Does gender diversity on boards influence stock market liquidity? Empirical evidence from the French market

Pages669-703
DOIhttps://doi.org/10.1108/CG-09-2018-0291
Published date20 June 2019
Date20 June 2019
AuthorNadia Loukil,Ouidad Yousfi,Raissa Yerbanga
Subject MatterStrategy
Does gender diversity on boards inf‌luence
stock market liquidity? Empirical evidence
from the French market
Nadia Loukil, Ouidad Yousfi and Raissa Yerbanga
Abstract
Purpose The purpose ofthis paper is to examine the gender diversity on boardsand its effect on stock
marketliquidity in French boardrooms.
Design/methodology/approach Using a sample of French firms between 2002 and 2012 listed
on the Paris Stock Exchange (SBF120), the study uses ordinary least squares and three-stage
least squares (3SLS) regressions to address endogeneity concerns on the board gender
diversity.
Findings The results show thatstock market liquidity is positively and significantlyassociated with the
presence of women directors.The authors find that investors’ decisionsvary according to their positions
in the board: women independent members decrease illiquidity costs, while the presence of female
inside directors increases daily trading volume. In addition, the presence of female inside directors
increases the firm’s ability to implement better strategies that cope with economic, social and
environmental constraints which leads investors to positively react. Surprisingly,the presence of female
independentdirectors reduces company involvementin sustainable developmentprojects.
Practical implications The empirical findings contribute to the current debate on the benefits of
gender diversity on corporate boards and the effectiveness of gender-quota laws. It shows that
appointing insiderfemale’ directors incite investors to trade more stockswhile appointing independents
ones reducestheir trading costs.
Social implications This paper shows thatthe benefits of female directors appointing dependon their
independenceof management team.
Originality/value This study addresses the endogeneity between stock market liquidity, corporate
governance and genderdiversity. It is the first study to distinguishbetween the effects of women inside
and independentdirectors on investors’ trading decisions.
Keywords Governance, Gender diversity, Board, Stock market liquidity, Market reaction
Paper type Research paper
1. Introduction
Despite the intense debate on women’s presence on corporate boards, Terjesen et al.
(2015) show that women represent 10.3 per cent of the board directorships in 67 countries.
In the academic literature,many studies have been conducted to explain and to analyze the
effect of gender diversity in enterprises, particularly in the board.
A review of the literatureputs forward the controversial effects of gender-diverseboards.
On one hand, it has been argued that women members could have positive effects on
financial and social performance (Alazzani et al., 2017;Boulouta, 2013;Carter et al.,2010;
Haslam et al., 2010;Campbell and Mı
´nguez-Vera, 2008;Erhardt et al.,2003), corporate
reputation (Brammer et al.,2009), identifying resource dependency (Terjesen et al., 2009;
Singh and Vinnicombe, 2004;Hillman et al.,2000), network ties (Hillman et al.,2007;
Nadia Loukil is based at the
Institute of Commerce and
Accounting Bizerta,
University of Carthage,
Bizerta, Tunisia.
Ouidad Yousfi is based at
the Montpellier Research
on Management, Faculty of
Sciences, Universite
Montpellier, Montpellier,
France. Raissa Yerbanga is
based at the Faculty of
Sciences, Universite
Montpellier, Montpellier,
France.
JEL classif‌ication G10, G12,
G34, J16
Received 10 September 2018
Revised 11 November 2018
9 January 2019
3 February 2019
Accepted 9 February 2019
DOI 10.1108/CG-09-2018-0291 VOL. 19 NO. 4 2019, pp. 669-703, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 669
Arfken et al.,2004;Westphal and Milton, 2000) and innovation (
´az-Garcı
´aet al.,2013;
Turner, 2009).
On the other hand, some studies provide evidence that diverse boards could suffer mo re
conflicts of interests, slower decision-making and lower financial performance (Bøh ren and
Strøm, 2007;Lau and Murnighan, 1998;Miller et al.1998;Williams and O’Reilly, 1998). When
the firm is well monitored and has a good performance, gender-diverse boards are tempted to
take costly decisions. For instance, their decisions lead to excessive and count erproductive
monitoring costs (Adams and Ferreira, 2009;Campbell and Mı
´nguez-Vera, 2008). One
theoretical reason is that collective decision-making will result in higher costs when decision
makers are very heterogeneous (Arrow, 1951). In the same vein, some academic studies
pointed out, however, several drawbacks of gender-diverse boards: such as communication
problems because of the increasing heterogeneity in the board, more discrepancies, slow and
time-consuming decision-making process (Smith et al.,2006;Erhard t et al.,2003;Litz and
Folker, 2002).
There are also several studies showing that the appointment of women directors has no
influence on performance (Haslam et al.,2010;Rose, 2007;Smith et al.,2006;Shrader
et al.,1997
).
