Governance as a mediating factor between CSR and performance 

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THE EFFECT OF GENDER QUOTA IN BOARDROOM

Introduction

In 2018, France reached gender parity in corporate boardrooms for its biggest publicly-listed capitalizations. This success was made possible by the adoption of a law in 2011 compelling rm boards to be composed of at least 40% of women by 2017. Dealing with quota-induced diversity, this article analyzes the relationship between board com-position and corporate strategy and sustainability. More speci cally, we contribute to the understanding of the impact of board gender quotas on rm’s overall performances. We study the impacts on nancial results rst and then on environmental, social and governance (ESG) performance.
Because of its strategic role in rm governance, the board has been the subject of a considerable part of the governance literature in order to highlight the relation between its composition and rm performance. More precisely, the debate focuses on the balance between independent directors and insider directors, though more research needs to be conducted to analyze the board sensibility to other characteristics such as age, gender, nationality, professional networks, and furthermore considering the multidimensionality of board diversity (Adams et al., 2010; Carter et al., 2003). Unfortunately, for decades there was no expression of gender diversity in corporate governance. Di erences between men and women valorization in top management seems to be too strongly established to only change through organic processes (Kogut et al., 2014). That is why 14 countries have adopted board gender quotas by law while another 16 have adopted corporate governance « codes » (Adams et al., 2015). The minimal threshold dictated by these quotas range from 35% to 50% (Terjesen et al., 2014). By adopting a law in 2007, Norway was the rst country in the world to introduce a female quota for listed companies’ boardrooms. This case has been very well documented and is a reference across gender quota studies (Ahern and Dittmar, 2012; Matsa and Miller, 2013; B hren and Staubo, 2013; Bertrand, 2014; Eckbo et al., 2016).
While gender quotas appear to come as a political response to social pressures for a better gender equality in our modern society, its consequences on rms are not so straightforward to understand. Certainly, the adoption of board gender quotas is an external cause of variations that force rms to appoint directors with di erent characteristics than in the past. However, from an economic perspective, the spillovers on rm strategy and performance remain an open question.
Consequently, a growing literature is trying to measure the impact of gender di-versity, quota-induced or not, on rm nancial performance. Nevertheless, the mixed results do not lead to an academic consensus. Some point out that the proportion of women directors is positively associated with nancial performance ratios such as Return On Investment (ROI) and Return On Assets (ROA) (Erhardt et al., 2003) or Tobin’s Q when at least two women are on the board (Carter et al., 2003; Campbell and M nguez-Vera, 2007). More recently, Sabatier (2015) also nd a positive corre-lation between the proportion of women and the rm nancial performance studying French CAC40 rms.
On the other hand, Adams and Ferreira (2008) nd a negative association with Tobin’s Q and ROA on US rms. In the Norwegian case, both Ahern and Dittmar (2012) and Matsa and Miller (2013) nd that the introduction of board gender quotas impacts rm performances negatively. Ahern and Dittmar (2012) explain this negative impact by the lack of experience of younger female directors, while Matsa and Miller (2013) argue that the di erence is due to a female style of leadership.
Finally, a large number of studies conclude that the presence of women doesn’t in uence nancial performance (Chapple and Humphrey, 2014; Eckbo et al., 2016; Farrell and Hersch, 2005; Francoeur et al., 2008). Rose (2007) reports no relation between Tobin’s Q and gender diversity on Danish boards and speculates that women directors are so few and the culture so closed at the top that there is an assimilation of the attitudes and behaviors of existing male directors leading to a negation of the diversity advantages of women.
