Skip to main content

Gender Diversity in the Boardroom and Risk Management: A Case of R&D Investment

Journal of Business Ethics volume 136, pages 599–621 (2016)Cite this article

Abstract

Increasing gender diversity in the boardroom has been promoted as a way to enhance corporate governance and risk management. This study empirically examines whether boards with more female directors play a role in reducing R&D risk. We first show that female directors help to reduce the positive relationship between R&D investment and future performance volatility. We then report that firms with more gender-diverse boards exhibit a lower adverse effect of R&D on the cost of debt. These results are robust to endogeneity analysis, alternative measures of gender diversity and risky investment, and other sensitivity tests. Overall, our results suggest that female directors improve board effectiveness in risk management with respect to R&D investment.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Notes

  1. Using firms traded in HKEx as a sample, Mr. David Webb, a former director of HKEx, compares the firm performance between firms with female directors and firms with no female director. He finds evidence showing that firms with no female directors perform better than those with female directors from 2011 to 2013. The details of the analysis are available at http://webb-site.com/articles/boardgender.asp.

  2. The Statistics are available at: http://nationalatlas.gov/articles/people/a_gender.html.

  3. The details could be found in Kothari et al. (2002).

  4. We also use other deflators such as assets and book value of equity to measure RD i,t and the results remain qualitatively the same (untabulated).

  5. Similar to Bebchuk et al. (2009), we construct the BCF anti-takeover index based on six provisions: staggered boards, limits to shareholder bylaw amendments, limits to shareholder charter amendments, supermajority requirements for mergers, poison pills, and golden parachutes.

  6. Consistent with previous literature (Francis et al. 2005; Ashbaugh-Skaife et al. 2006), we use firm-level credit ratings as the measure of the cost of debt because firm-level credit ratings are less likely to capture issue specific characteristics that protect lenders (Weber 2006). R&D is invested from firms’ perspective. It is more related to the overall default risk of the company rather than the default risk associated with a single bond issue. Therefore, it should be more appropriate to employ firm-level rather than issue-level credit ratings to capture the cost of debt related to R&D investments.

  7. RiskMetrics (formerly Investor Responsibility Research Center, IRRC) covers directors of S&P500, S&P MidCaps, S&P SmallCaps firms starting in 1996. However, the data needed to compute some board characteristics are from 1998. Our initial sample from RiskMetrics includes non-missing board data on 3,714 firms (24,691 firm-year observations) from 1998 to 2013.

  8. We also sample firms-years with decreasing percentage/number of female directors and run the regression. Similar to Gul et al. (2011), we do not find significant results in the decrease sub-sample.

  9. We thank an anonymous referee for suggesting the propensity-score matching.

References

  • Adams, R. B., & Ferreira, D. (2004). Gender diversity in the boardroom, Finance working paper No. 58, European Corporate Governance Institute.

  • Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309.

    Article  Google Scholar 

  • Ameen, E. C., Guffey, D. M., & McMillan, J. J. (1996). Gender differences in determining the ethical sensitivity of future accounting professionals. Journal of Business Ethics, 15(5), 591–597.

    Article  Google Scholar 

  • Arjoon, S. (2005). Corporate governance: An ethical perspective. Journal of Business Ethics, 61(4), 343–352.

    Article  Google Scholar 

  • Ashbaugh-Skaife, H., Collins, D. W., & LaFond, R. (2006). The effects of corporate governance on firms’ credit ratings. Journal of Accounting and Economics, 42(1–2), 203–243.

    Article  Google Scholar 

  • Barron, O. E., Byard, D., Kile, C., & Riedl, E. J. (2002). High-technology intangibles and analysts’ forecasts. Journal of Accounting Research, 40(2), 289–313.

    Article  Google Scholar 

  • Barsky, R. B., Juster, F. T., Kimball, M. S., & Shapiro, M. D. (1997). Preference parameters and behavioral heterogeneity: An experimental approach in the health and retirement study. Quarterly Journal of Economics, 112(2), 537–579.

