Mitigating Effects of Gender Diverse Board in Companies Managed by Overconfident CEOs

71 Pages Posted: 21 Jun 2017 Last revised: 11 Jun 2018

See all articles by Suman Banerjee

Suman Banerjee

Stevens Institute of Technology; Stevens Institute of Technology

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Arun Upadhyay

Florida International University

Date Written: June 6, 2018

Abstract

Prior literature examines the matching of firm-types with board composition, but very little research focuses on the matching of CEO types with directors' skill sets. We examine whether a gender-diverse board helps to mitigate the negative impacts of overconfident managers, thus improving firm performance. Specifically, we argue that female directors have different viewpoints, approach, and skills vis-`a-vis their male counterparts, which helps to provide a more nuanced atmosphere inside the boardroom and consequently, improves board effectiveness. We find support for our hypothesis when CEOs are overconfident and the female directors are independent, i.e. not gray or executive directors. We find female director departures due to pure exogenous reasons such as death, have a negative effect on the value of firms managed by overconfident CEOs. Also, the positive effects of gender-diverse boards are concentrated in pre-SOX-non-compliant firms with overconfident managers. Our results imply that simpler governance-improving mechanisms may be in many cases equally effective in achieving desirable changes in CEO behavior.

Keywords: Gender-diverse board, Female directors, Firm performance, Independent board, Overconfident CEOs, Over-investment, SOX, SOX compliant firms

JEL Classification: G23, G32, G34

Suggested Citation

Banerjee, Suman and Masulis, Ronald W. and Upadhyay, Arun, Mitigating Effects of Gender Diverse Board in Companies Managed by Overconfident CEOs (June 6, 2018). Stevens Institute of Technology School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2989857 or http://dx.doi.org/10.2139/ssrn.2989857

Suman Banerjee (Contact Author)

Stevens Institute of Technology ( email )

525 River Street
Hoboken, NJ 07030
United States
2012613689 (Phone)

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

Ronald W. Masulis

University of New South Wales - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Arun Upadhyay

Florida International University ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
152
Abstract Views
849
rank
193,498
PlumX Metrics