Female representation on boards and CEO performance‐induced turnover: Evidence from Russia

• DOI: http://doi.org/10.1111/corg.12316
• Author: Oksana Kim,Bo Qin,Yu Flora Kuang
• Published date: 01 May 2020
• Date: 01 May 2020

ORIGINAL ARTICLE

Female representation on boards and CEO performance-

induced turnover: Evidence from Russia

Oksana Kim

1

| Yu Flora Kuang

2

| Bo Qin

2

1

Department of Accounting & Business Law,

Minnesota State University, Mankato,

Minnesota, USA

2

Department of Accounting, The University of

Melbourne, Carlton, Victoria, Australia

Correspondence

Bo Qin, Department of Accounting, Faculty of

Business and Economics, The University of

Melbourne, Level 8, 198 Berkeley St, The Spot

(Bldg 110), Carlton, Victoria 3053, Australia.

Email: b.qin@unimelb.edu.au

Abstract

Research Question/Issue: This study examines the influence of female board repre-

sentation on CEO turnover and firm value. We focus on Russia, a patriarchal country

with vast gender differences, where empathy, patience, and supportiveness are con-

sidered fundamental qualities of females.

Research Findings/Insights: Using a sample of public firms listed on the Moscow

Exchange from 2006 to 2015, we find that female representation on boards is associ-

ated with lower CEO turnover–performance sensitivity. Further, female boards

appear to add firm value, as we find that CEO retention decisions are associated with

improved future firm value when the decision is made by a female board. Further-

more, we identify that female representation on boards is associated with greater dil-

igence (i.e., hold more board meetings) after retaining their underperforming CEOs.

Theoretical/Academic Implications: Our findings suggest that female boards tend to

develop a long-term view of CEO performance and that such boards exercise greater

diligence and supportiveness, thereby adding shareholder value. Our results also indi-

cate that patience and collaboration of corporate boards afford opportunities to

develop strategic thinking, which is particularly valuable for a firm in times of crisis.

Our study contributes to the research on what qualities of a board affect its decision

making and effectiveness. Our research also adds to the literature on female board

representation. We study Russia, where gender differences are prominent, and

female representation occurs by happenstance rather than regulatorily / intention-

ally. Overall, we are able to attribute our findings to female representation on boards.

Practitioner/Policy Implications: Our study contributes to the burgeoning research

on corporate governance in Russia. Although the Russian economy has demonstrated

unprecedented growth among emerging markets, research on corporate governance

in Russia remains scarce. Our study is among the first efforts to understand how

female boards perform in a patriarchal country. Our investigation, therefore, offers

important insights for policymakers and practitioners.

KEYWORDS

board composition, board task effectiveness, corporate governance, Russia

Received: 29 June 2019 Revised: 12 March 2020 Accepted: 13 March 2020

DOI: 10.1111/corg.12316

Corp Govern Int Rev. 2020;28:235–260. wileyonlinelibrary.com/journal/corg © 2020 John Wiley & Sons Ltd 235

1|INTRODUCTION

Although improving female board representation has been globally

advocated as consistent with best corporate governance practices

(Deloitte, 2014; Organisation for Economic Co-operation and

Development, 2012), recent reviews of the literature show that the

average correlation between female board representation and firm

performance is small and not statistically significant (Jeong &

Harrison, 2017; Pletzer, Nikolova, Kedzior, & Voelpel, 2015; Post &

Byron, 2015; Rhode & Packel, 2014). One credible explanation for the

weak effects of women in the boardroom is lack of gender disparity in

Anglo-Saxon countries

1

(Ferreira, 2010; Jurkus, Park, &

Woodard, 2011; Kugler, Tinsley, & Ukhaneva, 2017; Post &

Byron, 2015). This study focuses on Russia, a country with a well-

known history of patriarchy and a large degree of gender disparity

(Berdyaev, 1918; Buck, 2012; Engel, 1992; Shubart, 1938;

Zdravomyslova, 2012). We investigate the association between

female representation on boards and chief executive officer (CEO)

performance-induced turnover as well as subsequent firm value in

Russian firms.

