Females Presence on the board and Financial Performance: A Study of Family Controlled Businesses

 

Dr. Sangeeta Mittal¹*, Lavina²

¹Assistant Professor, Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar, Haryana,

²Research Scholar, Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar, Haryana

 

ABSTRACT:

This research is primarily based on the sample of family controlled businesses in India and has examined the representation of females’ on the board and their impact on the financial performance of these business organizations. For measuring gender diversity on the board, researcher has taken the variables namely- presence/absence of at least one female on the board (gender diversity), female CEO, family females and female chairpersons. Multiple regression analysis and descriptive statistics has been applied as statistical tools. The results show that 65% of the 200 company-year observations have at least one female on the board, only one company is having female CEO and also low % of females as chairperson. Further the result of regression shows that all variables collectively have miniature influence on financial performance, reason being lower presence of females on the board. Further the study provides evidence that two variables namely gender diversity and family females are significantly affecting the financial performance. The study also suggests that the presence of non-family females on the top management team may increase the firm’s performance as compared to family females.

 

 

INTRODUCTION:

Will the talent of females improve the business performance? This question has a place of curiosity in the mind of researchers interested in corporate governance area. Females have their own unique God gifted talent and have different leadership styles. But sorry to say even after knowing their talents from history, still there is underrepresentation of females on senior management team in Asian companies as compared to western companies.

Yet in most of the countries, the % of females reaching top management is very low and India is no exception. According to one report (2015), In India, females have 11.2 percent share on board of directors. Consequently, for improving the gender diversification, the Indian Companies Act, 2013 has made a mandatory requirement for the appointment of at least one woman director in listed companies having a paid up capital of at least 100 crore and turnover of 300 crore. Women have their own unique and complementary headship styles but the benefits can be taken only if they are given chance to represent. The research of McKinsey and Company (2008) reveals that, Gender diversity in the top management will provide competitive edge to companies in near future. There are different studies conducted by the researchers on this topic in developed economies, and very few in developing economies particularly on family businesses.

Gender Diversity: One among the major components of corporate governance:

The term gender diversity may be termed as the equivalence in the ratio of men and women. Gender diversity is closely related with corporate governance. Corporate governance is the set of rules and regulations by which the companies are managed and controlled. Gender diversity also termed as Management diversity, is amongst the characteristics of good corporate governance.

 

Motivation and importance of the study:

There are studies available in literature regarding this topic but those studies are mainly based on the widely held corporations particularly in developed economies. So this study tries to analyze the impact of gender diversity on financial performance taking the sample of closely held corporations (family businesses).

 

Davis and Tagiuri defined family firms as: ‘organizations where two or more extended family members influence the direction of the business through the exercise of kinship ties, management roles, or ownership rights’. Since family business have different leadership styles and ownership pattern as compared to non-family business. So the researcher tries to find out this governance characteristic (gender diversity) particularly of family businesses in India. In this study researcher analyzes the impact of gender diversity variables namely - presence/absence of women on the board, women CEO, female chairperson and family females on financial performance of family businesses. So the main purpose of this study is to provide the pragmatic evidence regarding the influence of gender diversity, particularly on outcomes of family controlled businesses. The below section contains the review of literature on this topic following with the hypothesis development, sample description, research methodology, results and analysis and lastly the conclusion part of the study.

 

REVIEW OF LITERATURE:

There are lots of studies available in literature on this topic having different dimensions and area. The review of some of those is as follows: Mogbogu (2016) conducted a study to examine the relationship between female directors and financial performance of firms in the united states technology sector. The sample of the study is 49 top technology companies of United States. The results of the study show that females have a negative relation with financial performance of the business. So this study does not prove the business case of appointing female directors based on financial performance criteria. Christiansen et al. (2016) in their study analyzes the relationship between gender diversity in senior positions and firm performance based on the sample of Europe. The researchers have taken the sample of 34 European countries. The results reveal that presence of females on senior positions is significantly related with the profitability that implies that increase in the share of females on top position is beneficial for companies.

 

Sanan (2016) by taking the sample of Indian listed companies has done a research to examine the relation between gender diversity and performance. The researcher gathered the data of 148 listed firms for a period of 5 years. The panel data model has been used in the study. The study concludes the positive and significant relation between % of independent women directors and financial performance. The result also reveals that the number of companies having 0 independent women directors has been decreasing as tie passes.

 

Noland et al. (2016) have done a global survey to answer the question “Do gender diversity profitable?” By taking the sample of 21980 firms from 91 countries the study recommends that the presence of females on top position improve the performance.

