Gender diversity influence on board effectiveness and business performance

• DOI: https://doi.org/10.1108/CG-07-2019-0206
• Pages: 307-323
• Published date: 04 February 2020
• Date: 04 February 2020
• Author: Rocio Martinez-Jimenez,María Jesús Hernández-Ortiz,Ana Isabel Cabrera Fernández
• Subject Matter: Corporate governance,Strategy

Gender diversity inf‌luence on board

effectiveness and business performance

Rocio Martinez-Jimenez, María Jes

us Hernández-Ortiz and Ana Isabel Cabrera Fernández

Abstract

Purpose –The purpose of thispaper is to analyze the mediating role of board effectiveness(understood

as the capacity to efficientlymanage and control all functions to guarantee the company’s prosperity)in

the relationshipbetween board diversity and firm performance.

Design/methodology/approach –The authors use partialleast squares methodology to test the direct

and indirectrelationships between genderdiversity in boards of directors andbusiness performance.

Findings –Although the relationship between the presence of women on the board and the board’s

effectiveness is statistically significant, this relationship is negative. However, board effectiveness

(measuredby the three constructs:strategic control, organizationalinnovation and decision-making) has

a positive and statisticallysignificant effect on business performance.Finally, there is a positive, but not

statisticallysignificant, relationship betweengender diversity and firm performance.

Research limitations/implications –The study has a small sample size, and most of the boards of

directorsanalyzed are unequal with only a few companiesachieving gender parity.

Social implications –Public institutions must promote actions to achieve a critical mass of women directors

and managers, so that women transcend a merely ‘‘symbolic’’ role on a board and are able to develop their

skills and characteristics, thereby improving a board’s effectiveness and business performance.

Originality/value –This papermakes a theoretical contribution to thediversity and governance literature

by providing a better understanding of the relationship between board gender diversity and firm

performance. It considersthe influence of women on the board through a holistic framework, analyzing

the mediatingrole of the board’s effectiveness.

Keywords Performance, Women, Board of directors, Board effectiveness, Gender diversity

Paper type Research paper

1. Introduction

The role of women in corporate governance and board positions is receiving increased

attention (Vemala et al.,2018;Darmadi, 2013;Nielsen and Huse, 2010;Terjesen et al.,

2009), including analysis of how the increased presence of women in these bodies has an

impact on company results.

These developments have been driven, first, by the need for greater diversity in

organizations, as they face an increasingly multicultural environment with more complex

economies (Van der Walt and Ingley, 2003) and, second, by the implementation, in

countries around the world, of standards, practices and corporate governance

recommendations intendedto increase women’s participation in boards of directors andthe

senior management of companies(Groening, 2019).

From the theoretical perspective, therehave been many attempts to explain the influence of

gender diversity on boards of directorswith respect to a company’s economic and financial

results. These have included theoretical approaches such as agency theory (Fama, 1980;

Fama and Jensen, 1983), the resource-dependence perspective (Pfeffer and Salancik,

1978) and the human capital theory (Becker,1964).

Rocio Martinez-Jimenez,

Marı

´a Jes

us

Herna

´ndez-Ortiz and

Ana Isabel Cabrera

Ferna

´ndez are all based at

the Department of Business

Organization, Marketing

and Sociology, University of

Jae

´n, Jae

´n, Spain.

Received 9 July 2019

Revised 23 October 2019

4 December 2019

Accepted 5 December 2019

DOI 10.1108/CG-07-2019-0206 VOL. 20 NO. 2 2020, pp. 307-323, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 307

A review of these studies (Cabrera-Fernandez et al., 2016;Reddy and Jadhav, 2019),

however, shows no well-defined theoretical basis upon which to explain this relationship,

making it necessary to use a multi-theoretical approach. Moreover, there is no agreement

on these results, as some studies find a positive relationship between the presence of

women on a board of directors and the variables that measure the performance of the

company (Reguera-Alvarado et al., 2017;Carter et al.,2003), while others find no evidence

of such a relationship (Van der Walt et al.,2006;Rose, 2007;Miller and Triana, 2009)or

conclude that gender diversity produces negative effects on business performance

(Darmadi, 2013;Ryan and Haslam,2005).

Therefore, more studies are necessary to research the source of such differences. In this

sense, insufficient attention has been paid to the identification of mediating or moderating

variables between gender diversity on boards of directors and performance (Cabrera-

Fernandez et al.,2016

;Forbes and Milliken, 1999). Researchers of this issue suggest that

the presence of women in the boardroom leads to more civilized behavior and sensitivity to

other perspectives (Fondas and Sassalos, 2000) and thus influencing board tasks. In this

sense, few studies (Nielsen and Huse, 2010;Torchia et al.,2011;Benkraiem et al, 2017)

have paid attention to the contribution that women make in the boardroom and to their

influence on board decisions, tasks and processes. These studies use a rather narrow

definition of board effectiveness, focusing on board operational and strategic control or

decision-making. Moreover, research on board and governance has recently advanced

significantly, and a number of other importantboard tasks have emerged in the literature.

Therefore, we propose to emphasize the effectiveness of the board of directors, understood

as the board’s ability to effectively direct and control functions and guarantee the co mpany’s

prosperity, thereby adding value to the organization, moving the company closer to its goals

and promoting corporate performance to meet shareholders’ and stakehol ders’ interests

(Nordberg and Booth, 2019). We analyze the effectiveness of the board, which is treated as an

intermediate variable between the composition of the board and the performance of the

company. We use a completely comprehensive model, which considers board effectiveness

through three organizational variables associated with the functions of the board, namely,

strategic control, organizational innovation and decision-making.

As such, the present work makes a theoretical contribution to the diversity and governance

literature by providing a better understanding of how the relationship between board

gender diversity and firm performance operates. Therefore, this study extends the literature

by providing evidence of the influence of women on a board in all those tasks and functions

taken together as a holistic framework, seeking to determine whether there is a mediating

role of the effectiveness of the board between gender diversity in the board and firm

performance. This means that our study can be positionedin the research stream that deals

with “board behavior and boardroom culture”(Terjesen et al.,2009).

To that end, this paper is structured as follows. In Section 2, we discuss the theoretical

framework that will be used to explain the influence that the presence of women in a board

of directors may have on the operation of the board and the results of the company. This

establishes the groundwork for proposing a research model in which the effectiveness of

the board acts as a moderator variablebetween the composition of the board and business

results. In Section 3, we discuss themethodology used and the main results of an empirical

study of a group of Spanish firms are described in Section 4. In Section 5, we present the

results obtained from the analysis. In Section 6, we discuss the limitations and the future

research directions.

2. Theoretical framework

The literature on corporategovernance shows how a board faces the challenge of fulfillinga

variety of roles and responsibilities in the dynamic business environment in which it exists.

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