Does board gender diversity influence voluntary disclosure of intellectual capital in initial public offering prospectuses? Evidence from China

• Author: Muhammad Nadeem
• DOI: http://doi.org/10.1111/corg.12304
• Published date: 01 March 2020
• Date: 01 March 2020

ORIGINAL ARTICLE

Does board gender diversity influence voluntary disclosure of

intellectual capital in initial public offering prospectuses?

Evidence from China

Muhammad Nadeem

Department of Accountancy and Finance,

Otago Business School, University of Otago,

Dunedin, New Zealand

Correspondence

Dr Muhammad Nadeem, Department of

Accountancy and Finance, Otago Business

School, University of Otago, Dunedin 9016,

New Zealand.

Email: muhammad.nadeem@otago.ac.nz

Abstract

Research question/issue: Using a multitheoretic view of boards, this study exam-

ines the impact of boardroom gender diversity (BGD) on voluntary intellectual capital

(IC) disclosure in initial public offering (IPO) prospectuses in China—the world's

second‐biggest economy, which is moving from a planned economy to a market‐

oriented one. Furthermore, this study also investigates the impact of family owner-

ship on the relationship between BGD and IC disclosure in the Chinese environment,

which is characterized by less‐developed corporate governance mechanisms.

Research findings/insights: Based on a comprehensive content analysis of Chinese

IPO prospectuses between 2009 and 2017 and measuring disclosure index at 78

dimensions under six broad categories of IC, the empirical results document (a) a sig-

nificant positive relation between BGD and IC disclosure—in line with resource

dependence theory, (b) a significant negative impact of female independent directors

on IC disclosure—opposite to agency theory predictions, and that (c) the BGD–IC dis-

closure relationship is generally stronger for firms with two or more women on

boards—in line with critical mass theory in China. Finally, this study also reveals that

family ownership has adverse impacts on the BGD–IC disclosure relationship. These

results are robust to a battery of sensitivity analyses.

Practitioner/policy implications: This study provides positive capital market impli-

cations of BGD through enhanced IC disclosure in IPO prospectuses. In doing so,

the study has important implications for regulators and top management teams in

devising policies concerning female representation on boards and voluntary disclo-

sure of IC to inform the market participants of the true value of the company.

KEYWORDS

board gender diversity, family ownership, intellectual capital disclosure, IPO prospectuses,

resource dependence theory

1|INTRODUCTION

Corporate boards play two key roles in a firm: a monitoring role and a

resource/advisory role. The former encompasses a board's ability to

oversee and influence managements' day‐to‐day decisions concerning

business operations, and the latter suggests that boards play a crucial

role in connecting a firm to the external environment in order to

acquire necessary resources. Among several board characteristics

Received: 28 February 2019 Revised: 22 September 2019 Accepted: 30 September 2019

DOI: 10.1111/corg.12304

100 © 2019 John Wiley & Sons Ltd Corp Govern Int Rev. 2020;28:100–118.

wileyonlinelibrary.com/journal/corg

essential for performing the monitoring and advisory roles, the gender

composition of the board has received enormous attention by regula-

tors and academic scholars in the recent past. This is partly due to

increasing gender legislation

1

and pressure from stakeholders—such

as shareholders, politicians, and community and social groups—on

firms to increase female representation on corporate boards. The

upsurge in female representation on corporate boards vis‐à‐vis the

proliferation of gender quotas and recommendations raises questions

about the business implications of boardroom gender diversity (BGD

hereafter).

Although a plethora of existing studies increase our understand-

ing on the business implications of BGD by examining its impacts

on firm performance (Adams & Ferreira, 2009; Ararat, Aksu, & Cetin,

2015; Liu, Wei, & Xie, 2014; Nadeem, Suleman, & Ahmed, 2019),

information asymmetry (Abad, Lucas‐Pérez, Minguez‐Vera, & Yagüe,

2017; Gul, Srinidhi, & Ng, 2011), executive/top management com-

pensation (Lucas‐Pérez, Mínguez‐Vera, Baixauli‐Soler, Martín‐Ugedo,

& Sánchez‐Marín, 2015; Perryman, Fernando, & Tripathy, 2016), and

corporate social responsibility (Bear, Rahman, & Post, 2010), the

relationship between BGD and intellectual capital (IC hereafter) dis-

closure in IPO prospectuses remains an unopened black box. Prior

studies argue that nonfinancial information, particularly IC, in IPO

prospectuses may result in lower cost of capital (Garanina & Dumay,

2017), increased market capitalization (Bismuth & Tojo, 2008), higher

post‐IPO stock returns and reduced information asymmetry (Atkins

& Maroun, 2015). Thus, existing studies (Cerbioni & Parbonetti,

2007; Muttakin, Khan, & Belal, 2015; Tejedo‐Romero, Rodrigues, &

Craig, 2017) generally establish a causal link between corporate gov-

ernance and IC disclosure in annual reports, asserting that

corporate boards have a “fiduciary responsibility”to utilize IC to

increase firm value and gain competitive advantage (Keenan &

Aggestam, 2001).