 

Herdhayinta (2014) has done an empirical study on Asia pacific companies in order to find out the affect of gender diversity on performance. The sample consists of 50 largest companies of Asia. The researcher applied the multiple regression analysis to perform the objectives. The result shows that there is a positive relation between gender diversity and financial performance. The presence of women is improving the economic performance of the companies.

 

Al-Mamun et al. (2013) analyze the association between gender diversity and economic performance of Pakistani listed firms. The sample of the study consists of 30 companies listed on Karachi stock exchange for three years. The researcher has applied linear regression, descriptive statistics and correlation analysis to accomplish the objectives. The variables namely female CEO, female proportion and gender diversity has been used as independent variables while Economic Value Added (EVA) as dependent variable. The result concludes that there is not a significant relation between female on top management and firm financial performance in Pakistan.

 

Yasser (2012) conducted a study to analyze the relation between gender diversity and its impact on financial performance by taking the sample of 90 listed companies for 3 years period. The researcher has applied governance variables namely female proportion, female CEO and gender diversity variable. The regression and correlation tools have been applied. The result of the study shows that there is not a significant relation between board gender diversity and financial performance. In other words gender diversity has not any impact on financial performance in Pakistani sample. Dezso and ross (2007) have done an empirical research on female participation in top management and their impact on financial performance. The sample of the study consists of top 1500 US companies for a period of 11 years, from 1996-2006. The researcher examines the relation between financial performance and female presence below the CEO level as well as having female CEO. The results show that having females below CEO level is positive and significantly related with performance while female CEO has a neutral or negative relation with performance.

 

Smith et al. (2006) has done an empirical research to know about the impact of females on the financial performance of 2500 Danish companies. The study has been undertaken by taking the sample from 1993 to 2001. The results conclude that females have positive relation with financial performance. Hence, the above discussed studies found neutral, positive and negative influence of gender diversity on financial performance. This study is an attempt to find out the same phenomenon with reference to family businesses in India.

 

Hypothesis of the study:

The following hypothesis has been developed by the researcher after having a brief review of the literature:

H1: There is a significant relationship between gender diversity and financial performance of family businesses.

H2: There is a significant relationship between female chairperson and financial performance of family businesses.

H3: There is a significant relationship between women CEO and financial performance of family businesses.

H4: There is a significant relationship between family females and financial performance of family businesses.

 

Sample and Data:

The proposed sample of the research consists of listed Indian family businesses. The number of companies in our sample is 50. The time period of the study is 4 years i.e. from 2013-2016. The data related to gender diversity has been collected from the annual reports of the companies. The variables used to measure the gender diversity are presence/absence of women on the board in the form of 0 and 1, women CEO, female chairperson and family females while return on asset has been used to measure the financial performance.

 

Practical definition of Family Business - How to define:

For doing research on the sample of family businesses the first question that arises is how to define this type of business organization. Different researchers and experts defined the family business differently. The definition of family business is consistent with previous studies (Anderson and Reeb, 2003; Villalonga and Amit, 2006, Yasser, 2011). In this study a business is said to be of family business if it satisfies any two of the following conditions:

1. Promoter is the CEO or the subsequent CEO is related by blood or marriage;

2. At least two directors from family;

3. Or family has at least 20% equity ownership.

 

RESEARCH METHODOLOGY:

Statistical tools and variables:

Multiple regression analysis has been used by the researcher to evaluate the relationship between board room gender diversity and financial performance. In addition to this descriptive statistics, correlation has also been used to describe and analyze the data. The following regression model has been used by the researcher:

 

Return on asset = α₀ + α₁ (Gender Diversity) + α₂ (Woman CEO) + α₃ (Female Chairperson) + α₄ (Family Females) + e_i

Where,

Return on asset = ROA;

Gender diversity = GD, coded 1 if presence of at least 1 woman on the board, or else coded 0;

Woman CEO = WCEO, coded 1 if CEO is woman or else coded 0;

Female chairperson = FCHAIR, coded 1 if chairperson is woman or else coded 0;

Family females = FF, coded 1 if presence of family female or else coded 0;

 

RESULTS AND ANALYSIS:

Descriptive statistics:

Table: 1 illustrates the result of descriptive statistics. The variables namely gender diversity, woman CEO, female chairperson, family females and return on assets has been used by the researcher. As shown by the Table:1 the mean ROA is 4.4% which depicts that the selected sample companies are earning 4.4% of profit relative to its overall assets. Results show that the mean gender diversity is 65.5% indicating that appox. 65% of the company-year observations have at least one female director on their board.

