Women on Corporate Boards
The composition of corporate boards has long been a central issue in corporate governance research and during the last two decades, the gender of directors has received a lot of attention in academic literature (Kirsch, 2018). However, despite the comprehensive body of research within the field, Kirsch (2018) argues that literature still does not provide sufficient answers as to how female representation on corporate boards can be improved, or what type of effects can be expected from more gender diverse boards. This study will examine whether certain characteristics are present in corporate boards of listed financial firms in Sweden that may hinder or enhance female representation on corporate boards; by performing such an investigation, factors that may be beneficial for female board representation may be detected and could thereby give an indication of how female representation on corporate boards can be improved, thus, filling one of the gaps highlighted by Kirsch (2018).
When systematically reviewing the literature on board gender composition, Kirsch identify four distinct streams of research: (1) whether female directors are different from male directors (2) what factors shape board gender composition, (3) how board gender composition affects organizational outcomes and (4) regulation on board gender composition (Kirsch, 2018). As for the third stream of research, a substantial amount of research has examined the consequences of having women on boards (Ahmed et al., 2018). Despite this, evidence is inconclusive; as described in a review by Adams et al. (2015), some studies find positive accounting and market performance effects (e.g., Campbell & Mínguez-Vera, 2008; Dezsö & Ross, 2012), others find evidence indicating negative effects (e.g., Adams & Ferreira, 2009), no relationship at all (e.g., Chapple & Humphrey, 2014), or both positive and negative effects (e.g., Adams & Ferreira, 2009; Matsa & Miller, 2013). As for the second stream of research, it has been shown that female presence on corporate boards varies between different types of boards, firms, and industries, and that institutional factors may impact female board representation (Kirsch, 2018). For example, a high general level of gender equality in employment as well as legislation that allows women to balance work and family commitments are institutional factors shown to increase female board representation (Kirsch, 2018). Moreover, this is the stream of research in which this study is categorized. Although many articles explore the potential link between board gender composition and different industry-, firm- and board characteristics (Kirsch, 2018), it is stated by Ahmed et al. (2018) that the only studies – apart from their own – that has examined what drives companies to implement gender diversity on their boards is Hillman et al. (2007) and Geiger and Marlin (2012). Since this study builds on these three articles, the studies’ approach and main findings are described in more detail in 2.1.2.
As for research concerning women on corporate boards in Sweden – the country of primary interest in this study – literature is scarce (Kirsch, 2018). In the comprehensive literature review by Kirsch (2018), it is shown that a majority of the studies concerning gender composition of boards are performed in the United States and the United Kingdom; only one article out of the 261 articles using a single country as geographical scope focuses on Sweden (Kirsch, 2018). Interestingly – and in relation to the first stream of research – this study suggests that while there are gender differences in relation to the values held by Swedish directors, these differences are not necessarily the same as those found in the population (Adams & Funk, 2012). The study also shows that Swedish female directors are less risk-averse than their male counterparts; hence, having women on corporate boards may not lead to more risk-averse decision making (Adams & Funk, 2012). This contradicts findings by Byrnes et al. (1999) and Croson and Gneezy (2009), as mentioned in 1.2. To increase the complexity further, it is argued by Adams (2016) that knowledge concerning how preferences aggregate in teams – and thereby the risk-aversion of a board – is almost non-existent. When considering the addition of targets in the Capital Requirement Directives mentioned in 1.2 – which the European Union based on the argument that women are more risk averse than men (Adams, 2016) – the findings by Adams and Funk (2012) and the argument by Adams (2016) concerning the aggregate risk-aversion of a board become important to have in mind; if women are in fact less risk averse than men, the addition of targets may have unintended consequences, while the lacking knowledge of aggregate risk-aversion may result in unexpected outcomes.
As for the fourth stream of research, there are several papers investigating the effects of quotas on firm performance, of which many of them find negative effects (Adams et al.,2015). However, as discussed by Adams (2016), a finding from the implementation of a gender quota in Norway is that board independence increased to a great extent; that is, female directors are more often independent than male directors. Also, independence is often considered as a prerequisite for an effective board (Adams, 2016). Other studies have tried to explain why regulation is introduced in some countries and not in others, suggesting that national institutional factors may have an impact (Kirsch, 2018). For example, when studying institutional factors that may drive the implementation of gender quotas for boards of directors, Terjesen, Aguilera and Lorenz (2014) found that some of the characteristics of countries having gender quota legislation are greater female employment participation in the labor market, gendered welfare policies and left-leaning government coalitions. Other studies have found evidence indicating that gender quotas alone are not sufficient to increase the number of women on corporate boards (Iannotta, Gatti & Huse, 2016). However, as mentioned in 1.3, there are suggestions for research regarding softer policy efforts than gender quotas to complement current literature (Adams et al., 2015).
