Does the gender quota law affect bank performances? Evidence from Italy

• Published date: 14 August 2020
• Date: 14 August 2020
• DOI: https://doi.org/10.1108/CG-08-2019-0252
• Pages: 1135-1158
• Author: Romilda Mazzotta,Olga Ferraro
• Subject Matter: Strategy,Corporate governance

Does the gender quota law affect bank

performances? Evidence from Italy

Romilda Mazzotta and Olga Ferraro

Abstract

Purpose –This study aims to examine the impact of an increasing board diversity on the performance of

Italian listed banks for the period 2008–2014, taking into account the effects of the implementationof gender

quota laws in Italy. The study also investigatesthe effects of this potential relationship during the crisis that Italy

had to cope with since 2011, as well as the potentialimpact of female directors and their roles on bank boards.

Design/methodology/approach –To verify this relationship,the study uses a panel sample of 22 listed

banks and appliesfixed effects with the Driscoll-Kraay error.Considering the shareholders’ perspective,

bank performance (BP) is measured by return on average equity. The robustness of results is verified

through return on average assets, Tobin’s Q (a market measure from investors/stakeholders’

perspective)and an alternate estimation model,i.e. GMM.

Findings –The findingshighlight a positive relationship betweenthe performance accounting measures

and gender diversity, a non-neutral impact of the presence of female directors on boards and a

significantand negative effect on marketmeasures.

Research limitations/implications –The results of the study, as far as accounting measures are

concerned, support managerial and legislative efforts toward more gender-balanced boards and the

appointment of femaledirectors in executive or independent roles. As per marketmeasures, the results

suggest thatthe presence of women on boards shouldbe considered advantageous in termsof value, so

that the marketcan finally appreciate diverse bank boards.

Originality/value –First, previousstudies did not provide exhaustive results todocument the proposed

relationship and did not examine this relationship during a financial crisis. Second, the role of female

directors on boardsis also taken into account. Third, the study highlightedthat BP is a multi-dimensional

construct,with accounting and market metrics being its distinctdimensions.

Keywords Firm performance, Board of directors, Female directors, Banking sector, Gender quota law

Paper type Research paper

1. Introduction

Organizations operating in the banking sector, taking for granted the use of safety net

policies in case of trouble, are induced to take on additional risks (Sbracia and Zanghini,

2003). In turn, excessive risk-taking impairs the stability of a single institution and the entire

banking sector (Peni and Va

¨ha

¨maa, 2012). The main cause of bank failures is the

accumulation of an imprudent level of risk (de Andres and Vallelado, 2008;Minton et al.,

2014), which is more likely to occur in banks with weak corporate governance mechanisms

(Hanafi et al.,2018). Therefore, it comes as no surprise that many academic studies

emphasize the importance of good governance practices in the banking sector (Srivastav

and Hagendorff, 2016). Many of these studies focus on the boards of directors (board), the

core of the governance structure–as their existence is salient to the banking sector. Boards

are not only aimed to maximize shareholders’ wealth but also to ensure the overall safety

and soundness of the bankingsystem (Ramly et al.,2017).

In this light, the European Banking Authority (EBA, 2011) and Basel Committee (BCBS,

2010) established that aboard,to be compliant with a good corporate governance practice,

Romilda Mazzotta and

Olga Ferraro are both

based at the Department of

Business Administration

and Law, University of

Calabria, Rende, Italy.

Received 22 July 2019

Revised 18 December 2019

25 May 2020

29 June 2020

Accepted 18 July 2020

The authors thank the anonymous

referee for his/her helpful

comments.

Author Contributions: Both

authors wrote the paper, but their

primary individual contributions

are reflected as follows:

Sections ....

DOI 10.1108/CG-08-2019-0252 VOL. 20 NO. 6 2020, pp. 1135-1158, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 1135

should be composed of people who are diversified by age, sex, nationality and experiences

because board diversity potentially improves the transparency of bank activities and the

quality of decisions. In particular, gender diversity is the most discussed aspect of board

diversity (Rao et al.,2012;Ullah et al.,2019;Al-Matari, 2019). Female directors are hard-

working and have better communication skills, which contribute to the problem-solving and

decision-making abilities of the entire board (Robinson and Dechant, 1997). Moreover,

female directors, being more independent from management than male directors (Adams

and Ferreira, 2009), may improve the monitoring and controlling of management (Mateos

de Cabo et al.,2012

). There is limited empirical evidence on the link between gender

diversity and firm performance in the literature, not to mention the fact that these studies

report mixed results (Jurkus et al., 2011;Lee and James, 2007;Mohan and Chen, 2004),

even if studies that show a positive relationship between gender diversity and firm

performance prevail (Campbell and Minguez-Vera, 2008;Nguyen et al., 2015;Rose, 2007).

Nevertheless, female directors are underrepresented in corporate boards around the world

and this gap is more pronounced in the banking sector (Adams and Kirchmaier, 2016;

Mateos de Cabo et al., 2012). An incentive for the increaseof gender board diversity came

from gender quota laws. Norway was a pioneer in introducing the gender equality law,

requiring firms to include at least 40%female representation on boards by 2008. Since then,

many countries have followed suit in attempts, even if scholars observe that the gender

quota law was introduced without knowing its impact on the firms’ ability to create value

(Bøhren and Strøm, 2010). Generally, it can be hypothesized that if a female directors’

appointment is based on merit(skills, expertize and achievements), bank performance (BP)

is likely to improve, while if her nomination ignores her merits and is made only to comply

with the law, BP is unlikely to change. Therefore, the nexus between gender-law and firm

performance has been extensively studied, but it has yielded mixed results (Ahern and

Dittmar, 2012; Bøhren and Staubo, 2016;Matsa and Miller, 2013). There is littleevidence on

this relationship with reference to the banking sector, and as far as Italy is concerned, this

lack is even more pronounced.

This paper aims to fill this gap by examining the impact of board diversity on the financial

performance, measured by return on average equity (ROAE), of Italian listed commercial/

retail banks (bank) from 2008 to 2014. This particular time span was chosen to allow us to

examine a natural experiment in board structure created by an unprecedented exogenous

change in corporate board structure (Ahern and Dittmar, 2012). In 2011, in fact, the gender

quota law (Law 120/2011, known as “Legge Golfo-Mosca”) was approved. This law came

into force in 2012 and, unlike the Norwegian law, provided for a gradual implementation: the

appointment of one fifth (20%) of the less represented gender on board on its first renewal.

By 2015, female directors’ incidence was to be equal to at least one third [1]. Moreover,the

financial crisis hit Italy in the very same years, with its peak in 2011. Due to instability, bank

boards might have become more exclusive and homogeneous, but in 2012, an exogenous

factor such as the gender quota law changed the situation. Therefore, this context offers an

opportunity to explore the impact of the gender-law on boards’ composition and BP during

the crisis.

This study differs from previous studies, as it is focused on the Italian banking sector alone.

Previous research does not provide exhaustive results to document the relationship

between Italian banks’ performance and gender diversity. Second, it takes into

consideration also the role of female directors (executive, non-executive and independent)

and examines the significance of the relationships between gender diversity and BP during

the period of financial instability. Third, the study highlights that BP is a multi-dimensional

construct in which accounting,and market measures are its distinct dimensions.

This paper contributes to the literatureon gender quota law and on the relationship between

board composition and BP, whichare also reverberating in the political debate. The present

research highlights that: in the Italian banking sector, the appointment of female directors

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