Via the Harvard Law School Forum On Corporate Governance and Financial Regulation comes a post from Renée Adams, Professor of Finance at the University of New South Wales; Stephen Gray, Professor of Finance at the University of Queensland; and John Nowland of the Department of Accountancy at City University of Hong Kong on their newest paper, Does Gender Matter in the Boardroom? Evidence from the Market Reaction to Mandatory New Director Announcements, which uses unique data on director appointment announcements from Australia:
While the governance and disclosure environment in Australia is otherwise very similar to that in the US, announcements of director appointments prior to the proxy statement are voluntary in the US, whereas they are mandatory in Australia. Specifically, the Australian Securities Exchange (ASX) requires companies to notify it immediately of any new director appointments. This is useful for our purposes since it means our data should have fewer biases due to sample selection and timing. Furthermore, companies may not notify any other market participant of the appointments until they have received confirmation from the ASX that it has already released this information via its website. Thus, appointments of directors in our sample are unlikely to have been widely anticipated by market participants.
We find that the market reaction to female appointees is, on average, positive and significant. This suggests that the market does not perceive the appointment of female directors to be primarily motivated by tokenism. Moreover, the average reaction for female appointees is roughly 2 percent higher than for male appointees even after controlling for other appointee characteristics, such as independence, expertise and qualifications. This suggests that the gender of directors matters per se.
To examine why gender may be value-relevant, we investigate whether the valuation premium for female directors is related to firm, industry and hiring board characteristics. We find that the market reaction for female appointees is significantly higher than for male appointees in firms with boards that are not majority independent or are small. It is also higher in big firms and firms with high market-to-book ratios. This evidence is consistent with the argument in Adams and Ferreira (2009) that firms with more monitoring needs may benefit more from female director appointments. We also find that female appointees are more valuable than male appointees in the natural resource sector and in firms that have achieved recognition for programs to improve workplace conditions for women. This suggests that the appointment of female directors may improve conditions for stakeholders, in particular female employees, and that shareholders view these improvements as value-enhancing.
I’ll be back with much more to say about this paper when I have time. But, the prior work on gender and boards by Adams and Ferreira, which I’ve blogged about before (see here and here), was a major (and controversial) contribution to the work on board diversity. So, this paper is likely to be highly influential, and well worth reading.
(HT: Danny Sokol)