By contrast to rm nancial performance, the impact of board gender diversity on Corporate Social Responsibility remains unexplored. Harjoto et al. (2015) were the rst notable contribution, studying the link between extra- nancial performance and board diversity with a global de nition of diversity. They found that overall board diversity is positively associated with community, environment, product quality and corporate governance criteria, but not with human resources and human rights indica-tors. In particular, they nd that gender diversity is positively associated with overall CSR performance by increasing CSR strengths and reducing CSR concerns. Zhang et al. (2012) also show signi cant evidence that a greater presence of independent fe-male directors on corporate boards is related to a better extra- nancial performance. Finally, Bear et al. (2010) nd that board gender diversity is positively associated with CSR strengths, measuring positive actions towards various groups of stakeholders.
In a review of literature entitled « Board Diversity: Should We Trust Research to Inform Policy? », Ferreira (2015) lists several methodology biases common in empirical studies on quotas. One of these concerns is about the timing of the \natural experi-ment », meaning the starting date of the shock induced by the quota. For example, in Norwegian studies, Ahern and Dittmar (2012) choose 2003 as their event date while Matsa and Miller (2013) choose 2006. This issue was explored in detail by Eckbo et al. (2016) who compare several time periods without nding evidence of a correlation between quota-induced diversity and rm performance in Norway. A second method-ology issue is the lack of post-quota data. If recent studies of the Norway case claim to have su cient post-quota data, it can be more problematic for other European countries that adopted board quota later. This issue probably explains why so few studies have been conducted in countries other than Norway. Nevertheless, with its intermediate threshold (20% of women by 2014) the French situation appears to be an exception. Despite the absence of post- nal threshold data, we can now observe in the French data the diversity impact induced by the intermediary threshold.
For this study, we use the Reberioux and Roudaut (2017) database to examine the impact of gender diversity on French companies listed on the SBF120 (the 120 largest capitalizations on EuroNext-Paris) between 2008 and 2015. Thus, we contribute to the literature at three di erent levels. First, we participate in the ongoing debate on the impact of quota-induced diversity on the nancial performance of rms. Due to the mixed results, more investigations need to be conducted to understand the mechanisms behind it. Second, we reveal the impact of quotas in the speci c case of France, using a larger dataset to challenge the contribution and results of Sabatier (2015). In order to measure the impact of the macro-economic context, exploring new national samples and validating the results is a preamble to cross-countries study. Finally, we describe the impact of quota-induced diversity on Corporate Social Responsibility. While CSR is becoming more a central part of strategies of rms, we still need to understand the determining factors of the success of such strategies.
First, we show that the French law was anticipated by most rms and quantitative targets of the law were successfully achieved on time. Moreover, gender diversity was associated with age diversity because female newcomers were more likely to be younger than previous male directors.
Secondly, we nd that the entrance of women is positively correlated with some nancial performance indicators such as the Market-To-Book value (Tobin’s Q). We show that the quota also has a neutral impact on all the dimensions of CSR: gov-ernance, human resources, respect of the customers, environment, and community involvement. These results invalidate the idea of a female-style of leadership where women use their di erent experience to develop more holistic strategies integrating nancial and Corporate Social Responsibility. These results support the idea that gender quotas are needed to break the glass ceiling that has prevented the appoint-ment of talented women as directors.

