Social capital and board gender diversity

• Published date: 01 July 2022
• Author: Mansoor Afzali,Hanna Silvola,Siri Terjesen
• Date: 01 July 2022
• DOI: http://doi.org/10.1111/corg.12418

ORIGINAL ARTICLE

Social capital and board gender diversity

Mansoor Afzali

1

| Hanna Silvola

1

| Siri Terjesen

2,3

1

Department of Accounting, Hanken School of

Economics, Helsinki, Finland

2

College of Business, Florida Atlantic

University, Boca Raton, Florida, USA

3

Strategy and Management, Norwegian School

of Economics, Bergen, Norway

Correspondence

Mansoor Afzali, Department of Accounting,

Hanken School of Economics, P.O. Box

479, FI-00101 Helsinki, Finland.

Email: mansoor.afzali@hanken.fi

Funding information

Finnish Foundation for Economic Education

Abstract

Research question/issue: This study explores the relationship between the level of

social capital in the location of a firm's headquarter and the presence of female board

directors. We measure local social capital by civic norms (i.e., voter turnout and cen-

sus participation) and density of social networks (i.e., community, professional,

church, and sports). We hypothesize that greater levels of local social capital will

increase the share of female directors on local firms' boards, including women attain-

ing a critical mass presence as well as member and chair roles on the board's audit,

compensation, and nomination committees.

Research findings/insights: Using 53,671 observations from U.S. public companies

from 2000 to 2018, we find that firms headquartered in counties with higher levels

of social capital have higher percentages of women directors. The results are robust

to the inclusion of local female labor participation rate, religiosity, and other county-

level demographics as well as instrumental variable and propensity score matching

models. We also find that female directors in firms located in high social capital

counties are more likely to achieve a critical mass; attain membership of audit, com-

pensation, and/or nomination committees; and serve as chair of audit and nomina-

tion committees than female directors in firms located in low social capital counties.

A robustness check with an international sample reveals similar results.

Theoretical/academic implications: We build on institutional theory to highlight that

the informal institution of social capital, in the form of U.S. county-level civic norms

and social networks, shapes gender composition of local firms' boards. We build insti-

tutional theory at two levels of the quest for “fit”to the environment: firms seeking

“fit”by creating more leadership opportunities for women, and individuals pursuing

“fit”by moving up in corporate careers. We outline theoretical mechanisms including

underlying informal societal norms of greater trust, tolerance for gender equality,

respect for civil liberties, cooperative and helpful behavior, transparency, external

monitoring, and less discrimination and information asymmetry.

Practitioner/policy implications: Our findings offer insights to policymakers and

practitioners interested in how local social capital shapes firm and individual actions.

Our policy-related findings suggest that communities with greater civic norms are

characterized by greater individual commitment to and trust in communities, equality,

helpful behavior, and external monitoring, and less cynicism, and this context enables

Received: 6 January 2020 Revised: 5 November 2021 Accepted: 10 November 2021

DOI: 10.1111/corg.12418

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium,

provided the original work is properly cited.

© 2021 The Authors. Corporate Governance: An International Review published by John Wiley & Sons Ltd.

Corp Govern Int Rev. 2022;30:461–481. wileyonlinelibrary.com/journal/corg 461

women to reach corporations' highest echelons. To maximize career prospects,

women can attain leadership and other skills through local societal associations and

build and strengthen ties in counties with higher levels of social capital. Firms should

actively support community associations and direct philanthropy towards building

social fabric in local communities.

KEYWORDS

board gender diversity, civic norms, corporate governance, critical mass, institutional theory,

social capital, social networks

1|INTRODUCTION

Over the last few years, the debate concerning gender equality for

boards has attracted considerable attention from researchers,

policymakers, and practitioners (Nielsen & Huse, 2010). Despite

women's remarkable progressin attaining higher educationdegrees and

joining and moving up in labor markets, women face considerable bar-

riers in advancing into upper management and boardrooms (Adams &

Kirchmaier, 2015; Gabaldon et al., 2016). To address these barriers,

policymakers introduced comply-or-explain protocols and gender

quotas in most Europeancountries, and most recentlyfor the U.S. state

of California and all NASDAQ-listed firms. A large literature explores

potentialindividual, firm, industry, and country-level driversof the pres-

ence of women directorson corporate boards (Terjesenet al., 2009).

