Female board participation and firm’s financial performance: a panel study from a Latin American economy
| DOI | https://doi.org/10.1108/CG-07-2019-0235 |
| Published date | 17 May 2021 |
| Date | 17 May 2021 |
| Pages | 920-938 |
| Subject Matter | Strategy,Corporate governance |
| Author | Pamela Leyva-Townsend,Wilson Rodriguez,Sandra Idrovo,Fredy Pulga |
Female board participation and firm’s
financial performance: a panel study from
a Latin American economy
Pamela Leyva-Townsend, Wilson Rodriguez, Sandra Idrovo and Fredy Pulga
Abstract
Purpose –This study aims to elucidatethe relationship between women’s participationon the board of
directorsand the company’s financialperformance in a sample of 45 Colombian companieslisted on the
ColombiaStock Exchange (CSE) (Bolsa de Valoresde Colombia).
Design/methodology/approach –Using 50,214 financial records of 45 companieslisted on the CSE
during 2008–2016,the authors performed panel data regressionsto explore the relationship betweenthe
measuresof gender diversity on boards and the impacton corporate financial performance.
Findings –The authors show that the participationand presence of at least one woman on the board of
directors are positively associated with firm financial performance as measured by return on equity
(ROE), butnot as measured by Tobin’s Q. This second indicatoris positively associated withfirm financial
performancewhen there are at least three female directorson boards of 10 or more individuals.
Practical implications –The findings also provideevidence supporting the development of managerial
and organizationalmechanisms that strengthenfemale presence at the highest levelof governance.
Originality/value –The study demonstrates that femalepresence on boards has a positive impact on
firms’ financial performance, but the degree of diversity impacts differently ROE and Tobin’s Q. These
findings are based on a studyof an emerging economy in Latin America, and data on similar economies
are scarce.
Keywords Latin America, Financial performance, Board of directors, Gender diversity,
Degree of diversity
Paper type Research paper
1. Introduction
Boards are an essential part of companies’ lives. They select, advise and monitor the chief
executive officer, oversee the design and implementation of strategies, monitor the socio-
political environment, take risks and perform monitoring and controlling activities (Van den
Berghe and Levrau, 2004). Thus, their size and composition, among other issues, have
been an object of study to improve companies’ performance. The scandals of the latest
financial crisis raised questions about boards’ composition: would a diverse board
composition have made any difference to the disastrous outcomes of 2007–2008?
Specifically, we could ask: Would the presence of more women (or any women, for that
matter) as directors have changed the results?
Actual policies implemented in Europe might signal a positive answer to these questions.
Following the crisis, several European countries implemented a quota system to ensure a
higher number of female directors.The business case for more female representation at the
board level, as Adams (2016) suggests, is based on the correlation between improved
company performance indicators and the number of female directors on company boards.
Pamela Leyva-Townsend is
based at the Instituto de la
Familia, Universidad de La
Sabana, Chia, Colombia.
Wilson Rodriguez is based
at EICEA, Universidad de
La Sabana, Chia,
Colombia.
Sandra Idrovo is based at
INALDE Business School,
Universidad de La Sabana,
Chia, Colombia.
Fredy Pulga is based at
EICEA, Universidad de La
Sabana, Chia, Colombia.
Received 31 July 2019
Revised 25 January 2020
25 June 2020
7 October 2020
21 January 2021
27 January 2021
Accepted 4 February 2021
PAGE 920 jCORPORATE GOVERNANCE jVOL. 21 NO. 5 2021, pp. 920-938, ©Emerald Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-07-2019-0235
However, does the mere presenceof women positively translate to better firm performance?
Research on the subject is not conclusive.
Studies show that gender diversity in corporate governance positively influences firm value
(Carter et al.,2003) and generate higher returns on assets (Mazzotta and Ferraro, 2020;
Nguyen and Faff, 2007;Singh et al.,2001;Ullah et al.,2019). On the other hand, studies
such as Rose (2007),Chapple and Humphrey (2014) and Fern
andez-Temprano and
Tejerina-Gaite (2020) find no evidence to support the hypothesis of an influence of the
proportion of female directorson corporate financial results. Finally, researchsuch as that of
Adams and Ferreira (2009) and Mı
´nguez-Vera and Martin (2011) shows a negative
relationship between women’s participation on boards of directors and financial
performance.
Studies on board gender diversity have primarily focused on developed economies, and
there is little evidence of how board gendercomposition affects firms’ financial performance
in emerging economies (Guest, 2008;Lazzaretti et al.,2013;Nguyen et al.,2015;
Thrikawala et al.,2016) such as the countries of Latin America. Developed countries differ
from developing ones not onlyat the economic level but also when comparing socio-cultural
systems. The relationshipbetween firm performance and the diversity of its governing body,
the board, depends on the cultural and social norms within which the firm operates
(Alazzani et al.,2017;Post and Byron, 2015).
Latin America has been perceived as a homogenous cultural region, different from other
emerging economies (Grugel et al., 2008). Latin American countries share similar cultural
views that focus on the individual and the family (Vassolo et al., 2011). These cultural views
can lead to paternalism in business management and firms’ organization (Davila and Elvira,
2005). Latin American countries also share similar social problems such as political
instability, corruption,work informality, poverty and social distance.
Colombia, as a Latin American country, shares the elements mentioned above, but at the
same time, it provides useful indicators that make it interesting to investigate. One of those
useful indicators is women’s participation in managerial positions. According to the
International Labor Organization (2015) report, women occupy around 53% of middle and
high managerial positions, the second-highest proportion out of 108 developed and
developing countries. Women’s participation in the labor force has been increasing in
recent years; in 2008, Colombia occupied the 50th position among 160 countries (World
Economic Forum, 2008) with a Gender Gap Index of 0.6944; in the latest available figures
(World Economic Forum, 2018), Colombia occupies the 40th position among 149 countries
(0.729). At the same time, Colombia is “recovering from the large oil price shock of 2015–16
[and its] growth picked up in 2017 and inflation hasbeen hovering” (IMF, 2018, p. 1). These
figures, specifically the reduction in the gender gap, reflect improvements in the level of
education of women as this is one of the elements used to measure the gap. However,
participation by women in boards of directors is relatively low. According to Franco (2016),
only 13.4% of members of the boards of directors of the most important companies in
Colombia are women. In Colombian companies listed on the Colombia Stock Exchange
(CSE), only 9% of board members and 11% of CEOs are women (Marrugo-Salas, 2016).
However, this under-representation is not confined to these groups of companies. A study
conducted on 523 Colombian family businesses found that the average participation of
women in these businesses’ boards of directors is 17.5%, and women represent only 7.4%
of CEO positions (Gonz
alez et al.,2018). Cultural characteristics have been used to explain
this low rate of participation. Specifically, there are high levels of social distance in
Colombia and other Latin American countries and, according to the Economic Commission
for Latin America and the Caribbean, a “culture of privilege.” This “culture of privilege” acts
as a substratum in which inequalities are constructed and reproduced. This culture brings
economic, political and social benefits based on people’s ethno-racial, gender, origin,
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