What drives the impact of women directors on firm performance? Evidence from intellectual capital efficiency of US listed firms
| DOI | https://doi.org/10.1108/JIC-09-2019-0222 |
| Pages | 513-530 |
| Published date | 02 December 2019 |
| Date | 02 December 2019 |
| Author | Faisal Shahzad,Mushahid Hussain Baig,Ijaz Ur Rehman,Fawad Latif,Bruno S. Sergi |
| Subject Matter | Organizational structure/dynamics,Behavioural accounting,Knowledge management,Accounting/accountancy,Information & knowledge management |
What drives the impact of women
directors on firm performance?
Evidence from intellectual capital
efficiency of US listed firms
Faisal Shahzad and Mushahid Hussain Baig
Department of Management Sciences,
COMSATS University Islamabad, Attock, Pakistan
Ijaz Ur Rehman
College of Business Administration,
Al Falah University, Dubai, United Arab Emirates
Fawad Latif
COMSATS University Islamabad, Attock, Pakistan, and
Bruno S. Sergi
Harvard University, Cambridge, Massachusetts, USA and
University of Messina, Messina, Italy
Abstract
Purpose –The purpose of this paper is to study whether the presence of women directors on the corporate
board influences financial performance (FP). To examine the underlying causal mechanism, the authors
modeled firm-level intellectual capital efficiency (ICE) in the relationshipbetween board gender diversity
(BGD) and FP.
Design/methodology/approach –Using a sample of 5,879 US firms, a structural model of BGD, IC and FP
is conceptualized by accounting for the endogeneity issues and alternative measures of the key variables in
the empirical framework. In the model, the percentage of women directors is taken as BGD measures and
value-added intellectual coefficient as an IC performance measure, considering governance and corporate
performance measures.
Findings –The authors find a significant impact of BGD on FP. In particular, the results suggest: BGD is
linked to IC; the influence of board gender diversity on the FP is indirect; and ICE fully mediates the
relationship between BGD and FP.
Originality/value –To the best of the author’s knowledge, no study has empirically investigated whether
the firm-level IC performance explains the influence of BGD on FP. Drawing on the resource-based view and
organizational learning theory of the firm, the authors empirically modeled the relationship between BGD and
FP through a mediation mechanism of firm-level ICE to fill the void in the literature.
Keywords Firm performance, Intangible assets, Board gender diversity, Intellectual capital efficiency
Paper type Research paper
1. Introduction
Over the last three decades, the increasing debate on the economic consequences of board
gender diversity (BGD, hereafter) has been far from resolved. The role of a firm’s board is to
monitor management in an effective way, align the interest of managers and stakeholders
and strategically guide the decision-making process of the firm to enhance the corporate
performance (Conyon and He, 2017; Pellegrini and Sironi, 2017; Chen et al., 2015; Lee et al.,
2014; Adams et al., 2010; Finkelstein et al., 2009). A strong and well-articulated corporate
board is considered as a powerful strategic resource, with the help of which firms can get
Received 14 September 2019
Revised 4 October 2019
Accepted 16 October 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
The authors thank the Guest Editor Elena Popkova and two anonymous reviewers for their
constructive feedback on the earlier version of this paper.
Impact of
women directors
on firm
performance
JournalofIntellectualCapital
Vol.21 No. 4, 2020
pp.513-530
©EmeraldPublishingLimited
1469-1930
DOI10.1108/JIC-09-2019-0222
513
competitive advantage over their rivals, benefit from directors’knowledge and experience,
build connections in the business world, get access to financial resources, as well as explore
new geographical and industrial markets (Palmberg et al., 2009). Prior studies generally
lent support to the instrumental role of BGD in enhancing the (FP) (e.g. Conyon and He,
2017) and improving the risk management and governance of the firm.
BGD is not only instrumental to the interest of the company’s shareholders but it also
protects the interest of all other parties or stakeholders (e.g. Finegold et al., 2007). In addition, it
improves the goodwill of the company among its stakeholders (e.g. Bear et al., 2010). The
underlying institution of the beneficial impact of BGD follows that females are mostly risk
averse, show less assertiveness and meet ethical standards (e.g. Chen et al., 2015). Female
directors keep corporate debt at a low level (e.g. Faccio et al., 2016) and focus more on research
and development activities than their male counterparts (e.g. Miller and del Carmen Triana,
2009). In addition, BGD is beneficial for the firm given its contribution to human and social
capital as well as aids in decision making(Terjesen et al., 2015; Carter et al., 2010).
In recent years, BGD received extensive recognition in corporate governance in the
context of competitive advantage for a firm (Liu et al., 2014; Rao and Tilt, 2016; McGuinness
et al., 2017). The monitoring duties assumed by board members amongst other fiduciary
duties are deemed imperative for safeguarding shareholders’interests. These monitoring
duties are influenced by various unique features of a corporate board, i.e., duality,
remuneration, education level, the ownership structure and genderat large(Campbell and
Mínguez-Vera, 2008; Gul et al., 2008; Adams et al., 2010; Post and Byron, 2015). The
monitoring aspect of corporate governance gained significant traction after the corporate
scandals of Enron and WorldCom. Henceforth, a new strand of literature argued the
relevance of the women directors vs avoidance of those corporate scandals. The extant
literature suggests that women directors are more vigilant, thus manifesting thorough
monitoring and auditing efforts resulting in increased performance (Lee et al., 2014; Terjesen
et al., 2015; Conyon and He, 2017). Thus, a sub-category of the aforementioned literature
focused specifically on BGD and FP on varied aspects (Rao and Tilt, 2016; Ward and Forker
2017; Saeed and Sameer, 2017).
The literature suggests a substantial impact of women representation in the board on the
varied aspects of FP; for instance, better impact on CSR practice (Rao and Tilt, 2016; Pletzer
et al., 2015; McGuinness et al., 2017), financial management (Ward and Forker 2017), return
on equity (Low et al., 2015), earnings management (Arun et al., 2015), dividend policy
(Benjamin and Biswas, 2017; Saeed and Sameer, 2017), corporate governance (Huang and
Kisgen, 2013; Terjesen et al., 2015), diligence and extensive audit (Gul et al., 2008; Adams and
Ferreira, 2009). There is one common aspect in all the mentioned studies, i.e., a low
manifestation of information asymmetry in firms due to gender diversification which is
validated by a number of other studies (Kim and Zhang, 2016; Liu et al., 2014; Conyon and
He, 2017; Bernile et al., 2018; Bennouri et al., 2018).
What explains the profound impact of BGD on the FP? The majority of the
aforementioned literature attempted to answer this question by leveraging on tangible
asset-based accounting ratios to ascertain a firm’s performance but ignored the significance
of intangible assets such as IC. The IC is not reported on companies’financial statements,
but it carries imperative value for a firm. Thus, IC is known as an intangible asset that
corresponds to knowledge that creates value for a firm (Hashim et al., 2015). IC includes
process innovations, clientele, networks, human resource, expert knowledge, among others
(Bayburina and Golovko, 2009; Maditinos et al., 2011; Mondal and Ghosh, 2012; Joshi et al.,
2013). The intricacy of these facets, in theory, presents a competitive advantage for a firm.
Thus, the strategic and tactical management of IC results in creating a competitive
advantage for a firm compared to financial resources. Subsequently, due to recognition of IC
as an imperative element in creating value for a firm, various methods have been developed
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