Analyzing the Impact of Women in the Boardroom on Firm Performance

This research report delves into the impact of women in the boardroom on governance and firm performance, utilizing data from Investor Responsibility Research Centre (IRRC) annual publications, ExecuComp, CRSP, and Compustat. The study measures firm performance using Tobin’s q and Return on Assets (ROA) to compare firms with and without female directors, addressing endogeneity concerns through Instrumental Variables (IV) methods. It examines the relationship between gender diversity and governance characteristics, including attendance behavior, committee assignments, board-level choices, and equity-based compensation. The analysis, encompassing the entire IRRC database, considers firms with at least one female director and various years to understand the changes in firm performance relative to the percentage of females on the board. The empirical study focuses on outside directors with more than one year of tenure, revealing that female directors have fewer attendance problems and are over-represented in monitoring-related committees. The research indicates that boards with gender diversification are tougher monitors, although it does not definitively conclude that including female directors automatically improves firm performance.

Data and Model Estimation
The research is done on the basis of Investor Responsibility Research Centre(IRRC)
annual publication. Through this data, information about the directors and their attendance
routine has been gathered.Financial information about the directors were collected and
merged with ExecuComp.The stock prices of the firms have been collected from CRSP and
SIC codes and business segment data from Compustat. For measuring the performance of
selected firms,proxy for Tobin’s q and Return on Assets (ROA) has been used. Means of
various firms’ characteristics have been calculated to understand the difference in the
performance of Tobin’s q and ROA, of the firm’s having female directors and those without
female directors.
The research done is on “Women in the boardroom and their impact on governance and
performance” and there are a few endogeneity concerns that arise because of omitted firm’s
characteristics that have been unobserved and reverse casualty concern. Such problems have
been addressed by means of Instrumental Variables (IV) methods.
To test the hypothesis that,gender diversity in boardroom affects governance,
empirical/econometric model has been used.To understand whether there is an impact of
gender diversity in board governance, governance characteristics of boards with more
diversity is compared with those having less diversity. For that matter, relation between
gender and attendance behavior and also, between gender and committee assignments have
been studied. Also, relationship between gender diversity and board level characteristics and
choices and also, between gender diversity and equity-based compensation for directors have
been studied.
To make sure that there is a complete picture of women representing the boardroom, entire
IRRC database has been used. It helped to understand the actual picture of gender diversity in

the boardroom. Firms that have even one female member in their boardroom are also
included in the study. Also, different years have been taken into consideration to understand
the changes in the firm’s performance with the changes in the percentage of females on their
board.To see whether the hypothesis is true there were steps taken to include only that
information which can show the relation between gender diversity and its impact on
governance and to exclude other factors like director’s independence and board size.
The empirical study wasdone to analyse the impact of women on observable board inputs
like attendance and committee assignments. For this study, only the outside directors were
taken into consideration and directors having a tenure of more than one year. This study
helped in understanding that females have less attendance problems than men. It was also
seen during the study that,there were less problems with male directors’ attendance when
there was diversity in the gender mix.In monitoring- related committees, it was found that
women over-represented their male counterparts. From the turnover- performance sensitivity
point of view, women play an important role on the board.The study ofthe relation between
governance index and gender diversity emphasized on the fact that, boards with gender
diversification are tougher monitors to those with lesser diversification. There is no doubt that
there is an impact of gender diversification on the firm but. there is no study that can suggest
that the inclusion of female directors could improve the firm’s performance automatically.
(Adams & Ferreira, 2009)
Bibliography
Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on
governance and Performance. Journal of Financial Economics , 10, 4-6.