Are Corporate Governance Choices Contagious? Peer Effects in Board Gender Diversity and Institutional Ownership

Abstract

This research explores whether corporate governance has a comprehensive impact on peer firms, analyzing US companies via a sample of 15,494 observations from 2001 to 2018. The findings reveal that effective corporate governance produces positive spillover effects, leading to better overall governance across the industry. Specifically, a rise in the proportion of female directors among peer firms positively increases female board representation in focal firms. Similar spillover effect is also observed in patterns of institutional ownership. However, the study reveals that imitating corporate governance practices of peers can ultimately be detrimental to the value and profitability of the imitating firms. Finally, our results also indicate that the peer effect in corporate governance is more pronounced among firms with lower R&D investments and those without financial resource limitations. These findings highlight that a firm's ability or willingness to imitate peers' corporate governance is shaped by its internal resources and strategic capacity.