Do Women in Top Management Affect Firm Performance

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Do Women in Top Management Affect Firm
Performance? A Panel Study of 2300 Danish
Firms By Nina Smith Valdemar Smith Mette
Verner Department of Economics, Aarhus School
of Business Centre for Industrial Economics,
University of Copenhagen Centre for Research in
Social Integration and Marginalization, CIM
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• Background/motivation
• Increasing focus on gender, racial and cultural
  composition of the board directors
• Minorities can bring perspectives to the board,
  which it may not have had earlier
• More minorities in the board may be a source of
  inspiration in multicultural/etnic societies
• One aspect of good practise in corporate
  governance is diversity management
• The proportion of women in the board of directors
  is quite low in most countries
• In some countries (Norway Sweden) it has even
  been considered to regulate the gender
  composition of the executive boards of private
  companies

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• Corporate diversity and performance
• Some arguments for a positive relationship
• Promotes better understanding of the market place
• Increases creativity and innovation within the
  firm
• Produces more effective problem-solving
• Enhances the effectiveness of corporate
  leadership
• Promotes more effective global relationships
• (Carter et al (2003), Robinson Descant (1997))
• Substantial costs exists for firms doing a poor
  job in integrating their diverse employees
• More absenteeism

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• Corporate diversity and performance
• Some arguments for a negative relationship
• More options, discussions may be time consuming
  and less effective than a homogenous board
• Market characteristics important
• Quick/slow response to changes needed?
• Cultural, etnic, gender diverse boards may have
  more conflicts than other boards

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• Agency theory, executive boards and firm
  performance
• Outside members of the board vs insiders
• Outsiders will not collude with the managers
  against the shareholders, i.e. board independence
  is critical for the interests of shareholders
• Diversity may increase board independence ()
• Diverse outsiders may become marginalized in the
  board (-)
• (Hermalin Weissbach (2000))

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• Previous empirical evidence
• Shrader et al ( 1997), Kochan (2003), Adler
  (2001), Catalyst (2004),
• Carter (2003),
• Du Ritz Henrekson (2000), Rose (2004)

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• Data -1
• Account information for the 3000 largest Danish
  firms.
• Period 1992 2001
• Firms are excluded from the data set if the
• Turnover/employee ratio is unrealistic
• Net capital is negative
• Performance is extreme
• 2300 firms for each year
• Turnover, number of employees, net capital,
  performance measures, the names of board
  members...........

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• Data -2
• Register information from Statistics Denmark
• Employer-Employee data (IDA)
• Annual Information for all employees in each firm
• Occupational codes for all employees
• Information on family, education etc.
• The same information for spouses
• Final data set
• Account information
• Information on Board members
• Information on all members of the Board of
  Directors

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• Data -3
• Performance measures
• Gross value added/net turnover
• Profits on primary operations/net turnover
• Ordinary result/net assets
• Net result after tax/net assets

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• Data -4.
• Measures of gender diversity in
  management
• Proportion of women among the top CEOs
• Top CEOs The administrative director and other
  directors being member of the board of directors
• Proportion of women among top CEOs, vice
  directors and directors of main activities in the
  firm
• Including e.g. sales directors, financial
  directors etc.
• Proportion of women in the executive board of the
  firm.

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• Figure 1. Proportion of women in top management
  and on executive boards in the largest Danish
  firms, 1993-2001.

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Estimation of firm performance The effects of
women in boards

Pit is the performance measure Xit is a vector of
explanatory variables, i.e firm size, export
orientation, firms age, entry barriers
(Min.eff.scale, industry dummies etc.) Wit is the
proportion of women in the Board. eit is an
error component, Nid(0,se2).
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Results
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• Summing up
• Theoretically, board diversity may affect firm
  performance. How is uncertain.
• The proportion of women in management is (also)
  low in Denmark.
• Do women in the board of directors or in the
  executive boards affect firms performance?
• Board of directors The influence various from
  none to positive
• Executive Boards Depends on type
• Qualifications matter!!