Which of the following statements about corporate governance is most accurate? Companies with a more diverse board of directors are most likely associated with

Which of the following statements about corporate governance is most accurate? Companies with a more diverse board of directors are most likely associated with
A . lower profitability
B . lower stock return volatility.
C . less investment in research and development.

Answer: B

Explanation:

Companies with a more diverse board of directors are most likely associated with lower stock return volatility.

This relationship is based on the following factors:

Improved Decision-Making: A diverse board brings a range of perspectives and experiences, leading to more comprehensive and balanced decision-making processes. This can result in better risk management and more stable corporate performance.

Enhanced Reputation and Trust: Diversity on the board can enhance a company’s reputation, leading

to greater trust from investors, customers, and other stakeholders. This can contribute to more stable stock performance.

Risk Mitigation: Diverse boards are better equipped to identify and mitigate risks, including ESG-related risks. Effective risk management can reduce the likelihood of negative events that could cause stock price volatility.

Long-Term Focus: Companies with diverse boards are often better at focusing on long-term strategic goals rather than short-term gains. This long-term perspective can contribute to more consistent and stable stock returns.

Reference: MSCI ESG Ratings Methodology (2022) – Provides evidence that companies with strong governance, including board diversity, exhibit lower volatility in their stock returns due to better risk management and decision-making.

ESG-Ratings-Methodology-Exec-Summary (2022) – Highlights the positive impact of board diversity on corporate performance and stability, supporting the link between diverse boards and lower stock return volatility.