Increasing Gender Diversity in Corporate Boards: Are Firms Catering to Investor Preferences?

57 Pages Posted: 17 Nov 2016

See all articles by Chinmoy Ghosh

Chinmoy Ghosh

University of Connecticut - Department of Finance

Milena T. Petrova

Bocconi University

Jerry Sun

Invesco Advisers, Inc.

Yihong Xiao

University of Connecticut - Department of Finance

Date Written: October 2016

Abstract

We examine the drivers of increasing women’s representation on boards in American firms. During 1998-2014, the proportion of firms with female directors on their boards almost doubled to approximately 78%, while the percentage of female directors increased almost five-fold to a share of 15%. Our analysis shows that the documented increase in female representation on corporate boards is driven by the increasing propensity of firms to add more female directors, rather than changing firms’ characteristics. We use the catering theory to explain firms’ propensity to increase (or decrease) their board gender diversity, and show that when the premium to have women on board is positive (negative), firms are more likely to add (replace) female directors. We further find that firms with more women on their boards are historically associated with higher valuation premium. Finally, we observe that the magnitude of board gender diversity changes is positively related to the change in the lagged gender diversity premium. Our results indicate that board gender diversity can increase value in firms, catering to the demand of investors for gender-diversified boards.

Keywords: Gender Diversity, Board Directors, Propensity, Catering Theory

Suggested Citation

Ghosh, Chinmoy and Petrova, Milena T. and Sun, Le and Xiao, Yihong, Increasing Gender Diversity in Corporate Boards: Are Firms Catering to Investor Preferences? (October 2016). Available at SSRN: https://ssrn.com/abstract=2870077 or http://dx.doi.org/10.2139/ssrn.2870077

Chinmoy Ghosh

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3040 (Phone)
860-486-0349 (Fax)

Milena T. Petrova

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Le Sun

Invesco Advisers, Inc.

United States

Yihong Xiao (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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