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Female Institutional Directors on Boards and Firm Value

Abstract

The aim of this research is to examine what impact female institutional directors on boards have on corporate performance. Previous research shows that institutional female directors cannot be considered as a homogeneous group since they represent investors who may or may not maintain business relations with the companies on whose corporate boards they sit. Thus, it is not only the effect of female institutional directors as a whole on firm value that has been analysed, but also the impact of pressure-resistant female directors, who represent institutional investors (investment, pension and mutual funds) that only invest in the company, and do not maintain a business relation with the firm. We hypothesize that there is a non-linear association, specifically quadratic, between institutional and pressure-resistant female directors on boards and corporate performance. Our results report that female institutional directors on boards enhance corporate performance, but when they reach a certain threshold on boards (11.72 %), firm value decreases. In line with female institutional directors, pressure-resistant female directors on boards also increase firm value, but only up to a certain figure (12.71 % on boards), above which they have a negative impact on firm performance. These findings are consistent with an inverted U-shaped relationship between female institutional directors and pressure-resistant female directors and firm performance.

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Notes

  1. Various features associated with the female leadership style mean that women directors may not have the same impact on board functions, and as a result, on corporate performance, as men directors. The essential differences between female and male leadership styles may be because women have different human capital and because there are innate differences between men’s and women’s personalities, among others. This may explain why women ask more questions than men and why women lead to more civilized behaviour and sensitivity to other perspectives, since they bring different concerns, perspectives, sensibilities and experiences and provide richer and deeper discussions and more constructive dissent. Furthermore, female leadership style may also explain why women are perceived to be more risk-averse than men and will thus be less trusted to make risky decisions, why female directors may exercise greater control over management and may be quicker to detect opportunistic behaviours than male counterparts and why female directors may be stricter in monitoring management and behave more ethically than male directors, because women prepare more conscientiously for meetings, attend more meetings, enhance the attendance behaviour of men directors, are stricter complying with the norms and behave more prudently. Finally, the fact that women investors may be less sophisticated and sensitive financially than male investors may also be a consequence of the low level of risk that females prefer, as well as their financial conservatism, characteristics of the female leadership style.

  2. The term “more civilized behaviour” can be defined as being more ethical, more constructive, more conscientious, more tolerant, more peaceful and more moderate, among others.

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Correspondence to María Consuelo Pucheta-Martínez.

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Pucheta-Martínez, M.C., Bel-Oms, I. & Olcina-Sempere, G. Female Institutional Directors on Boards and Firm Value. J Bus Ethics 152, 343–363 (2018). https://doi.org/10.1007/s10551-016-3265-9

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Keywords

  • Corporate governance
  • Female institutional directors
  • Pressure-resistant female directors
  • Board of directors
  • Firm value