (2022) 101657

Contents lists available at ScienceDirect

Journal of International Financial Markets,

Board tenure diversity and investment efficiency: A global analysis

2. Literature review and hypotheses’ development

2.1. Board tenure diversity and investment efficiency

may lead to diverse groups outperforming homogeneous groups.

2.2. Roles of long tenure

2.3. Roles of financial constraints

2.4. Roles of institutional quality

2.5. Roles of societal trust

3. Data and research design

3.1. Sample selection

3.2. Measure of variables

3.2.1. Board tenure diversity

3.2.2. Investment efficiency

3.2.3. Control variables

3.3. Model specifications

4.1. Descriptive statistics

Argentina 50 149 0.182 0.097 0.560 3.133 − 2.663 5.750 0.191

4.2. Board tenure diversity and investment efficiency

(1) (2) (3) (4)

BTD − 0.007*** − 0.006***

4.3.1. Omitted variables

(1) (2) (3) (4)

BTD − 0.011** − 0.003**

4.3.2. Reverse causality

Dep. Var.: |AB_INV|

Panel B. Instrumental variable regressions

Dep. Var.: First stage Second stage

BTD BTD_STD |AB_INV|

(1) (2) (3) (4)

4.3.3. Selective bias

5.1. Role of long tenure

5.2. Role of financial constraints

Treated Control Difference t -statistic

B_SIZE 2.183 2.188 − 0.005 − 0.817

Panel B. Results’ regression on matched sample

Dep. Var.: |AB_INV|

5.3. Role of institutional quality

Dep. Var.: |AB_INV|

(1) (2) (3) (4)

BTD − 0.001 − 0.004*

Panel B. The role of financial constraints

Dep. Var.: |AB_INV|

WW INDEX FIRM SIZE NO DIVIDEND

(1) (2) (3) (4) (5) (6)

BTD − 0.002 − 0.003** − 0.003

Dep. Var.: |AB_INV|

IQ = HIGH WGI IQ = HIGH SP

(1) (2) (3) (4)

BTD 0.002 − 0.002

Panel B. The role of societal trust

Dep. Var.: |AB_INV|

board tenure diversity and firm investment efficiency.

5.4. Role of societal trust

(1) (2) (3) (4) (5)

BTD − 0.012*** − 0.014*** − 0.013** − 0.013** − 0.008***

Panel B. Additional firm-specific characteristics

IO PAYOUTS ZSCORE CYCLE LEV_INS ACCRUAL

(1) (2) (3) (4) (5) (6)

BTD − 0.008*** − 0.007** − 0.010*** − 0.013** − 0.004** − 0.002***

BTD − 0.007* − 0.006*

BTD − 0.011 − 0.003

BTD − 0.012* − 0.014* − 0.013 − 0.013 − 0.008***

BTD − 0.008* − 0.007 − 0.010* − 0.013 − 0.004 − 0.002*

BTD − 0.003* − 0.010* − 0.003* − 0.007* − 0.004* − 0.009