Regarding women on corporate boards in finance – the industry receiving explicit focus in this study – prior research suggests that women are less represented on corporate boards in the finance industry compared to other industry sectors (Adams & Kirchmaier, 2016; von Hippel et al., 2015). The study performed by Adams and Kirchmaier (2016) focuses on finance and STEM industries, using data from Europe, the Commonwealth and the United States; their results suggest that the underrepresentation of women on corporate boards in STEM&F industries may be a result of the persistent underrepresentation of women in STEM&F fields (Adams & Kirchmaier, 2016). Consequently – as mentioned in 1.2 – Adams and Kirchmaier (2016) argue that it may be more difficult for firms within these industries to reach the proposed target of 40% women on corporate boards presented by the European Union. However, board diversity targets may be an insufficient tool for solving the underrepresentation of women on corporate boards; policymakers must also consider how to prevent women from leaving the industry (Adams & Kirchmaier, 2016). Furthermore, although not only related to the finance industry, it is argued by Adams (2016) that in countries in which women have difficulties with working full-time, there may simply not be enough women with sufficient qualities to become directors since they leave the labor force early and start to work part-time. This may also be a factor that could complicate the potential implementation of a gender quota, since it would require the women already serving as directors to take on additional directorships if there is an insufficient number of qualified directors in the director pool.
To conclude, prior research concerning the gender composition of boards has mainly been conducted in the United States and the United Kingdom (Kirsch, 2018), indicating that research investigating other national and legislative environments – such as Sweden – is needed in order to expand the perspective from which female underrepresentation on corporate boards is viewed. Also, since Sweden uses the comply-or-explain approach as enforcing mechanism for gender balance on corporate boards (Swedish Corporate Governance Board, 2016), the study constitutes a complement to the many studies performed that focus on countries using gender quotas as a legislative tool. Lastly, since prior studies indicate that women are less represented on boards of financial firms compared to corporate boards in other industry sectors (Adams & Kirchmaier, 2016; von Hippel et al., 2015), investigating the gender composition of boards in the financial sector in Sweden – which displays a high level of female representation on average (Daisley & Studer, 2014) – may provide valuable knowledge regarding what factors may enhance female presence in corporate boardrooms
Organizational and Board Characteristics’ Impact on Female Board Representation
As previously mentioned, only Hillman et al. (2007), Geiger and Marlin (2012) and Ahmed et al. (2018) have investigated what drives companies to implement gender diversity on their boards. However, the studies differ somewhat in their approach, coverage and findings (Table 1).
As pioneers in the field, Hillman et al. (2007) recognize that research concerning female representation on corporate boards has primarily considered female representation as something exogenous or has been focused on the individual-level advancement, thereby not examining whether organizational characteristics could serve as predictors of gender diversity (Hillman et al., 2007). Through their study and approach, Hillman et al. (2007) argue that they make two important contributions. First, they explore the applicability of resource dependence theory – which will be described in detail in 2.1.3 – to director gender; previous resource dependence research has focused on occupational and functional differences of directors, focusing on gender is therefore a unique complement (Hillman et al., 2007). Second, their study is one of the first that aims to explain whether certain characteristics may serve as predictors of female representation on corporate boards (Hillman et al., 2007). By using resource dependence theory as a theoretical lens, Hillman et al. (2007) identify conditions under which the benefits from female presence on corporate boards may be of greatest value; they find these conditions to be related to organizational size, industry nature, diversification strategy and network effects (Hillman et al., 2007) and they are used as independent variables in their study (see Table 1). Hillman et al. (2007) use a population-averaged logistic regression model to analyze their data from 950 public firms in the United States and find support for three of their four hypotheses; larger organizations, industries with larger female employment bases and firms which are linked to other firms with female directors, are found to have greater female representation on their boards of directors (Hillman et al., 2007). However, no support is found for the hypothesis that a firm’s diversification strategy – e.g. if a firm operates in a single business environment or a multiple product-market environment – is positively related to female presence on corporate boards (Hillman et al., 2007).
