Additions to Corporate Boards; the Effect of Gender

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Journal of Corporate Finance 11 (2005) 85 – 106 Additions to corporate boards: the effect of gender Kathleen A. Farrell a,*, Philip L. Hersch b a Department of Finance, University of Nebraska-Lincoln, Lincoln, NE 68588-0490, USA b Department of Economics, Wichita State University, USA Received 1 November 2003; accepted 1 December 2003 Available online 20 April 2004 Abstract During the decade of the 1990s the number of women serving on corporate boards increased substantially. Over this decade, we show that the likelihood of a firm adding a woman to its board in a given year is negatively affected by the number of woman already on the board. The probability of adding a woman is materially…show more content…
The results suggest that although boards may have internal tastes for diversity they also appear to respond to outside pressure to add women directors. Despite finding a positive relation between return on assets and the likelihood of adding a woman to the board, event study results fail to detect any significant market reaction to female additions. Therefore, although better performing firms tend to have more women on the board, we cannot conclude that more gender diverse boards generate better firm performance. In general, our results tend to suggest that adding women to the board does not result in value creation (or destruction). Instead, due to internal preferences or external pressure for greater board diversity, the demand for female representation allows women to self-select better performing firms. Our evidence is also consistent with firms operating in a manner consistent with tokenism. Women are added to boards when a board has low or no female representation. Efforts are made again to attract female candidates when a previous female board member leaves. We do not attempt to address the social implications of firm behavior but merely document the evidence associated with the determinants associated with director selection. The remainder of our paper is organized in the following manner. In the next section, we review the relevant literature relating to the supply and demand side determinants associated with
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