Research shows that women on boards have less attendance problems and actually improve the attendance behavior of their male counterparts. However, when weighing pros and cons, an overly diverse board can actually hurt business.
The paper confirmed that women are also more likely to sit on monitoring-related committees than male directors such as audit, nominating, and corporate governance committees, according to The Harvard Law School Corporate Governance Blog.
Renée B. Adams of the University of Queensland and ECGI, and Daniel Ferreira of the London School of Economics, CEPR, and ECGI recently published their paper, “Women in the Boardroom and Their Impact on Governance and Performance,” in the Journal of Financial Economics.
The researchers’ initial sample included an unbalanced panel of director-level data for S&P 500, S&P MidCaps, and S&P SmallCap firms collected by the Investor Responsibility Research Center (IRRC) for the period 1996-2003. They then supplemented this data with other director and financial information, resulting in a final sample of 86,714 directorships (director firm-years) in 8,253 firm-years of data on 1,939 firms.
The study also found that women appear to have a significant impact on board governance. More diverse boards are more likely to hold CEOs accountable for poor stock price performance. In fact, CEO turnover is more sensitive to stock return performance in firms with relatively more women on boards.
Directors on gender-diverse boards receive higher equity-based compensation—though there was not a reliable relationship between gender diversity and the amount of CEO pay.
A noteworthy finding adds that a board that is too diverse actually hurts business. This lends weight to the argument that too much board monitoring can decrease shareholder value. As such, it seems that gender diversity only adds value when additional board monitoring would enhance firm value.
Gender diversity can have positive effects in companies with weak shareholder rights, where it is plausible that additional board monitoring can enhance firm value.