Consequently, there are two main objectives of this study. First, in

view of the dynamic nature of boards and directors being central to

corporate decision‐making, this study applies a multitheoretic view

and investigates the impact of BGD on the voluntary disclosure of

IC in Chinese IPO prospectuses. Because the literature predominantly

uses the lens of agency theory to study the role of boards of directors,

a multi‐theoretic approach is worthwhile to better understand the

specific resources the directors bring to a board (Hillman, Withers, &

Collins, 2009). Therefore, this study uses the lenses of resource

dependence theory (RDT), agency theory (AT), and critical mass theory

(CMT) to understand the role of BGD in IC disclosure in IPO

prospectuses.

Under RDT, firms' survival is dependent on critical resources in

their external environment, and boards of directors play a crucial role

in linking firms to the external environment in order to gain access to

those resources (Pfeffer & Salancik, 1978). Prior studies concur that

female directors, due to their different traits such as better networking

and socialization skills, can help firms reduce the uncertainties

concerning firms' dependence on the external environment

(Bear et al., 2010). Prior studies (Bukh, Nielsen, Gormsen, &

Mouritsen, 2005; Garanina & Dumay, 2017) also link post‐IPO success

to IC disclosure in IPO prospectuses because such information disclo-

sure reduces uncertainties and informs the market participants of the

true value of the company. It then follows that female directors, due

to their unique traits, would be associated with higher levels of IC dis-

closure in IPO prospectuses.

Under AT, agency problems occur when managers act in the inter-

ests contrary to that of shareholders (Jensen & Meckling, 1976), and

agency costs aggravate when there is larger information asymmetry

(Lucas‐Pérez et al., 2015) as agents typically possess more information

than the prinicpals. Firms can overcome agency problems by having

effective corporate governance mechanisms in place (Fama & Jensen,

1983; Sanchez‐Marin, Baixauli‐Soler, & Lucas‐Pérez, 2010). Prior stud-

ies concur that female representation on boards reduces agency prob-

lems, as women are considered more ethical, diligent, and better

monitors (Adams & Ferreira, 2009; Gul et al., 2011). Particularly,

female independent directors increase boards' monitoring ability, and

as a result, boards with outsider female directors are associated with

less occurrence of corporate financial frauds, increased transparency

and reduced agency cost (Beasley, 1996; Cumming, Leung, & Rui,

2015). Thus, it can be argued that female independent directors would

be associated with higher IC disclosure in IPO prospectuses because

such information is assumed to reduce information asymmetry, as well

as reduce agency problems.

Finally, under CMT, it is also argued that having a lone female

director could be considered as a “token”and therefore might not

have any influence over corporate policy‐making (Kanter, 1977). Stud-

ies in this line of research conclude that a critical mass (i.e., a specific

number of women) should be reached before BGD can have real

impacts on corporate decision‐making (Gyapong, Ahmed, Ntim, &

Nadeem, 2019; Liu et al., 2014; Lucas‐Pérez et al., 2015). It follows

then that BGD will have stronger impacts on IC disclosure once a spe-

cific number of female directors are appointed on Chinese boards.

The second objective of this study is to examine the role of family

ownership in the BGD–IC disclosure relationship. Prior studies argue

that it is challenging for corporate boards to perform their universal

functions in firms controlled by family owners (Mustakallio, Autio, &

Zahra, 2002). Empirical evidence shows that boards are less effective

in their monitoring and advising roles in family‐controlled firms (Ararat,

Aksu, & Tansel Cetin, 2015). Family boards' monitoring is expected to

further deteriorate in an environment characterized by less‐developed

governance codes, such as in China. Therefore, it would be interesting

to examine whether female directors, known for their ethical/moral

values, diligence, and tough monitoring efforts, improve governance

mechanisms in family‐owned firms. By doing so, this study will also

answer a recent call by Adams, de Haan, Terjesen, and Van Ees

(2015) who concluded that, so far, the role of BGD in boards of

family‐controlled firms has received limited attention, and called for

further research in this area.

The setting of the current study (i.e., China) is also interesting for

the following reasons. First, although China is the biggest emerging

economy and second in the world by nominal GDP, it is still a transi-

tion economy, moving from a planned economy to a market‐oriented

one (Jiang & Kim, 2015). Second, unlike in western countries, the

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