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Theoretical framework

Pool of talents and selection

Are female directors di erent from male directors? If this question appears to be fundamental to understanding the shortfall of women on boards, it supposes rstly that individual di erences can a ect board functioning and decision making-processes. It draws a parallel between the human capital theory at the individual level and the resource dependence theory at the rm level. The human capital theory suggests that each individual possesses stocks of education, skills, experience and networks that will grow over time (Becker, 2009). According to the resource dependence theory, directors not only monitor the rm but also provide these resources to the rm (Ferreira, 2010; Hillman and Dalziel, 2003).
The combination of both theories suggests the existence of a pool of potential di-rectors with the right quali cations to be appointed to a board. By design, gender board quotas coerce rms into hiring female directors from the current pool of busi-nesswomen. We can distinguish three scenarios on a comparative base between the pool of women used to comply with the quota and the previous pool of male directors: less quali ed, better quali ed or just as quali ed.
Precisely, the rst argument used by gender quota opponents is based on the lower quality of the women talent pool. The classic economic literature arguing that if no women were hired, it was because of their lower quali cation (Altonji and Blank, 1999). Furthermore, recruiting under this constraint could cause reverse discrimination to-wards high quali ed men (Charness and Kuhn, 2010). To support this argument, empirical studies nd that new female directors are younger and have a lower business expertise and CEO experience than their male counterparts (Reberioux and Roudaut, 2017; Singh et al., 2008; Terjesen et al., 2009; Vinnicombe, 2009). Ahern and Dittmar (2012), conclude that this lack of human capital is responsible for the negative impact on rm performance that they nd. Another argument pulled from psychology liter-ature suggests that women are not the best match for director positions because they are more risk-averse (Eckel and Grossman, 2002; Sapienza et al., 2009).
On the other hand, psychology and experimental economic literature have demon-strated the existence of selection biases based on gender stereotypes (Bagues and Esteve-Volart, 2010). On the demand side, studies show that recruiters can have sub-conscious stereotypes about female personality traits. They are also more disposed to hire someone in their male network (De Paola and Scoppa, 2015). If those arguments suggest the existence of a glass ceiling, preventing women from accessing directors’ position, it also rejects the idea that the historical situation was the optimal situa-tion for rms. For example, Adams and Funk (2011) report that Harriet Harman, the British Labour party number 2, blamed the male domination in banks for the 2008 nancial crisis. Actually, national statistics show that to date in the majority of OECD countries, women are more educated than men (see e.g. OECD 2013). Further-more, compared to their male counterparts, new female directors are signi cantly more likely to have MBA degrees, international experience or experience as board directors in smaller rms (Bertrand, 2014; Reberioux and Roudaut, 2017; Singh et al., 2008). Instead of reducing rm performance, the adoption of a gender quota prevents gender selection bias and promotes better quali ed directors.
In the end, if stereotypes and selection bias lead both to an overestimation of the male pool and an under appreciation of the female pool of talents, di erences between both could be insigni cant. Concerning parallels between psychology and corporate governance literature, Ferreira (2015) argues that boards are highly non-representative and that « there is no reason to believe that female board members have the same personality traits as those observed in the general population ». Despite the lack of empirical evidence due to the low number of top executive women, Adams and Funk (2011) also draw several hypotheses to support the idea that gender di erences are expected to vanish beyond the glass ceiling. Indeed, studying Norwegian directors through a comprehensive survey, they nd that female directors were signi cantly more risk-loving that the male directors interviewed, contrasting with the literature on non-executive people.

Table of contents :

Introduction – Governance as a mediating factor between CSR and performance 
1 The eect of gender quota in the boardroom
1.1 Introduction
1.2 Theoretical framework
1.2.1 Pool of talents and selection
1.2.2 Agency theory and the decision-making processes
1.3 Methodology
1.3.1 Firm performance data
1.3.2 Board members and governance characteristics
1.3.3 Econometric model
1.4 Results
1.4.1 Impact on rm value and nancial performance
1.4.2 Impact on board characteristics
1.4.3 Impact on environmental, social and societal performance
1.5 Conclusion
1.6 Appendix A – Asset4 ESG indicators
1.7 Appendix B { First stage IV estimation
2 The role of executive compensation programs 
2.1 Introduction
2.2 Theoretical framework and hypothesis development
2.2.1 Corporate governance and corporate social responsibility
2.2.2 Executive compensation: Financial versus extra-nancial incentives
2.3 Methodology
2.3.1 Data
2.3.2 Econometric model
2.4 Results
2.4.1 OLS estimates
2.4.2 IV estimates
2.4.3 Summary of results
2.4.4 Robustness checks
2.5 Discussion and conclusion
2.6 Appendix 1 { IV estimation First and Second Stage
2.7 Appendix 2 { Robustness regression tables
3 Team work and heterogeneous incentives: Application to the Board- CEO relationship 
3.1 Introduction
3.2 Related Literature
3.3 Model
3.3.1 Technology and preferences
3.3.2 Payos and incentives
3.4 Application to the relationship between CEO and the board of directors
3.4.1 CSR contracting and decisional interdependence
3.4.2 CSR performance and decisional interdependence
3.4.3 Discussion
3.5 Conclusion
3.6 Appendix A
Conclusion 
Bibliography

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