2

We study female board representation in Russia for another

important reason; that is, regulatory advocacy for women on boards is

nonexistent in Russia (Buck, 2012; Catalyst, 2014; Egon

Zehnder, 2016; Feifer, 2010). Because there is no gender quota, the

effect of women on boards is untainted by quota-induced bias. In

other words, female board representation in Russia occurs by happen-

stance rather than a regulatory outcome. This setting is essential for

our research, because quotas for more women on boards may have

negative effects if the board already has an optimal level of monitor-

ing (Adams & Ferreira, 2009). Therefore, the Russian setting enables

us to study female directors who are more likely to be hired to use

their socially ingrained characteristics, likely gender related, to shape

board qualities and board decisions.

Russian culture regards women as patronesses and supporters of

the societal units with which they affiliate, such as families

(Shubart, 1938). Women are perceived as being more empathetic, col-

laborative, and supportive than Russian males (Ryabov, 2000;

Sergeeva, 2006), qualities that are also prevalent among women in

top positions such as board directors. In this study, we expect female

boards to show more empathy, patience, and support to their CEO in

times of crisis (i.e., when a firm reports poor performance). We argue

that instead of terminating a CEO's contract, female boards will

choose to spend time and investigate the cause of the poor

performance—whether the CEO is to blame or the firm performance

is due to bad luck such as market turbulence or unexpected business

disruptions. Such a board will rely less on reported performance to

assess the CEO's effort. We thus predict a lower sensitivity of CEO

turnover to reported performance associated with female representa-

tion on boards. Patience and supportiveness facilitate productive

communication between a board and its CEO, thereby improving

board effectiveness and firm performance. We further expect that

such CEO retention decision will have a positive effect on future

firm value.

Using a sample of public firms listed on the Moscow Exchange

from 2006 to 2015, we find that female representation on boards is

associated with reduced CEO performance-induced turnover. We also

show that such effects are more pronounced in firms in which female

directors possess more decision-making power. We next examine the

firm value effect of a retention decision made by female boards and

find significant firm value improvements after the retention. We fur-

ther investigate plausible channels through which female directors

add value. We find that, following a decision not to replace an under-

performing CEO, firms with greater female board representation will

hold more board meetings. Board meetings provide a platform for

effective communication and a foundation for developing strategic

thinking, which is particularly valuable when a firm is facing adverse

situations (Barannik, 2010; Dowell, Shackell, & Stuart, 2011). More

frequent meetings signal greater diligence of a board in exercising

monitoring and advising roles. The improved firm value we find after a

CEO retention decision suggests that a board's efforts to turn perfor-

mance around are effective and that patience and collaboration asso-

ciated with female representation on boards is economically

significant and meaningful. To address the endogeneity concern (self-

selection bias in women on boards), we rely on the Heckman correc-

tion model and use the 2008–2009 global financial crisis to generate

exogenous variations in female board representation. We run a series

of additional tests, including applying alternative estimation methods,

considering forced CEO turnover, using alternative measurement for

firm performance and female board presentation, and controlling for

mean reversion of firm performance. We also investigate the robust-

ness of our findings to alternative explanations. In all cases, we obtain

consistent results.

Our study makes several important contributions. First, we shed

new light on the effects of female board representation. Unlike prior

studies examining Anglo-Saxon countries, where the norm of gender

equality is socially embedded (Branson, 2006; Niederle, Segal, &

Vesterlund, 2013), we study Russia, where gender differences are

prominent. Hence, we are better able to attribute our findings to

gender disparity. We find that reduced CEO turnover–performance

sensitivity in firms with female boards is associated with greater

board activities and an increase in firm value. Altogether, the results

suggest that retaining an underperforming CEO could be a sign of

long-term orientation as well as better board monitoring and advis-

ing. Further, unlike most studies that attempt to establish a link

between female directors and firm performance, our investigation

focuses on CEO turnover, among the most consequential decisions

that boards make (Jenter & Kanaan, 2015; Parrino, 1997; Shleifer &

Vishny, 1997). Boards are primarily charged with management over-

sight rather than direct responsibility for corporate financial out-

comes. Our findings extend the current knowledge on how women

in the boardroom affect corporate outcomes that are directly subject

to the board.

Relatedly, this study contributes to an ongoing debate about

which board qualities matter most in explaining board effectiveness

(Adams & Ferreira, 2007; Almazan & Suarez, 2003; Faleye, Hoitash, &

Hoitash, 2011; Schmidt, 2015; Sundaramurthy & Lewis, 2003). Our

236 KIM ET AL.