Do gender diversity and CEO gender enhance firm’s value? Evidence from an emerging economy

• Pages: 44-66
• DOI: https://doi.org/10.1108/CG-03-2019-0085
• Published date: 04 September 2019
• Date: 04 September 2019
• Author: Irfan Ullah,Hongxing Fang,Khalil Jebran
• Subject Matter: Corporate governance,Strategy

Do gender diversity and CEO gender

enhance f‌irm’s value? Evidence from an

emerging economy

Irfan Ullah, Hongxing Fang and Khalil Jebran

Abstract

Purpose –This paperaims to examine whether and how gender diversityand CEO gender can influence

firm value in the emergingmarket of Pakistan. The study further tests whetherthese relations vary across

state-ownedenterprises (SOE) and non-state-ownedenterprises (NSOE).

Design/methodology/approach –This study considers Pakistani listed firms over the period 2010-

2017. The firms have been divided into SOE and NSOE for additional analysis. Tobin’s Q is used to

measurefirm’s value.

Findings –The authors document that female directors (FDirectors) on corporate boards is positively

associated with firmvalue. The findings also illustrate that female CEOs (FCEOs)enhances a firm value.

Additional analyses show thatthe influence of FDirectors and FCEOs on firm value is stronger in NSOE

than in SOE.

Practical implications –The results suggest that genderdiversity and CEO gender play a significant

role in corporate decisions. The findings imply that FDirectors discipline the management, reduce

agencyconflicts and thereby improve corporate governance,resulting in higher firm value.

Originality/value –This study has two important contributions. First, while prior studies mostly based

their argumentson using gender diversity of corporate boards, thisstudy shows that a firm performance

can be significantly improved if a female serves as a CEO. Second, this study also tests the stated

relationsfor SOE and NSOE and show that gender diversityplays a significant role in NSOEthan in SOE.

Keywords Pakistan, Gender, Emerging markets, Firm value, Female CEO

Paper type Research paper

1. Introduction

The global financial crisis and various corporate scandals over the past decades, such as

WorldCom, Tyco and Enron, have gained considerable interest among policymakers, to

improve the corporate governance mechanisms. Studies have identified various

governance mechanisms to improve corporate decisions, among which board gender

diversity has been identified an important factor that can improving board decisions and

corporate governance (Adams and Ferreira, 2009;Catalyst, 2003;Chen et al., 2018a,

2018b;Post and Byron, 2015)[1]. Given the significant importance of gender diversity,

several developed and emerging countries, such as, Sweden, Spain, France and Malaysia,

including other, have made it mandatory that a significant portion of board should be

occupied by female directors (FDirectors) (Gul et al., 2011;Terjesen et al.,2016;Abdullah

et al.,2016).

Studies have identified several firm-level advantages linked with gender diversity on the

board. These advantages consist of efficient decision-making (Milliken and Martins, 1996),

effective monitoring and control of board (Nielsen and Huse,2010a, 2010b;Adams and

Ferreira, 2009;Benkraiem et al.,2017), and higher firms financial performance

Irfan Ullah is based at the

Dongbei University of

Finance and Economics,

Dalian, Liaoning, China.

Hongxing Fang and

Khalil Jebran are both

based at the School of

Accounting, Dongbei

University of Finance and

Economics, Dalian,

Liaoning, China.

Received 8 March 2019

Revised 18 May 2019

2 August 2019

Accepted 5 August 2019

The authors are thankful to the

Editor, Gabriel Eweje,

Associate Editor, Aymen

Sajjad, and two anonymous ref-

erees for many insightful and

constructive arguments.

PAGE 44 jCORPORATE GOVERNANCE jVOL. 20 NO. 1 2020, pp. 44-66, ©Emerald Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-03-2019-0085

(Terjesen et al.,2016). Compared with the male counterpart, FDirectors are believed to

have skills and abilities to monitor and provide advisory role in the board (Adams and

Ferreira, 2004;Daily et al.,1999;Johnson et al., 2013). Thus, several studies suggest that

FDirectors improve board behaviors and thus firm value (Isidro and Sobral, 2015;Liu et al.,

2014;Terjesen et al.,2016). Most importantly, studies show that the efficiency of corporate

decisions increases if a female is also serving as a CEO. For instance, Va

¨ha

¨maa (2017)

argues that female CEOs (FCEOs) curbs managerial opportunism by monitoring their

activities. Further, Chen et al. (2018a,2018b) suggest that FCEOs increases a firm’s

innovation by reducing information asymmetry between shareholders and managers.

Similarly, Adhikari (2018) argue that female executives are more conscious about the future

of the firm; therefore, they hold morecash for precautionary measures.

These above arguments illustrate that any governance mechanism which reduces agency

problems can enhance firm value. Studies suggest that a firm experiences fewer agency

conflicts if a board has a larger proportion of female on board or if a firm has a FCEO

(Adams and Ferreira, 2009;Pucheta-Martı

´nez et al., 2018). This illustrates that firms with

FDirectors may have fewer agency problems, which is the resultant of reduction in

managerial opportunism behavior. Based on the discussion so for, we can infer that,

FDirectors and FCEOs are associated with better internal control, which reduces agency

conflict and increases firm value. This study links this viewpoint and examines whether

FDirectors and FCEOs help to promote firm’s value in the context of Pakistan. Specifically,

this study seeks to answer the following questions: Does thereexist an association between

FDirectors and firm value in firms listed in Pakistan Stock Exchange (PSX, after this)? Does

there exist a nexus between FCEO and firm value in firms in PSX? Do the effects of

FDirectors and FCEO on firm value vary across state-owned enterprises (SOE) and non-

state-owned enterprises(NSOE)?

Pakistan provides an excellent laboratory to study the stated relationships for at least two

reasons. First, the cultural and corporate environment in Pakistan is significantly dominated

by male, which doesn’t allow females to climb the ladder on corporate boards (Mirza et al.,

2012). It is obvious from the fact that still, there is no mandatory requirement of female

representation on corporate boards in Pakistan (Mirza et al., 2012). However, even without

mandatory requirement, Pakistani firms still have women on board. Our sample shows that

approximately 41.5 per cent of the firms have at least one FDirectors on board. Thus,

Pakistan provides an ideal setting to find the nexus between FDirectors and firm valuein an

economy in which there is no legal requirementof women of board.

Second, in Pakistan, corporate decision in listed firms are significantly influence by political

interventions, which increases the conflict between minority and controlling shareholders;

thus agency conflicts is a severe concern in Pakistani firms (Ghazali and Bilal, 2017).

Therefore, it is essential to modify the corporate governance mechanisms to mitigate

agency conflicts and thus improve firm value. We expect that female directors on corporate

boards can play an important role by having diverse representation, which may in turn

increase a firm value.

To test the above predictions, we collect financial and corporate governance information of

223 firms of Pakistan during the period 2010 to 2017. We find that FDirectors is positively

linked with firm value. Further,we also document that firm value is significantly improved if a

female serves the CEO. Additional analysis indicates that the effects of FDirectors and

FCEO on firm value are more prominent for NSOE compared to SOE. The results are

consistent to alternative measures, endogeneity issues and robustness tests. Overall, the

findings illustrate that FDirectors can improve corporate governance mechanisms by

mitigating agency conflicts and thus increasefirm value.

This study contributes to the literature in several ways. First, the research on theinfluence of

FDirectors on firm value is limited to emerging economies, especially in the context of

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