Building on institutional theory, the country-level research high-

lights that greater levels of female board gender diversity are found in

countries with more women in politics (Terjesen & Singh, 2008), lower

tolerance for inequalities (Carrasco et al., 2015), and greater female

labor participation (Adams & Kirchmaier, 2015).

1

An emerging litera-

ture investigates the potentially heterogeneous practices and activi-

ties within a country. In a seminal study, Thams et al. (2018) find that

firms that have greater shares of women corporate directors are more

likely to be headquartered in states with a history of more progressive

policies that help protect women from workplace discrimination and

offer greater latitude for individual reproductive freedom. This finding

suggests the importance of local context, and the need to examine

other local context-specific institutional structures that may shape

firms' corporate governance structures.

The vast literature on institutional drivers of corporate gover-

nance has three core categories: informal constraints, formal rules,

and enforcement, with most literature focusing on the latter two cate-

gories (Boytsun et al., 2011). A promising literature identifies the

importance of informal constraints—that is, the informal institutions

that shape behavior. An early cross-country study highlights that insti-

tutional settings lead to different corporate governance mechanisms

(Lubatkin et al., 2005). One of the most notable informal mechanisms

is social capital. Social capital refers to shared common beliefs (civic

norms) and density of associational networks within a community

(Woolcock, 2001). For example, comparing the stock market in

Sweden to other countries, social norms complement formal investor

protection mechanisms (Stafsudd, 2009). Boytsun et al. (2011)'s

regional study within Ukraine shows that social norms and social

cohesion lead to more open corporate governance in terms of greater

transparency, external monitoring, and enhanced principal-agent

bonding. The fast-growing literature documenting social capital influ-

ences on corporate decisions (Gao et al., 2021; Hasan et al., 2017;

Hoi et al., 2018,2019; Jha, 2019) has not yet explored the effect on

board governance structures such as directors' gender composition.

Building on institutional theory, our study examines how within-

country differences in the levels of social capital may shape the share

of female directors on boards of corporations headquartered in these

regions. Using a sample of 53,671 firm-year observations from 2000

to 2018, we show U.S. county-level social capital has a statistically

significant positive influence on the proportion of female directors in

corporate boardrooms. We find that firms with at least one female

board director are approximately 1.5 times more likely to be

headquartered in high social capital counties compared with low social

capital counties. The findings are robust to the inclusion of several

firm characteristics, county-level demographics, as well as state,

industry, and year fixed effects. Our results also reveal that women on

boards of firms headquartered in high social capital regions are more

likely to achieve a critical mass of three or more female directors and

to serve and chair important monitoring committees. We also find

that higher social capital regions are characterized by less tokenism—

that is the mainly symbolic appointment of women directors. We

check the generalizability of these U.S. county-level studies with a

second study of 23 OECD countries from 2000 to 2018. Proxying

social capital as “trust in others,”we find that firms located in coun-

tries with higher levels of social capital are more likely to have greater

shares of female directors, and less likely to have a “token”presence

of female directors.

Our study offers several contributions to the existing literature.

First, we answer calls to explore how internal corporate governance

structures such as board composition are affected by external corpo-

rate governance mechanisms (Aguilera et al., 2015) such as institu-

tional context. Second, we respond to calls to investigate the role of

informal institutions in shaping corporate governance (Boytsun

et al., 2011; Lubatkin et al., 2005; Nicholson et al., 2011;

Stafsudd, 2009) by focusing on social capital. In so doing, we extend

institutional theorizing to a regional level (U.S. county). Third, we

answer calls to extend the literature on enablers and barriers to

women's entry into boards (Brammer et al., 2007; Terjesen &

462 AFZALI ET AL.