The current paper contributes tothe literature on the effects of gender-diverse board on the
firm’s environment, specifically on investors’ decisions. In fact, investors are concerned
about the liquidity of the stocks they trade. Handa and Schwartz (1996) argue that
Investors want three things from the markets: liquidity, liquidity and liquidity.” Stock market
liquidity has an effect on the capital cost and depends on the firm funding policy and the
level of asymmetric information in financial markets (Diamond and Verrecchia, 1991). It
highly argued that corporate governance mechanisms can mitigate information asymmetry
through monitoring and deterring managers from opportunistic behavior which improves
stock market liquidity (Foo and Zain, 2010;Cai et al.,2006;Claessens et al.,2002;Heflin
and Shaw, 2000;La Porta et al.,1999). One of the recent most explored governance
mechanisms is gender diversity (Harjoto et al.,2018;Ben Amar et al., 2013;Adams and
Ferreira, 2009;Francoeuret al., 2008;Carter et al.,2003).
Despite the fact that there is an increasing call for more diversity in firms, studies on how
policy and market makers and investors consider and react to the firm’s efforts in this
specific sense are rare (Ahmed and Ali, 2017;Abad et al.,2017;Ismail and Manafe, 2016;
Gregory et al.,2013;Dobbin and Jung, 2011;Kang et al., 2010;Bharath et al.,2009;Lee
and James; 2007). Most of these studies conclude that the appointment of women as
directors could be viewed as a positive signal by firms to stakeholders (Ahmed and Ali,
2017;Abad et al., 2017;Ismail andManafe, 2016).
Unlike these studies, we examine how women directors could influence investors’ trades
according to their positions on the board. To better assess female members influence, we
take into account endogeneity problems that could arise between corporate governance
and stock liquidity.
To the best of our knowledge, this is the first paper to distinguish between the effects of
women directors on investors’ decisions, according to their positions on the board whether
they are inside and independent members.
The current study is conductedon a sample of the top French firms between 2002 and 2012
listed on the Paris Stock Exchange (SBF120). This paper is timely as recent statistics show
that many French firms have increasedgender diversity on corporate boards to comply with
the gender-quota law. Despite the fact that gender equality policies have been introduced
since the 1970s to provide a consistent legal framework to cover social, political and
economic areas, the gender quota law in listed firms has been promulgated lately in 2011
(The European parliament,2015 in the policy on gender equality in France report).
PAGE 670 jCORPORATE GOVERNANCE jVOL. 19 NO. 4 2019
Boards have to achieve at least 40 per cent of women directors by the end of the 2017.
Many firms have urgently started to appoint more female members since 2011. Because of
the limited pool female candidates and the large number of family-controlled firms in the
French context, the number of women insidedirectors and women sitting in multiple boards
has increased. In fact, there is a strong connection between family controlled firms in
France (Boubaker et al.,2014). Furthermore, we draw this study based on a typical
European context where governance quality is a reliable signal by firms to investors,
particularly when the interests ofminority shareholders are poorly protected (La Porta et al.,
1999,2002).
The current study providesthe following results:
First, we show that investors’ decisions depend on the presence of women directors: the
number and percentage of female members have a positive and significant effect on stock
market liquidity: the effect is negative illiquidity costs (illiquidity ratio of Amihud, 2002)and
positive on trading volume.
Second, when focusing on women positions in the board, findings reveal that illiquidity
costs (Amihud ratio) significantly decrease when women are appointed to inside positions
while the daily trading volume significantly increases in the presence of female independent
directors.
Third, turning to corporate governance, we find that female’s members influence vary
according to their positions: For instance, more female inside directors are appointed to
large boardrooms and their presence increases the firm’s abilities to implement better
strategies to cope with economic, social and environmental constraints. Accordingly, the
vision and strategy are improved. Surprisingly, when more women are appointed as
independent directors, they seemto have a negative effect on these aspects. Also, whether
they are independent or inside members, women directors cannot influence the protection
of shareholders rights.
Finally, the market seems to be more receptive to female attributes such as high-academic
degrees, business education and multiple directorships. Using different regression
methods, the results are robust with different proxies for stock market liquidity, governance
quality and gender-diversityon boards.
The remainder of the paper is organizedas follows. Section 2 presents the literature review.
Section 3 describes the data selection process, the sample’s characteristics, the measures
of the variables and the methodology. Results are provided in Section 4. Robustness
checks and conclusions are in Sections5 and 6.
2. Literature review and hypotheses
Diversity has become a governance tool that could influence strategic decisions and
board’s dynamics. More recently, it has become an ethical and social requirement of
stakeholders. Getting diverse boardrooms could improve firm’s public image and therefore
investors’ decisions.
On one hand, in several studies, gender diversity is considered as a governance tool that
could improve governance quality, transparency, monitoring, and the protection of
shareholders rights (see among others Foo and Zain, 2010;Adams and Ferreira, 2009;
Attig, 2007;Kanagaretnam et al.,2007;andCai et al.,2006). It is also argued that stock
market depends on governance attributes, like for instance the presence of independent
directors, the non-split between management and control functions (Bilimoria and Wheeler,
2000;Fondas, 2000;Selby, 2000;Daily et al.,1999;Simons and Pelled, 1999). Accordingly,
we suspect the presence of direct and indirect effects of gender diverse boards on
investors’ decisions.
VOL. 19 NO. 4 2019 jCORPORATE GOVERNANCE jPAGE 671

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