Research and impact | By Amy Ripley

City Research: Equality in business

Championing diversity is at the heart of City’s ethos and runs through its work in education and research. The commitment extends to City’s strong research culture where academics from Cass Business School have recently been considering the impact of gender and ethnicity on the world of business and finance.

Professor Barbara Casu Lukac, Director of the Cass Centre for Banking Research, recently published a paper in the Journal of European Finance which found EU-listed banks with boards that are more diverse in gender, employee representation, internationalisation and age have higher and less volatile performance.


The research examined the performance effects of board heterogeneity on EU-listed banks between 2007 and 2015, during and in the wake of the global financial crisis. They considered standard board features (type, tenure, size and age of board members) as well as board diversity features (employee representation, internationalisation, gender and age diversity).


Professor Casu Lukac says the effect of diversity was more relevant when there is a significant proportion of minority representatives on boards.


“Overall, board diversity decreased performance variability during the Eurozone crisis, particularly due to the positive incremental impact of foreign directors which might suggest that boards with a more diverse set of skills and experiences can be more effective during times of financial turbulence.


“While substantial board internationalisation has a negative impact on bank performance, the effect of foreign directors appeared to be overturned during the Eurozone crisis and in countries that are more welcoming towards diversity. However, the impact of minority directors on bank performance is constrained by their representation on the board and influenced by the cultural norms in the country where the bank is headquartered.”


Professor Casu Lukac adds the research suggested that differences in national culture across EU countries could be one of the reasons behind the differential impact of board diversity on bank performance.


“Our research supports recent policy initiatives aiming to foster board diversity. We now propose that government and policy makers consider establishing a diversity index, which summarises the different dimensions of diversity and monitors progress on board heterogeneity.”

Dr Jay Jung, Lecturer in Accounting at Cass Business School will soon publish a paper in the Journal of Accounting and Economics which finds that financial analysts whose surnames are perceived as favourable elicit stronger market reactions to their earnings forecasts.


Dr Jung and his colleagues found that following the 9/11 terrorist attacks, market reactions weakened for forecasts from analysts with Middle Eastern surnames. They also found that following the French and German governments’ opposition to the US-led Iraq War, the US market reactions weakened for analysts with French or German surnames. This effect was stronger in firms with lower institutional ownership and for analysts with non-American first names.


The research measured surname favourability using the US historical immigration records to identify countries of origin associated with a particular surname and the Gallup survey data on Americans’ favourability toward foreign countries.


“Our finding is consistent with the prediction based on motivated reasoning that people have a natural desire to draw conclusions that they are motivated to reach. If investors have favourable views toward an analyst due to his or her surname, they are motivated to assess the analyst’s forecasts as being more credible or of higher quality because it reduces the unpleasant inconsistency between their attitudes and judgments,” says Dr Jung.


Dr Jung believes surname favourability did have a complementary effect on analysts’ career outcomes, helping analysts prosper in their profession.


“We found that, conditional on good forecasting performance, having a favourable surname made it more likely for an analyst to get elected as an All-Star analyst and survive in the profession when his or her brokerage house went out of business or went through a mergers and acquisition process,” he adds.


Find out more about research at Cass Business School here.