Board Informational Faultlines and Firm Performance: A Cognitive Resource Perspective

Abstract

Previous research indicates that the performance effect of informational faultlines is ambiguous. Our study addresses this issue by using cognitive resource theory as the theoretical lens through which to consider informational faultlines. We argue that informational faultlines can bring benefits as they lead to an effective use of cognitive resources that are available to the group. Using a dynamic panel data regression model with team data of 106 companies and covering the period of 2006 to 2014, we find that the relationship of informational faultlines and firm performance is curvilinear. Our empirical results suggest that boards of directors can reap more benefits when informational faultlines are strong, rather than moderate.