Table: 1 Descriptive statistics results

Further mean women CEO is 0.02% indicating that only .02% of sample companies have women CEO on their board. Female chairperson with a mean of 0.015% shows that only .015% of the sample has female chairperson. Further the results depicts that 33% of the sample companies has appointed females from their family.

 

 

 

 

Correlation Results:

Table: 2 illustrates the results of Pearson correlation, the return on asset is negatively associated with female chairperson. Further the variable family female is positive and significantly associated with gender diversity variable, woman CEO and female chairperson. As no variable pose correlation value more than .70, there is an absence of multicollinearity problem (having highly correlated variables) in the model as shown by the correlation table. Hence, our data does not hold the multicollinearity problem.

 

Table: 2 Correlation results for Variables

*Significant at 0.05, ** Significant at 0.01

 

Multiple Regression Analysis:

Table 3 (a) (b) (c) depicts the result of regression analysis. To analyze the relation between gender diversity variables and financial performance the multiple regression model has been used. The table 3(a) shows the correlation value of 24% among the dependent (financial performance) and independent variables (measures of gender diversity) and the R square value of the model is low that is 5.9%, that indicates that there is 5.9% variation in dependent variable (financial performance) due to chosen independent variables (measures of gender diversity). Hence from the table 3(a) it can be concluded that there is no significant relationship between financial performance and gender diversity.

 

Table 3(a) – Regression summary outcome

Observation	Multiple R	R Square	Adjusted R Square	Standard Error	Durbin Watson
200	.243	.059	.040	25.02566	.610

 

Further the F-statistics shown by Table 3(b), is 3.065; P-value .018 indicating the statistical validity and significance of the model.

 

Table 3(b) - Regression summary outcome – Analysis of Variance

 

The table 3(c) indicates that the independent variables namely Gender diversity and family females are statistically significant for the model. The variable gender diversity is positively related with financial performance that implies that with the increase of women’s presence on the board the performance increases. While the variable Family female is negatively related with financial performance. Rests of the variables are statistically insignificant as shown by the table 3(c). Hence, the hypothesis, H1 and H4 are accepted while H2 and H3 are rejected for this study.

 

Table 3(c) - Regression summary outcome – coefficients

		Unstandardized Coefficients	Standardized Coefficients
	B	Std. Error	Beta	T	Sig.
(Constant)	2.225	3.013		.738	.461
GD	9.613	4.326	.179	2.222	.027
WCEO	9.178	12.930	.050	.710	.479
FCHAIR	-24.580	14.811	-.117	-1.660	.099
FF	-11.841	4.500	-.219	-2.631	.009

 

Hence, the results of this study conclude that there is not a significant impact of females’ on financial performance in case of family controlled businesses in India. However the results also show underrepresentation of females on board. The results are consistent with previous studies (Mamun et. al. (2013); Yasser, 2012).

 

CONCLUSION:

The present study concludes that there exist no relationship between financial performance and gender diversity variables indicating that presence of females on boardroom and executive positions does not contributing to the value. But still some evidences, that is underrepresentation of females (there is only one woman on the board in most of the companies), one company is having female CEO and female chairperson points out that there is something wrong that is why the results are insignificant. So it can be suggested that there should be proper/adequate representation of females on the board to get the benefits. Further the study also suggests that the presence of non-family females on the top management team may increase the firm’s performance as compared to family females.

 

FUTURE IMPLICATIONS:

Future research can be conducted by increasing the time period and by taking more variables of gender diversity. Also other performance variables can be used to find out the difference. Since the return on asset is based on accounting information and historical in nature so the future researchers should use market based performance measures such as Tobin’s Q, MVA to find out more reliable results in this context.

 

REFERENCES:

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3.       Christiansen, L., Lin, H., Pereira, J., Topalova, P. B., and Turk, R. (2016). Gender diversity in senior positions and firm performance: Evidence from Europe, 1-29.

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10.     Herdhayinta, H. (2014). The influence of board diversity on financial performance: an empirical study of Asia-Pacific companies (Master's thesis). School of Business and Law, University of Agder, 1-79.

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16.     Villalonga, B., and Amit, R. (2006). How do family ownership, control and management affect firm value? Journal of financial Economics, 80(2), 385-417.

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Accepted on 28.10.2017        © A&V Publications All right reserved