Are Women Better Directors in the Boards?

Aytac Erdemir (i.NIBIO ii.NMBU)
Olvar Bergland (NMBU)
Helge Berglann (NIBIO)

Abstract: Gender balance law was adopted in 2005 and went into effect in January 2006 with a two year deadline for compliance in Norway. It has compelled all public limited firms to ensure gender balance at their boards, otherwise face liquidation. While many public companies have made changes in their boards, a considerable number of them, have tried to circumvent the regulation by changing their organization form. The ones that complied with this new regulation have changed their board compositions by including more women. In this work, we investigate the implications of this restructuring. We examine how including more women directors affects the company fundamentals. We look at two distinct dimensions. First, we see impact of their monitoring role at the boards, and whether their inclusion correspond with any corporate finance policy changes or firm fundamentals. Second, we comparatively scrutinize what has become different for companies that have managed to bypass the gender balance legislation. We utilize a unique database we constructed from the Norwegian Administrative database, which comprises financial information of public and private firms, as well as board and top-level executive variables from 2002 to 2012. In terms of value, we find higher female share in the boards to be correlated with higher Tobin's Q values, even when we control for firm and year specific effects. Further empirical results show that women are instrumental in curbing the executive compensation, and in protecting shareholder interests by improving the payout to shareholders.

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