Skip to main content

Advertisement

SpringerLink
Log in

Determinants of firm’s holding female directors: evidence from Australia

  • Published:
Asian Journal of Business Ethics Aims and scope Submit manuscript

Abstract

This research paper aims to examine the association between product market competition and gender diversity on the corporate board. More specifically, this paper examines the likely corporate governance determinants of firms operating by female directors. This study included all the Australian listed companies in the primary list of samples from 2001 to 2015. This research explored that low competition increases the probability of existing female directors on the corporate board. Results also reveal that low product market competition is positively associated with firms’ female directors where female directors are the member of the audit committee and have long service experience. This research obtains evidence that low-competitive firms encourage board gender diversity even if their presence is insignificant (as a token). This study contributes to the literature by providing evidence that first, low competition drives managers to appoint female directors on board as few primarily large firms with low competition show fairness to comply with corporate governance regulations, especially on gender diversity. Moreover, low competition forces firms to search for unique competitive advantage, and gender diversity is one of them which can increase the visibility of female directors. Finally, a firm’s board gender diversity can ensure intense monitoring, rational decision, advising, calculative risk-taking comparing with a gender bias board and leading to a good firm image for the stakeholders.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Women directors can provide intense monitoring, valuable, practical input, because they may have a deeper understanding of what drives consumers since they make the purchasing decisions for their families (Stoiljkovic, 2011).

  2. In a large firm, managers may take more risks by investing their high profit in research and development activities. However, sometimes, large firms are found less inventive to innovate and invest in the absence of competitive pressures. They may not try very hard to improve themselves. Therefore, workers and managers may simply lack the necessary motivation to work hard, which encouraging x-inefficiency (organizational slack). This kind of situation may arise principal-agent problem.

  3. The opposite scenario may exist like, competition can produce better managerial incentives as in a highly competitive market, the space of profit may be compressed or plundered by others, and only efficient firms can survive. Therefore, to avoid aggregate shocks by competitors, bankruptcy, and to ensure efficiency firms used to provide incentives to managers, which ultimately reduces free cash flows and improves monitoring quality. Thus, managers in a highly competitive industry are more vigilant as they have the fear of the loss of their jobs, so managers distribute excess cash to shareholders as dividends to avoid agency problems between the shareholders and the manager. Therefore, this may increase the managerial reputation and suppress the urge for diverse monitoring by increasing the corporate board's female directors’ ratio.

  4. https://careers.accaglobal.com/careers-advice/sectors-and-specialisms/neds-and-trustees-advice/what-are-board-committees-and-their-functions.html

  5. https://www.economicshelp.org/blog/265/economics/are-monopolies-always-bad/

References

  • Abbott, L. J., Parker, S., & Presley, T. J. (2012). Female board presence and the likelihood of financial restatement. Accounting Horizons, 26(4), 607–629. https://doi.org/10.2308/acch-50249

    Article  Google Scholar 

  • Adams, R. B., Gray, S., & Nowland, J. (2010). Is there a business case for female directors? Evidence from the market reaction to all new director appointments. In 23rd Australasian Finance and Banking Conference.

  • Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309.

    Article  Google Scholar 

  • Aghion, B. P., Reenen, J. V., & Zingales, L. (2013). Innovation and institutional ownership. American Economic Review, 103(1), 277–304.

    Article  Google Scholar 

  • Ahern, K. R., & Dittmar, A. K. (2012). The changing of the boards: The impact on firm valuation of mandated female board representation. Quarterly Journal of Economics, 127(1), 137–197.

    Article  Google Scholar 

  • Ahmed, A., Higgs, H., Ng, C., & Delaney, D. A. (2018). Determinants of women representation on corporate boards : Evidence from Australia. Accounting Research Journal, 31(3), 326–342. https://doi.org/10.1108/ARJ-11-2015-0133

    Article  Google Scholar 

  • Alsaeed, K. (2005). The association between firm-specific characteristics and disclosure: The case of Saudi Arabia. Managerial Auditing Journal, 21(5), 476–496. https://doi.org/10.1108/02686900610667256

    Article  Google Scholar 

  • Arnegger, M., Hofmann, C., Pull, K., & Vetter, K. (2014). Firm size and board diversity. Journal of Management & Governance, 18, 1109–1135. https://doi.org/10.1007/s10997-013-9273-6

    Article  Google Scholar 

  • Baggs, J., & de Bettignies, J.-E. (2005). Product market competition and agency costs. The Journal of Industrial Economics, 55(2), 289–323.

