Does female representation on corporate boards improve intellectual capital efficiency?
| DOI | https://doi.org/10.1108/JIC-01-2019-0007 |
| Pages | 680-700 |
| Date | 24 October 2019 |
| Published date | 24 October 2019 |
| Author | Muhammad Nadeem,Muhammad Bilal Farooq,Ammad Ahmed |
| Subject Matter | Behavioural accounting,Hr & organizational behaviour,Accounting/accountancy,Knowledge management |
Does female representation on
corporate boards improve
intellectual capital efficiency?
Muhammad Nadeem
Department of Accountancy and Finance,
University of Otago, Dunedin, New Zealand
Muhammad Bilal Farooq
Faculty of Business and Law,
Auckland University of Technology, Auckland, New Zealand, and
Ammad Ahmed
Zayed University –Abu Dhabi Campus, Abu Dhabi, United Arab Emirates
Abstract
Purpose –The purpose of this paper is to analyse the relationship between female representation on
corporate boards and intellectual capital (IC) efficiency –while prior studies focus on the relationship between
gender diversity and firms’financial performance.
Design/methodology/approach –Drawing on data from top 500 UK listed firms for 2007–2016
(3,279 firm-years), this study employs an adjust ed-value-added intellectual coefficient as a measure of IC efficiency.
Further, the two-step system-generalised method of moments has been applied to account for endogeneity issues.
Findings –The resultsreveal a significant positive relationship between femalerepresentation on boards and
IC efficiency, including human capital, structural/innovation capital and financial capital efficiency. These
results are robust toalternative proxies for the independent variable and difference-in-differenceestimation.
Practical implications –The results posit that female representation on boards is associated with IC
efficiency, which is vital for firms’value creation and competitive advantage in the knowledge-economy era.
The study also endorses current legislation to increase female representation on corporate boards.
Originality/value –This is among the limited studies to explore the role of female representation on boards
in IC efficiency –while most prior studies relate IC efficiency to financial performance.
Keywords System GMM, Boardroom gender diversity, Intellectual capital efficiency
Paper type Research paper
1. Introduction
Gender legislation around the world has put immense pressure on firms to increase
female representation on their boards. Some countries, such as Norway and Spain, have
even introduced gender quotas in order to achieve a certain level of female representation on
corporate boards, whereas other countries are in the thought process of similar legislation
(Adams and Funk, 2012). As a result of such legislation and firms’own pursuit of becoming
good corporate citizens, female representation on corporate boards has increased
significantly over the last decade or so. For example, as per the Davies report on gender
diversity in the UK, the number of female directors on the boards of FTSE 350 firms has
doubled since 2011. This increase in women on boards has attracted much attention from
academic scholars to investigate the business case of having more female directors on
boards. Liu et al. (2014) investigate the link between women on boards and firm performance
and concur that firms with more female directors exhibit better financial performance.
Similarly, Campbell and Mínguez-Vera (2008) document that boardroom gender diversity is
associated with an improved market valuation of firms.
Interestingly, the existing literature on women on boards and firm performance has mainly
focused on financial performance or the value addition through tangible assets,
and hence has ignored the value addition of intangible or intellectual capital (IC hereafter).
Journal of Intellectual Capital
Vol. 20 No. 5, 2019
pp. 680-700
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-01-2019-0007
Received 15 January 2019
Revised 24 April 2019
25 June 2019
Accepted 29 August 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
680
JIC
20,5
This is an important area, as Canaibano et al. argue that most manufacturing economies are
being replaced by knowledge-driven, fast-changing and technologically intensive economies
where IC has become a major source of firm value and competitive advantage. Similarly,
Sullivan Jr et al. argue that due to the shift from physical-based to knowledge-based economies,
intangibles play a bigger role in firm value than physical assets.
Moreover, the existing studies in the field of IC concur that IC efficiency is positively
related to firm performance and market value (Anifowose et al., 2018; Chen et al., 2005;
Nimtrakoon, 2015; Sardo and Serrasqueiro, 2017; Scafarto et al., 2016). In other words, the
aforementioned studies argue that efficient management of IC is vital for firm value and
competitive advantage in the knowledge-economy era. Interestingly, these studies only
focus on the consequence of IC efficiency and, hence, the determinants (antecedents) of IC
efficiency are overlooked in the IC literature. Therefore, to fill this void, our study
investigates the role of women on boards in IC efficiency. In other words, the purpose of this
study is to investigate whether female representation on boards improves the efficiency of
IC, which is the basis for firm value and competitive advantage.
Drawing on data from UK listed firms for the period 2007–2016 and using an A-VAIC
(adjusted-value-added IC coefficient) model as a measure of IC efficiency, the results suggest
that female representation on boards is associated with higher IC efficiency. As the A-VAIC
model is a composite measure of human, innovation and financial capital, our results also
reveal a significant positive relationship between women on boards and human, innovation
and financialcapital efficiencies. These results are robust to twoalternative proxies for board
gender diversity (BGD), the Blau indexand a dummy variable for the presenceof at least one
woman on the board, and to an alternative econometric technique (difference-in-difference
(DiD) estimator).
Our study makesimportant contributionsto the literature. We examine theparticipation of
female directors in UK boardrooms to investigate the role of gender-diverse boards in IC
efficiency –while the existing literature only focuses on financial performance. We note that
female representation on boardsis associated with improved IC efficiency. In other words,our
study demonstrates that gender-diverse boards are efficientat using firms’IC resources that
would ultimately enhance firm value and competitive advantage. Due to increasing female
representationon boards, firms are curiousto know the business case of female representation
on boards. Inthis regard, our empirical resultsendorse gender legislationaround the world by
reporting a positive association between gender diversity and IC efficiency.
The rest of the paper is organised as follows: Section 2 presents a review of the prior
literature and develops the hypotheses of the study. Section 3 describes the data and
methodology used in this study. Section 4 reports and discusses the empirical results.
Section 5 concludes with policy implications and some directions for future research.
2. Literature and hypotheses
2.1 The importance of IC efficiency
IC, as the aggregate of all knowledge-based resources, significantly contributes toward the
competitive advantage of a firm and replaces most of the physical capital-based resources,
such as machinery and plant (Boulton et al., 2000). IC becomes more important for service
industries, such as insurance, banking and telecom, because these industries rely more on
the knowledge and skills of their employees for value creation, which increases the need for
the measurement and effective management of IC (Boulton et al., 2000). The measurement,
efficient management and leveraging of IC are important because they are the main drivers
of value creation in knowledge-based economies (Rangone, 1997; Vishnu and Kumar Gupta,
2014), but, unfortunately, most prior industrial-based accounting measures are poorly
adapted to service these realities (Bandt, 1999).
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representation
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boards
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