    Article  Google Scholar 

  • Bebchuk, L., Cohen, A., & Ferrell, A. (2009). What matters in corporate governance? The Review of Financial Studies, 22(2), 783–827.

    Article  Google Scholar 

  • Beltramini, R. F., Peterson, R. A., & Kozmetsky, G. (1984). Concerns of college students regarding business ethics. Journal of Business Ethics, 3(3), 195–200.

    Article  Google Scholar 

  • Bernardi, R. A., & Arnold, D. F, Sr. (1997). An examination of moral development within public accounting by gender, staff level, and firm. Contemporary Accounting Research, 14(4), 653–668.

    Article  Google Scholar 

  • Bernardi, R. A., Arnold, D. F, Sr, Bean, D. F., & Weippert, K. M. (2002). Signaling gender diversity through annual report pictures: A research note on image management. Accounting, Auditing & Accountability Journal, 15(4), 609–616.

    Article  Google Scholar 

  • Bernasek, A., & Shwiff, S. (2001). Gender, risk, and retirement. Journal of Economic Issues, 35(2), 345–356.

    Article  Google Scholar 

  • Betz, M., O’Connell, L., & Shepard, J. M. (1989). Gender differences in proclivity for unethical behavior. Journal of Business Ethics, 8(5), 321–324.

    Article  Google Scholar 

  • Bhojraj, S., & Sengupta, P. (2003). Effect of corporate governance on bond ratings and yields: The role of institutional investor and outside directors. Journal of Business, 76(3), 455–475.

    Article  Google Scholar 

  • Bublitz, B., & Ettredge, M. (1989). The information in discretionary outlays: Advertising, research and development. The Accounting Review, 64(1), 108–124.

    Google Scholar 

  • Burton, C., & Ryall, C. (1995). Enterprising nation: Reviewing Australia’s managers to meet the challenges of the Asia-Pacific century: Managing for diversity. Canberra: Australian Government Publishing Service.

    Google Scholar 

  • Campbell, K., & Mínguez-Vera, A. (2008). Gender diversity in the boardroom and firm financial performance. Journal of Business Ethics, 83(3), 435–451.

    Article  Google Scholar 

  • Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial Review, 38(1), 33–53.

    Article  Google Scholar 

  • Catalyst, (2003a). 2003 Catalyst census of women board directors of the Fortune 1000. New York: Catalyst.

    Google Scholar 

  • Catalyst, (2003b). Catalyst census of women board directors in Canada. New York: Catalyst.

    Google Scholar 

  • Chan, L. K. C., Lakonishok, J., & Sougiannis, T. (2001). The stock market valuation of research and development expenditures. The Journal of Finance, 56(6), 2431–2456.

    Article  Google Scholar 

  • Chen, C. X., Lu, H., & Sougiannis, T. (2012). The Agency Problem, Corporate Governance, and the Asymmetrical Behavior of Selling, General, and Administrative Costs. Contemporary Accounting Research, 29(1), 252–282.

    Article  Google Scholar 

  • Cheng, S. (2008). Board size and the variability of corporate performance. Journal of Financial Economics, 87(1), 157–176.

    Article  Google Scholar 

  • Chung, J., & Monroe, G. (1998). Gender differences in information processing: An empirical test of the hypothesis confirming strategy in an audit context. Accounting and Finance, 38(2), 265–279.

    Article  Google Scholar 

  • Chung, J., & Monroe, G. (2001). A research note on the effects of gender and task complexity on an audit judgment. Bahavioral Research in Accounting, 13(1), 111–125.

    Article  Google Scholar 

  • Ciftci, M., & Cready, W. M. (2011). Scale effects of R&D as reflected in earnings and returns. Journal of Accounting and Economics, 52(1), 62–80.

    Article  Google Scholar 

  • Cumming, D. J., Leung, T. Y. & Rui, O. M. (2012). Gender diversity and security fraud, Working paper, Schulich School of Business, York University.

