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The dynamic relation between board gender diversity and firm performance: the moderating role of shareholder activism

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Abstract

California became the first state in the US to require gender diversity on publicly corporate boards. To provide timely evidence on the heated debate, we investigate the impact of board gender diversity on financial performance and how shareholder activism affects the dynamic relationship in the United States. We find that the relation between board gender diversity and firm performance presents an inverted U-shaped nonlinear form. Firm performance increases as the board is more gender-diverse, but performance decreases after the board diversity level reaches a turning point. Furthermore, shareholder activism through proxy proposals enhances the positive effect of diversity and alleviates the negative effect of diversity on firm performance, and the positive effect diminishes after board gender ratios reach an optimal level. Our study captures the dynamic impacts of shareholder activism and board gender diversity on firm performance and provides insights for regulators to make proper decisions in increasing board diversity.

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Authors and Affiliations

  1. Murray Koppelman School of Business, Brooklyn College, City University of New York, 2900 Bedford Avenue, New York, NY, 11210, USA

    Fujiao Xie

  2. College of Business and Economics, California State University, East Bay, Hayward, CA, 94542, USA

    Ying Guo

  3. Shidler College of Business, University of Hawaii at Manoa, Honolulu, HI, 96822, USA

    Shirley J. Daniel

  4. Haslam College of Business, The University of Tennessee, Knoxville, Knoxville, TN, 37996, USA

    Yuanyang Liu

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  1. Fujiao Xie
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Correspondence to Fujiao Xie.

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Appendix: Variables definition

Appendix: Variables definition

Variables

Definition

AvgNoQuals

An average number of qualified board members who earn an undergraduate level or above

AvgTimeRole

An average time of board members served on the board in the unit of the year

DivProp

A dummy variable and equals one when a firm's shareholders initiate the proxy process to increase board gender diversity

IndepD_Rate

The ratio of independent directors on the board

InstOwn

The total institutional ownership, defined in the form of the percentage of shares outstanding

LEV

Long-term debt scaled by total assets

NoDirectors

The board size, which measures the total number of board directors

PercFemale

A direct measure of gender diversity in the boardroom, defined as the percentage of female board members

PercFemale2

Squared term of the percentage of female board members

RDIntensity

Research and Development Intensity, measured as the Research and Development Expenses scaled by the total assets

ROA

Return on assets, calculated as net income before depreciation divided by total assets

ROE

Return on equity, calculated as net income divided by shareholder's equity

SaleGrowth

A measure of percentage growth of sales during the year t, defined as sales at the yearend (Saleit) minus sales at the beginning of the year (Saleit-1) divided by sales at the beginning of the year (Saleit-1)

SIZE

The logarithm of total assets

Tobin_Q

The Q ratio, computed as the sum of the market value of stock and the book value of total liabilities divided by the book value of total assets

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Xie, F., Guo, Y., Daniel, S.J. et al. The dynamic relation between board gender diversity and firm performance: the moderating role of shareholder activism. Rev Quant Finan Acc 62, 225–246 (2024). https://doi.org/10.1007/s11156-023-01201-z

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