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Board Diversity and Performance of Philippine Firms: Do Women Matter?

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Abstract

The issue of gender diversity on corporate boards is attracting research interest because of purported contributions of women directors, including improved monitoring, ethical focus, and democratic leadership. This rationale forms part of the economic case for women’s participation on corporate boards, as opposed to alternative arguments based on social or equality considerations. In this study, we examined the effect of board diversity for Philippine firms during the period 2003 to 2014. Using an unbalanced panel of 2648 firm-years, we found that greater board diversity did not significantly affect either short-term firm performance or long-term firm value. Our findings show that female and male corporate leaders have comparable competency levels and that increasing women’s presence on corporate boards has no discernible effect on firm performance.

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Notes

  1. For a comprehensive review of the performance advantages of culturally diverse organizations, see Amaram (2007).

  2. We did not include exchange traded funds and firms that issue only preferred shares or Philippine Deposit Receipts and warrants.

  3. Since the logarithm of 0 was not defined, we adopted the convention that PilnPi was equal to 0, if Pi was 0.

  4. We used a 20% control or ownership threshold since (i) this cutoff is sufficient to provide effective control in a firm; (ii) most countries usually mandated a disclosure of ownership stakes from 10% to 20% and (iii) the International Accounting Standards Committee (IASC) labeled a control minimum of 20% as significant influence.

  5. We used Stata 13 to estimate all regression models in this study. Similar to Adams and Ferreira (2009), we did not include industry dummies in our regression equation because we argued that any differences in firm performance due to industry effects were reflected in the individual fixed effects that were accounted for in the two-step system GMM procedure.

  6. We winsorized the performance variables, Tobin’s Q, ROA, and ROE, at the 1st and 99th percentiles to mitigate the effect of outliers.

  7. To address the issue of unobserved heterogeneity, the fixed effects or random effects estimation methods were commonly employed to control for omitted corporate culture (or any other time-invariant firm characteristic) that significantly affected firm performance. However, these techniques did not address other endogeneity issues, such as reverse causality and dynamic endogeneity. To address the concern that gender diversity on the board was potentially correlated with the error term of the performance regression due to other endogeneity issues, instrumental variable techniques that include the two-stage-least-squares instrumental variables (2SLS-IV) estimation method and the Arellano-Bond difference GMM and Blundell-Bond system GMM procedures were commonly used. While the 2SLS-IV method addressed the reverse causality issue, it did not address the endogeneity issue that arose because past performance could influence board-level gender diversity. In contrast, both the Arellano-Bond and Blundell-Bond procedures controlled for the potential correlation between past performance and board-level gender diversity, in addition to reverse causality. The first-differencing technique of both the Arellano-Bond and Blundell-Bond methods also eliminated any potential individual firm-specific effects that may affect firm performance.

  8. We reran our models with firm size measured as sales, similar to Adams and Ferreira (2009). Our results did not markedly change. We also tried other estimation techniques (pooled ordinary least squares (OLS) and random effects models) and found similar results. These results are available upon request from the authors.

  9. As robustness checks, we estimated Eq. (1) using other measures of family ownership, i.e. (i) family and individual shareholder ownership using a 50% ownership threshold, (ii) family and individual shareholder ownership, regardless of ownership threshold used, (iii) family ownership using a 20% ownership threshold, (iv) family ownership using a 50% ownership threshold, and (v) family ownership, regardless of ownership threshold used. For all our estimations using ln(Tobin’s Q), ROA, and ROE as the dependent variables, we found qualitatively similar results, regardless of the gender diversity and family ownership measure used.

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Authors and Affiliations

  1. School of Economics, De La Salle University, Manila, Philippines

    Angelo A. Unite & Ailyn A. Shi

  2. Lee Business School, University of Nevada, Las Vegas, Las Vegas, NV, USA

    Michael J. Sullivan

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  1. Angelo A. Unite
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Correspondence to Angelo A. Unite.

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Unite, A.A., Sullivan, M.J. & Shi, A.A. Board Diversity and Performance of Philippine Firms: Do Women Matter?. Int Adv Econ Res 25, 65–78 (2019). https://doi.org/10.1007/s11294-018-09718-z

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