Hillman et al. (2007) measure female board representation through a dichotomous perspective; that is, the variable female board representation receives a value of 1 if there is at least one woman present at a company’s board of directors and 0 otherwise (Hillman et al., 2007). Building on the work of Hillman et al. (2007), Geiger and Marlin (2012) investigate the relationship between organizational- and board characteristics and the level of female board representation; thus, while Hillman et al. (2007) measure the dependent variable as the presence of one or more women on the board, Geiger and Marlin (2012) measure female board representation as the percentage of female board members on a given board, thereby extending prior research by not only accounting for whether a woman is present on the board, but to consider the level of female board representation (Geiger & Marlin, 2012). By using resource dependence theory and institutional theory as overarching theoretical lenses – which are both described in 2.1.3 – Geiger and Marlin (2012) derive five different variables that are hypothesized to affect female representation on corporate boards (see Table 1). By using multiple linear regression to analyze their data from 3 108 publicly traded firms in the United States, Geiger and Marlin (2012) find support for four of their five hypotheses (see Table 1). Their results indicate that the level of outside board membership, the size of the board, and the number of directors serving on multiple boards are positively associated with female board representation, while the level of older board members is negatively associated with female board representation (Geiger & Marlin, 2012). However, they do not find support for the hypothesis that firm size – measured as the firm’s market capitalization value – is positively associated with female board representation (Geiger & Marlin, 2012). This result contradicts the evidence found by Hillman et al. (2007), who find a positive relationship between female board representation and firm size when using total sales as a proxy for firm size (Hillman et al., 2007).
The third and – to date – last study investigating determinants of female representation on corporate boards builds on the work of both Hillman et al. (2007) and Geiger and Marlin (2012); however, Ahmed et al. (2018) use a more comprehensive set of variables and a different statistical method for analyzing the data. Ahmed et al. (2018) recognize that prior research concerning gender diversity has primarily focused on the potential effects of including more women on corporate boards; therefore, they contribute to existing literature by examining what organizational characteristics may act as determinants of female representation in corporate boardrooms (Ahmed et al., 2018). In line with Hillman et al. (2007), Ahmed et al. (2018) use resource dependence theory as a theoretical base and derive ten different variables that are hypothesized to function as determinants of female representation on corporate boards (see Table 1). To analyze their data from 404 listed Australian firms, Ahmed et al. (2018) use the two-limit Tobit model and find support for all explanatory variables but two. More specifically, they find empirical evidence supporting a positive relationship between female board representation and firm size, women as chair of the board, corporate governance index, Global Reporting Initiative signatory, and the use of Big 4 auditors (Ahmed et al., 2018). In contrast, board age, CEO tenure and shareholder concentration are found to be negatively associated with female board representation (Ahmed et al., 2018). Nevertheless, Ahmed et al. (2018) find no support for a positive relationship between female board representation and firm leverage or board members’ external directorships. The latter contradicts Geiger and Marlin´s (2012) findings, since they find support for a positive relationship between board diversity and external directorships. Moreover, although Hillman et al. (2007) investigated network effects in the form of the number links between a firm and other firms with females on their boards, the underlying rationale is the same; interlocking directorates can communicate the value of certain practices – such as gender diversity on corporate boards – between firms and thereby increase female board representation (Hillman et al., 2007). This means that the lack of support for a positive relationship between female board representation and external directorships found by Ahmed et al. (2018) also contradicts the evidence related to network effects found by Hillman et al. (2007). However, the positive relationship found between firm size – in this case measured as total assets (Ahmed et al., 2018) – and female board representation is in line with Hillman et al. (2007), while contradicting Geiger and Marlin’s (2012) findings.
1.2 Problem Discussion
1.3 Purpose and Research Question
2. Literature Review
2.1 Prior Research
2.1.1 Women on Corporate Boards
2.1.2 Organizational and Board Characteristics’ Impact on Female Board Representation
2.1.3 Resource Dependence Theory and Institutional Theory – Benefits of Female Representation on Boards
2.2 Variables and Hypotheses
3.1 Population and Sample
3.2.1 Dependent Variable
3.2.2 Independent Variables
3.3 Data Analysis
4. Results and Analysis
4.1 Descriptive Statistics
4.2 Testing Assumptions in the Model
4.3 Regression Analysis
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Organizational and Board Characteristics’ Impact on Female Board Representation Evidence from Swedish Publicly Listed Financial Firms