  • Daily, C. M., Certo, S. T., & Dalton, D. R. (1999). A decade of corporate women: Some progress in the boardroom, none in the executive suite. Strategic Management Journal, 20(1), 93–99.

    Article  Google Scholar 

  • Dalton, D., & Ortegren, M. (2011). Gender differences in ethics research: The implications of controlling for the social desirability response bias. Journal of Business Ethics, 103(1), 73–93.

    Article  Google Scholar 

  • Doyle, E. M., Hughes, J. F., & Glaister, K. W. (2009). Linking ethics and risk management in taxation: Evidence from an exploratory study in Ireland and the UK. Journal of Business Ethics, 86(2), 177–198.

    Article  Google Scholar 

  • Drennan, L. T. (2004). Ethics, governance and risk management: Lessons from Mirror Group Newspapers and Barings Bank. Journal of Business Ethics, 52(3), 257–266.

    Article  Google Scholar 

  • Eagly, A. H. (1987). Sex differences in social behavior: A social-role interpretation. Hillsdale, NJ: Lawrence Erlbaum.

    Google Scholar 

  • Eagly, A. H., & Wood, W. (1999). The origins of sex differences in human behavior: Evolved dispositions versus social roles. American Psychologist, 54, 408–423.

    Article  Google Scholar 

  • Eberhart, A. C., Maxwell, W. F., & Siddique, A. R. (2007). A reexamination of the tradeoff between the future benefit and riskiness of R&D. Journal of Accounting Research, 46(1), 27–52.

    Article  Google Scholar 

  • Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board of Director Diversity and Firm Financial Performance. Corporate Governance: An International Review, 11(2), 102–111.

    Article  Google Scholar 

  • Farrell, K. A., & Hersch, P. L. (2005). Additions to corporate boards: The effect of gender. Journal of Corporate Finance, 11(1–2), 85–106.

    Article  Google Scholar 

  • Feldman, M. P., & Link, A. N. (2001). Chapter 1 A Preface to the Volume: Innovation policy in the Knowledge-based Economy. In M. P. Feldman & A. N. Link (Eds.), Innovation policy in the Knowledge-based Economy (pp. 1–2). Norwell, MA: Kluwer Academic Publishers.

    Chapter  Google Scholar 

  • Fischhoff, B., Slovic, P., & Lichtenstein, S. (1977). Knowing with certainty: The appropriateness of extreme confidence. Journal of Experimental Psychology: Human Perception and Performance, 3(4), 552–564.

    Google Scholar 

  • Francis, R., & Armstrong, A. (2003). Ethics as a risk management strategy: The Australian experience. Journal of Business Ethics, 45(4), 375–385.

    Article  Google Scholar 

  • Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2005). The market pricing of accruals quality. Journal of Accounting and Economics, 39(2), 295–327.

    Article  Google Scholar 

  • Galbraith, S., & Stephenson, H. B. (1993). Decision rules used by male and female business students in making ethical value judgments: Another look. Journal of Business Ethics, 12(3), 227–233.

    Article  Google Scholar 

  • Gilligan, C. (1982). In a different voice: Psychological theory and women’s development. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Guellec, D., & Potterie, B. V. P. D. l. (2004). From R&D to productivity growth: Do the institutional settings and the source of funds of R&D matter?. Oxford Bulletin of Economics and Statistics 66(3), 353–378.

  • Gul, F. A., Srinidhi, B., & Ng, A. C. (2011). Does board gender diversity improve the informativeness of stock prices? Journal of Accounting and Economics, 51(3), 314–338.

    Article  Google Scholar 

  • Hall, J. A. (1984). Nonverbal sex differences: Communication accuracy and expressive style. Baltimore, MD: Johns Hopkins University Press.

    Google Scholar 

  • Harris, J. R. (1989). Ethical values and decision processes of male and female business students. Journal of Education for Business, 64(5), 234–238.

