Using a new dataset on more than 50,000 top executives in U.S. firms from 2002 to 2014, a new study shows that top management team diversity—a new text-based measure of how diverse managers are in terms of personal characteristics and prior experiences—matters for stock returns. Firms with diverse management teams have signi ficantly higher risk-adjusted returns than fi rms with homogenous management teams, the report shows.
Diversity returns are driven by large-cap stocks and the long leg of the strategy, so diversity investing seems feasible for investors. Additional results suggest the large returns to diversity investing are due to (i) diversity being a new dimension of quality stocks and (ii) mispricing.
The study considered team size, biography length, firm characteristics, variations across industries and single manager firms.
Why does diversity investment work? According to the authors, diversity investing generates large, stable abnormal returns among the largest firms. In addition, they say, it is possible that the diversity characteristic is correlated with some priced risk-factor. If high diversity stocks are riskier, they would naturally command a return premium. While this is a theoretical possibility, the authors used a set of standard risk-adjustments in the literature, so it is not obvious what the omitted risk factor should be.
In conclusion, the authors show that the substantial returns to diversity investing may be driven by a combination of two things. First, diversity of the top management team may be a previously underemphasized dimension of “quality” stocks which is important over and above the quality variables used in the literature. Existing quality measures explain at best about 25% of the diversity returns we observe. Second, we nd evidence for the notion that some of the diversity returns may be due to the market mispricing the diversity of the top management team by showing that returns are, all else equal, coming from stocks with lower analyst coverage and higher idiosyncratic volatility.
The report is written by Alberto Manconi, Emanuele Rizzo, and Oliver Spalt—all finance specialists at Tilburg University in the Netherlands.
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1:00 - 5:00 pm
Over 70% of Executives Surveyed Agree: Many Strategic Planning Efforts Lack Systematic Approach Tips for Enhancing Your Strategic Planning Process
Executives expressed frustration with their current strategic planning process. Issues include:
Steve Rutan and Denise Harrison have put together an afternoon workshop that will provide the tools you need to address these concerns. They have worked with hundreds of executives to develop a systematic approach that will enable your team to make better decisions during strategic planning. Steve and Denise will walk you through exercises for prioritizing your lists and steps that will reset and reinvigorate your process. This will be a hands-on workshop that will enable you to think about your business as you use the tools that are being presented. If you are ready for a Strategic Planning tune-up, select this workshop in your registration form. The additional fee of $695 will be added to your total.
2:00 - 5:00 pm
Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations.
Limited space available.
10:30 - 5:00 pm
General’s Retreat at Hermitage Golf Course
Sponsored by UBS
General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.
The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.
