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
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