    Article  Google Scholar 

  • Hillman, A. J., Shropshire, C., & Cannella, A. A, Jr. (2007). Organizational predictors of women on corporate boards. The Academy of Management Journal, 50(4), 941–952.

    Article  Google Scholar 

  • Jelinek, M., & Adler, N. J. (1988). Women: World-class managers for global competition. The Academy of Management Executive (1987–1989) 2(1), 11–19.

  • Jianakoplos, N. A., & Bernasek, A. (1998). Are women more risk averse? Economic Inquiry, 36(4), 620–630.

    Article  Google Scholar 

  • Jones, T. M., & Gautschi, F. H. (1988). Will the ethics of business change? A survey of future executives. Journal of Business Ethics, 7(4), 231–248.

    Article  Google Scholar 

  • Jr, W. B. R., & Chow, K. V. (1992). Asset allocation and individual risk aversion. Financial Analysts Journal, 48(6), 32–37.

    Article  Google Scholar 

  • Klenke, K. (2003). Gender influences in decision-making processes in top management teams. Management Decision, 41(10), 1024–1034.

    Article  Google Scholar 

  • Kothari, S. P., Laguerre, T. E., & Leone, A. J. (2002). Capitalization versus expensing: Evidence on the uncertainty of future earnings from capital expenditures versus R&D outlays. Review of Accounting Studies, 7(4), 355–382.

    Article  Google Scholar 

  • KrackHardt, D., McCarthy, S., & Wittink, D. (1985). What makes it unethical? Determinants of ethical evaluation in business. Paper presented at the Academy of Management Annual Meeting, San Diego

  • Kristof, N. D. (2009). Mistresses of the universe. The New York Times, Feb 8.

  • Kugihara, N. (1999). Gender and social loafing in Japan. The Journal of Social Psychology, 139(4), 516–526.

    Article  Google Scholar 

  • Latane, B., Williams, K., & Harkins, S. (1979). Many hands make light the work: The causes and consequences of social loafing. Journal of Personality and Social Psychology, 37(6), 822–832.

    Article  Google Scholar 

  • Lenney, E. (1977). Women’s self-confidence in achievement settings. Psychological Bulletin, 84(1), 1–13.

    Article  Google Scholar 

  • Levi, M., Li, K., & Zhang, F. (2013). Director gender and mergers and acquisitions. Journal of Corporate Finance, available online 13 November 2013.

  • Lublin, J. S., & Francis, T. (2014). U.S. boards lag behind in appointing women. The Wall Street Journal, February 6.

  • Lundeberg, M. A., Fox, P. W., & Puncochar, J. (1994). Highly confident but wrong: Gender differences and similarities in confidence judgments. Journal of Educational Psychology, 86(1), 114–121.

    Article  Google Scholar 

  • Martin, A. D., Nishikawa, T., & Williams, M. A. (2009). CEO gender: Effects on valuation and risk. Quarterly Journal of Finance and Accounting, 48(3), 23–40.

    Google Scholar 

  • Miesing, P., & Preble, J. F. (1985). A comparison of five business philosophies. Journal of Business Ethics, 4(6), 465–476.

    Article  Google Scholar 

  • Moscovici, S., & Zavalloni, M. (1969). The group as a polarizer of attitudes. Journal of Personality and Social Psychology, 12(2), 125–135.

    Article  Google Scholar 

  • OECD. (2009). Corporate governance and the financial crisis: Key findings and main messages. Paris: The Organisation for Economic Co-operation and Development.

    Google Scholar 

  • Pandit, S., Wasley, C. E., & Zach, T. (2011). The effect of R&D inputs and outputs on the relation between the uncertainty of future operating performance and R&D expenditures. Journal of Accounting Auditing & Finance, 26(1), 121–144.

