Tuesday, November 11, 2008

Gender Diversity in the Board Room

Via Harvard's Corporate Governance Blog, Renée B. Adams of the University of Queensland and ECGI, and Daniel Ferreira of the London School of Economics, CEPR and ECGI, have issued a paper, “Women in the Boardroom and Their Impact on Governance and Performance,” investigating the hypothesis that gender diversity on corporate boards of directors affects governance in meaningful ways.  The paper will appear in a forthcoming issues of the Journal of Financial Economics. Though Adams and Ferreia were not able to draw any meaningful conclusions about the relationship between gender diversity on boards and firm financial performace, this study does draw some interesting conclusions about the positive effects women directors have on overall corporate governance:

We find that gender diversity has significant effects on board inputs. Women are less likely to have attendance problems than men. Furthermore, the greater the fraction of women on the board is, the better is the attendance behavior of male directors. Holding other director characteristics constant, female directors are also more likely to sit on monitoring-related committees than male directors. In particular, women are more likely to be assigned to audit, nominating, and corporate governance committees, although they are less likely to sit on compensation committees. Women also appear to have a significant impact on board governance. We find direct evidence that more diverse boards are more likely to hold CEOs accountable for poor stock price performance: CEO turnover is more sensitive to stock return performance in firms with relatively more women on boards. We also find that directors in gender-diverse boards receive relatively more equity-based compensation. We do not find a statistically reliable relationship between gender diversity and the level and composition of CEO pay, which is consistent with our findings that female board members are underrepresented on compensation committees and thus have less involvement in setting CEO pay. 

. . .

Using additional tests, we find that gender diversity has beneficial effects in companies with weak shareholder rights, where it is plausible that additional board monitoring can enhance firm value, but detrimental effects in companies with strong shareholder rights.

The full paper may be downloaded via this link:     http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1289814_code327077.pdf?abstractid=1107721&mirid=1