lehighUGeorgiaStateUniversity

 ...compared to male directors, female directors tend to have more university degrees and are more likely to hold advanced degrees

By Kris  Byron  and Corinne Post

ABSTRACT

Despite a large literature examining the relationship between women on boards and firm financial performance,

the evidence is mixed. To reconcile the conflicting results, we statistically combined the results from 140 studies and examined whether results vary by firms’ legal/regulatory and socio-cultural contexts. We found that female board representation is positively related to accounting returns and that this relationship is more positive in countries with stronger shareholder protections

 

-- perhaps because shareholder protections motivate boards to use the different knowledge, experience, and values that each member brings to the board. Although the relationship between female board representation and market performance is near-zero, the relationship is positive in countries with greater gender parity (and negative in countries with low gender parity) -- perhaps because societal gender differences in human capital may influence investors’ evaluations of the future earning potential of firms that have more female directors. Lastly, we found that female board representation is positively related to boards’ two primary responsibilities, monitoring and strategy involvement. For both firm financial performance and board activities, we found mean effect sizes comparable to those found in meta-analyses of other aspects of board composition. We discuss the theoretical and practical implications of our findings.

Although business and government leaders have argued for increasing the presence of women on boards – and some have supported regulations to compel companies to do so (Credit Suisse, 2012), whether this improves firm performance is unclear. Despite a relatively large literature examining the relationship between female board representation and firm performance, the empirical evidence is decidedly mixed. Some studies suggest that female directors add value, finding that firms with more female directors tend to generate higher returns on assets (Nguyen & Faff, 2012; Singh, Vinnicombe, & Johnson, 2001) and elicit positive stock market reactions (Campbell & Minguez-Vera, 2010). In contrast, other studies suggest that female directors decrease firm performance, finding that firms with more female directors experience lower accounting returns (Darmadi, 2011; Minguez-Vera & Martin, 2011) and an overall loss of value for stockholders (Bøhren & Strøm, 2010). Further muddying the waters, several studies have concluded that female board representation is unrelated to firm performance (Carter, D'Souza, Simkins, & Simpson, 2010; Rose, 2007; Shrader, Blackburn, & Iles, 1997).

The present meta-analysis aims to reconcile these disparate findings by addressing several shortcomings in the existing literature. Namely, we examine not just if female board representation affects firm performance but what conditions may alter this relationship. More specifically, by capitalizing on the fact that the existing literature on this topic spans firms in 35 countries and five continents, we examine whether firms’ legal/regulatory and socio-cultural context explain the mixed results. Moreover, we also examine whether female board representation relates to more proximal factors (i.e., board activities) that may partially mediate the relationship between board composition and firm financial performance.

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