New University Research Links Female Board Members, Accounting Returns

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By Michael Greene

Dec. 30 — Having female board representation leads to higher accounting returns, and the effect is greater in countries with higher shareholder protections, according to new research conducted by Lehigh University and Syracuse University.

However, the study found no positive relationship between female board representation and market performance, except for in countries where there is already a high degree of equality between genders.

In a forthcoming article in the Academy of Management Journal, the study's co-authors, Corinne Post, a professor of management at Lehigh's college of business and economics and Kris Byron, a professor at Syracuse's Whitman School of Management, discuss some of the practical implications of their research, which statistically combined the results of 140 studies about the effect of women on corporate boards from 1989 to 2014.

‘Not a Simple Numbers Game.'

In their forthcoming “Women on Boards and Firm Financial Performance: A Meta-Analysis,” the professors appear to refute other studies, such as one by Credit Suisse, that suggest that having more women on a board by itself increases a company's financial performance.

The professors say their findings suggest “that board gender diversity is not a simple ‘numbers game.'” They added, “For the presence of female directors to yield higher accounting returns, our findings suggest the importance of developing a board culture in which dissenting voices are heard and considered.”

Post told Bloomberg BNA that “groups generally make better decisions when they are highly motivated [to do so]. When you hold a group accountable for their decisions they are going to spend much more time and effort deliberating in order to come up with best possible outcome.”

Although the number of women on U.S. boards is slightly increasing, the percentage of women on boards for Fortune 1000 Index companies only inched up from 16.6 percent in 2013 to 17.7 percent in 2014, according to the 2020 Women on Boards Gender Diversity Index.

Accounting Returns

According to the professors' research, firms with female board representation have better accounting returns. Moreover, this positive relationship is “even stronger when boards experience an information-processing stimulus that motivates them to leverage the decision-making resources (i.e., knowledge, experience and values) that women bring to the board (i.e., when shareholder protections are stronger).”

“The more the board is held accountable the stronger they have a motivation to make good decisions and the more likely they will utilize everybody on the board,” said Post. She added that there is a sense when companies have a minority on a board, they are not going to be heard or be able to voice their opinion that much, unless there is a strong motivation for the group to hear this voice.

When asked about the effects of motivating factors within a country, Post said there is an inference that this same concept could apply: the stronger the motivation by the board—whether from institutional investors or others—to make good decisions, the more likely board members are going to ask each other questions and debate issues. She added that when there is an incentive to make better decisions, companies are more likely to utilize and ask others for their perspectives.

Market Performance

Ultimately, the study found “female board representation does not uniformly influence market performance.”

The study instead found that the effect that women on boards has on market performance depends entirely on the amount of gender parity within a country. Accordingly, in countries with high gender parity, having more women on boards increased market performance; in countries with low gender parity, having women on the board lowered market performance.

The authors suggest that this may exist “because societal gender differences in human capital may influence investors’ evaluations of the future earning potential of firms that have more female directors.”

Accordingly, they believe that “bias plays a role—that when an investor analyses the future earnings potential of a company that has women board members, he/she is influenced by the culture in which they live.”

In countries with low gender parity, investors may not expect women to be as competent and thus are sending a signal of non-confidence, said Post. She added that where gender parity is high, however, having more women on board may be perceived as a positive outcome.

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The study is available for purchase at