Does the presence of independent and female directors impact firm performance? A multi-country study of board diversity
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Does the presence of independent and female directors impact firm performance? A multi-country study of board diversity Siri Terjesen • Eduardo Barbosa Couto Paulo Morais Francisco
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Springer Science+Business Media New York 2015
Abstract This study empirically analyzes whether gender diversity enhances boards of directors’ independence and efficiency. Using data from 3,876 public firms in 47 countries and controlling for a wide set of corporate governance mechanisms, we find that firms with more female directors have higher firm performance by market (Tobin’s Q) and accounting (return on assets) measures. The results also suggest that external independent directors do not contribute to firm performance unless the board is gender diversified. These results hold with respect to different estimation models and robustness tests. Overall, our findings provide evidence that the female directors enhance boards of directors’ effectiveness. Finally, we find that firms that are concerned with board independence, and that firms in more complex environments are more likely to have gender-balanced boards. Keywords Board of directors Female directors Firm performance Independent directors Return on assets Tobin’s Q
S. Terjesen (&) Kelley School of Business, Indiana University, 1309 E. 10th St., Bloomington, IN 47405, USA e-mail: [email protected] S. Terjesen School of Management & Economics, Lund University, Lund, Sweden E. B. Couto P. M. Francisco ISEG-School of Economics and Management, Technical University of Lisbon, Rua Miguel Lupi, 20, 1249-078 Lisbon, Portugal e-mail: [email protected] P. M. Francisco e-mail: [email protected]
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1 Introduction The board of directors is tasked with guiding and authorizing the firm’s strategic decisions, including mergers, acquisitions, alliances, hiring/firing executives, and capital structures. These strategies, in turn, impact the firm’s financial performance and overall capital expenditures. Recent corporate scandals (e.g., Lehman Brothers, Glitnir, and Dynegy) have led to even closer scrutiny of boards of directors’ decisions and composition. Around the world, there are calls to diversify boards of directors. Two distinct types of board of directors characteristics are the directors’ status as independent (e.g., external, non-executive) to the firm and gender (e.g., female). There is also significant pressure from certain stock exchanges and large institutional investors. For example, in the U.S., the NYSE and NASDAQ exchanges both stipulate that a substantial share of a firm’s directors should be independent. A separate but related issue concerns the appointment of women to boards. Sixteen national corporate governance codes encourage the appointment of female directors; fourteen countries mandate gender quotas for publicly traded firms (e.g., Norway and Spain) or state-owned enterprises (Terjesen et al. 2014; authors’ calculations). The presence of independent and female directors varies by country, industry, and firm; however, t
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