    Article  Google Scholar 

  • Peterson, R. A., Beltramini, R. F., & Kozmetsky, G. (1991). Concerns of college students regarding business ethics: A replication. Journal of Business Ethics, 10(10), 733–738.

    Article  Google Scholar 

  • Powell, M., & Ansic, D. (1997). Gender differences in risk behaviour in financial decision-making: An experimental analysis. Journal of Economic Psychology, 18(6), 605–628.

    Article  Google Scholar 

  • Ray, D. M. (2005). Corporate boards and corporate democracy. The Journal of Corporate Citizenship, 20, 93–105.

    Article  Google Scholar 

  • Shi, C. (2003). On the trade-off between the future benefits and riskiness of R&D: A bondholders’ perspective. Journal of Accounting and Economics, 35(2), 227–254.

    Article  Google Scholar 

  • Shrader, C. B., Blackburn, V. B., & Iles, P. (1997). Women in management and firm financial performance: An exploratory study. Journal of Managerial Issues, 9(3), 355–372.

    Google Scholar 

  • Srinidhi, B., Gul, F. A., & Tsui, J. (2011). Do female directors enhance corporate governance? Some evidence on earnings quality. Contemporary Accounting Research, 28(5), 1610–1644.

    Article  Google Scholar 

  • Suisse, Credit. (2012). Gender diversity and corporate performance. Zurich: Credit Suisse.

    Google Scholar 

  • Sunden, A. E., & Surette, B. J. (1998). Gender differences in the allocation of assets in retirement savings plans. The American Economic Review, 88(2), 207–211.

    Google Scholar 

  • Trinidad, C., & Normore, A. H. (2005). Leadership and gender: A dangerous liaison? Leadership & Organization Development Journal, 26(7), 574–590.

    Article  Google Scholar 

  • Weber, J. (2006). Discussion of the effects of corporate governance on firms’ credit ratings. Journal of Accounting and Economics, 42, 245–254.

    Article  Google Scholar 

  • Weeks, W. A., Moore, C. W., McKinney, J. A., & Longenecker, J. G. (1999). The effects of gender and career stage on ethical judgment. Journal of Business Ethics, 20(4), 301–313.

    Article  Google Scholar 

Download references

Acknowledgments

We gratefully acknowledge generous research support from China Europe International Business School. Jamie Y. Tong also would like to express appreciation for the financial support of the National Natural Science Foundation of China (approval number: 71002058, 71202090, 71202091).

Author information

Authors and Affiliations

  1. China Europe International Business School, Shanghai, China

    Shimin Chen & Xu Ni

  2. University of Western Australia, Perth, Australia

    Jamie Y. Tong

Authors
  1. Shimin Chen
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Xu Ni
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Jamie Y. Tong
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Shimin Chen.

Appendix: Credit Rating Classifications

Appendix: Credit Rating Classifications

The table below shows the credit rating classifications schedule suggested by Ashbaugh-Skaife et al. (2006).

Firm credit ratings are the long-term issuer credit ratings compiled by Standard & Poor’s and reported on Compustat. The ratings range from AAA (highest rating) to D (lowest rating—debt in payment default). These ratings reflect S&P’s assessment of the creditworthiness of the obligor with respect to its senior debt obligations. For purposes of the analysis, the multiple ratings are collapsed into seven categories according to the schedule provided below.

S&P Debt rating

Assigned rating score

AAA

7

AA+

6

AA

6

AA-

6

A+

5

A

5

A-

5

BBB+

4

BBB

4

BBB-

4

BB+

3

BB

3

BB-

3

B+

2

B

2

B-

2

CCC + or CCC or CCC−

1

CC

1

C

1

D or SD

1

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Chen, S., Ni, X. & Tong, J.Y. Gender Diversity in the Boardroom and Risk Management: A Case of R&D Investment. J Bus Ethics 136, 599–621 (2016). https://doi.org/10.1007/s10551-014-2528-6

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-014-2528-6

Keywords

  • Female director
  • Diversity
  • R&D
  • Risk management