Gender diversity and firm value: evidence from UK financial institutions

• Published date: 04 March 2019
• Date: 04 March 2019
• Pages: 2-26
• DOI: https://doi.org/10.1108/IJAIM-06-2017-0073
• Author: Peter Agyemang-Mintah,Hannu Schadewitz

Gender diversity and f‌irm value:

evidence from UK

f‌inancial institutions

Peter Agyemang-Mintah and Hannu Schadewitz

Department of Accounting and Finance, Turun Kauppakorkeakoulu,

Turku, Finland

Abstract

Purpose –The purpose of this paper is, f‌irst, to empiricallyexamine whether the appointment of females

(board gender diversity) to the corporate boards of UK f‌inancial institutions can improve f‌irm value, and

second, to examine whetherhaving females on the boards of UK f‌inancial institutions can impact f‌irm value

during the pre-/post-globalf‌inancial crisis periods.

Design/methodology/approach –The paper uses secondarydata obtained from DataStream covering

63 f‌inancial institutions over a period of 12 years. A number of additionalstatistical estimations, including

random effectsand f‌ixed effects, are conducted to test the robustnessof the f‌indings.

Findings –The outcome of this empirical research shows that the presence of females on the corporate

boards of UK f‌inancial institutions has a positive and statistically signif‌icant relationship with f‌irm value.

The authors’evidence reveals a positiveand statistically signif‌icant impact on the f‌irm’s value prior to the

f‌inancial crisis,that is, during the pre-crisis period (2000-2006), meaningthat women contributed signif‌icantly

to the f‌irm’s value. However, afterthe f‌inancial crisis, the presence of females on the board had no signif‌icant

effect on the f‌irm’s value. A reasonable explanation may be that, whilst the f‌inancial crisis was over in the

period 2009-2011, the entire UK economywas still experiencing an economic downturn, and f‌inancial f‌irms

were no exception, irrespectiveof whether there was female representation on any corporate board.Overall,

the f‌indings are consistentwith the prior studies.

Practical implications –The results have practical implications for governments, policy-makers and

regulatoryauthorities, by indicating the importanceof women to corporate success.

Originality/value –Despite several research projects on board gender diversity (BGD), this research is

unique comparedto the previous empirical studies,primarily because it is the f‌irst-timeresearch of this nature

is empiricallyascertaining BGD and f‌irm value in UK f‌inancial institutions, also during the pre-/post-f‌inancial

crisis era. This paper contributes tothe corporate governance literature by offering new insights on board

diversity and f‌irms’value relationship. Overall,the results help f‌ill any gaps on gender diversity and f‌irm

value in UK f‌inancialinstitutions.

Keywords UK, Gender diversity, Financial institutions, Firm’s value, Pre/post f‌inancial crisis

Paper type Research paper

1. Introduction

One modus operandi of the nomination committee is the appointment of males to the

corporate board. The continuous appointment of male candidates at the expense of females

creates the impression that knowledge, talent, skills, experience and the ability to address

corporate issues are vested only in the hands of men. When the nomination committee

appoints males and females to the corporate board with the specif‌ic aim of balancing

divergent views and improving a f‌irm’sf‌inancialperformance, we def‌ine it as board gender

diversity (BGD). Female representation on the corporate board is so important that, in

December 2013, Twitter came under pressure from the media for neglecting to have any

women on its board. The CEO responded that the appointment of board members should

IJAIM

27,1

2

Received5 June 2017

Revised11 July 2017

Accepted17 July 2017

InternationalJournal of

Accounting& Information

Management

Vol.27 No. 1, 2019

pp. 2-26

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-06-2017-0073

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1834-7649.htm

not be a matter of just “checking a box”. The company later appointedMarjorie Scardino as

the f‌irst female director on the board. Twitter took a bold step in addressing this issue[1]

(Sila et al.,2016).

BGD has become a topic for discussion because of four benef‌itsa f‌irm tends to reap from

a more gender diverse board: improving f‌inancial performance, opportunities to attract a

wider pool of talent, becoming more responsive to the market and the ability to strengthen

its corporate governancepolicies (Doldor et al., 2012).

Generally, the debate on gender diversity involves two arguments. The f‌irst holds that

women with competent skills,experience and qualif‌ications deserve the opportunityto serve

on corporate boards. The second suggests that positivegender diversity amongst corporate

directors results in better governance and enhances f‌irm performance. This second

proposition means that the representation of females on the board should serve solely to

improve performance; otherwise, f‌irms will be engaging in “tokenism”. That is the practice

of representing a small group or minority, in this case on a board, to give an appearance of

sexual or racial equality within a workforce(Kanter, 1977). Firms, thus, make a perfunctory

gesture of inclusiveness towards minority groups (Zimmer, 1988). If the nomination

committee can argue that it is important to have females on the corporate board, it will be

easier for them to build a business case about their competency to the shareholders (Carter

et al.,2010; Patterson,1997).

This research will examine the thrust of the second debate above and set the f‌irst

objective or the purpose of this researchby empirically examining whether the appointment

of females to UK f‌inancial institutions’boardscan improve f‌irm value. The research purpose

is supported by Cotter et al. (2001) in a studyindicating that, although women are equipped

with both the skills and qualif‌ications needed for appointment to the board, the board

intentionally discriminates againstthem based on stereotypes unrelated to their experience

and qualif‌ications. Another assertion, by Hillman et al. (2002), argues that women have

different backgrounds and characteristics that make them unique compared to traditional

directors. Kramer et al. (2007) indicate that women are known to ask tough questions and

bring unity to leadershippositions.

Further, research by Terjesen et al. (2009) reveals that diversity in boards adds unique

human capital and helps enhance board independence. This is also supported by McLeod

and Lobel (1992), who argue that individuals with different opinions from diverse groups

can improve the decision-making quality and take the views of underrepresented groups

into account. Perryman et al. (2016) suggested that heterogeneity in decision-making by

corporate boards helps resolve problems and enhances betterdecision-making, because the

board can engage in critical analysis of issues. Studies by Faff et al. (2011), using

psychometric data, indicate that women are more risk-averse than men in general business

and f‌inancial decision-making. This makes women less risk-tolerant than men in an

investment decision. Firmscan, therefore, balance their risk tolerance with a combinationof

female and male memberson the corporate board for decision-making. A surveyby Catalyst

(2011) points out that Fortune 500 f‌irms with women on the corporate board outperformed

those without femalesbetween 2004 and 2008.

Rose (2007) argues that a high degreeof board diversity may serve as a positive signal to

prospective job applicants searching for a company. For example, the physically disabled

and gender minorities will realise they have a chance in the highest positions within the

f‌irm. This provides accessto a wider pool of talented individualsable to apply for positions,

thereby increasingtransparency and good corporate governance (LordDavies Report, 2011).

The f‌irst motivation for this research is that there have been various corporate

governance reforms in the UK aimed at incorporatingwomen into the corporate boardroom

Gender

diversity

3