National board heterogeneity versus firm risk in times of war: Evidence from the Crimean crisis

This study examines the impact of national board heterogeneity on firm risk during periods of geopolitical instability by focusing on non-financial companies listed in Estonia, Latvia, Lithuania, and Poland following Russia's annexation of Crimea in 2014. Drawing on resource dependency, agency, and critical mass theories, we highlight the dual-edged nature of board heterogeneity. Although diverse boards provide access to broader perspectives and strategic resources, they may introduce coordination and communication challenges that elevate risk, particularly in volatile environments. We find that a higher share and diversity of foreign board members is associated with increased idiosyncratic risk.

Using a difference-in-differences approach, we further examine whether geopolitical shocks affect the heterogeneity–risk relationship. While the annexation of Crimea did not significantly alter average firm risk, it amplified the positive relationship between board nationality heterogeneity and risk in more diverse firms. The novelty of this study lies in its focus on the interaction between board composition and external geopolitical shocks—an area largely overlooked in the literature, which has typically examined board heterogeneity in stable environments. Moreover, the experience of Central and Eastern Europe may offer relevant insights for other emerging and transitioning economies facing similar institutional and geopolitical vulnerabilities. These findings offer important implications for corporate governance and risk management in times of geopolitical tensions.