    Article  Google Scholar 

  • Becker, G. S. (1957). The economics of discrimination. University of Chicago Press.

    Google Scholar 

  • Beiner, S., Schmid, M., & Wanzenried, G. (2011). Product market competition, managerial incentives and firm valuation. European Financial Management, 17(2), 331–366.

    Article  Google Scholar 

  • Brammer, S., Millington, A., & Pavelin, S. (2009). Corporate reputation and women on the board. British Journal of Management, 20, 17–29. https://doi.org/10.1111/j.1467-8551.2008.00600.x

    Article  Google Scholar 

  • Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. The Financial Review, 38(1), 33–53.

    Article  Google Scholar 

  • Chen, J., Leung, W. S., & Evans, K. P. (2018). Female board representation, corporate innovation and firm performance. Journal of Empirical Finance, 48(July), 236–254. https://doi.org/10.1016/j.jempfin.2018.07.003

    Article  Google Scholar 

  • Chou, J., Ng, L., Sibilkov, V., & Wang, Q. (2011). Product market competition and corporate governance. Review of Development Finance, 1(2), 114–130. https://doi.org/10.1016/j.rdf.2011.03.005

    Article  Google Scholar 

  • Collin, S., & Bengtsson, L. (2000). Corporate Governance and strategy : A test of the association between governance structures and diversification on Swedish data. Corporate Governance, 8(2), 154–165.

    Article  Google Scholar 

  • Cox, T. H., & Blake, S. (2013). Managing cultural implications for competitiveness organizational. Academy of Management Executive, 5(3), 45–56.

    Google Scholar 

  • Davidson, W. N., & Rowe, W. (2004). Intertemporal Endogeneity in Board composition and Financial Performance. Corporate Ownership & Control, 1(4), 49–60.

    Article  Google Scholar 

  • de Cabo, R. M., Gimeno, R., & Nieto, M. J. (2012). Gender diversity on European banks ’ boards of directors. Journal of Business Ethics, 109(2), 145–162. https://doi.org/10.1007/sl0551-011-1112-6

    Article  Google Scholar 

  • Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. The Accounting Review, 86(6), 1969–1994. https://doi.org/10.2308/accr-10130

    Article  Google Scholar 

  • Eastman, M. T. (2017). Women on Boards: Progress Report 2017. MSCI, December 2017.

  • Farrell, K. A., & Hersch, P. L. (2005). Additions to corporate boards: The effect of gender. Journal of Corporate Finance, 11(1–2), 85–106. https://doi.org/10.1016/j.jcorpfin.2003.12.001

    Article  Google Scholar 

  • García-Meca, E., & Palacio, C. J. (2018). Board composition and firm reputation: The role of business experts, support specialists and community influentials. BRQ Business Research Quarterly, 21(2), 111–123. https://doi.org/10.1016/j.brq.2018.01.003

    Article  Google Scholar 

  • Ghosal, V. (2002). Potential foreign competition in US manufacturing. International Journal of Industrial Organization, 20(10), 1461–1489.

    Article  Google Scholar 

  • Giroud, X., & Mueller, H. M. (2009). Does Corporate Governance Matter in Competitive Industries?

    Book  Google Scholar 

  • Gujarati, D. N. (2003). Basic Econometrics. McGraw-Hill/Irwin.

    Google Scholar 

  • Gujarati, D., & Porter, D. (2009). Basic Econometrics (5th ed.). Mc Graw-Hill.

    Google Scholar 

  • Gul, F. A., Fung, S. Y. K., & Jaggi, B. (2009). Earnings quality : some evidence on the role of auditor tenure and auditors ’ industry expertise. Journal of Accounting and Economics, (March).

  • Gul, F. A., Srinidhi, B., & Ng, A. C. (2011). Does board gender diversity improve the informativeness of stock prices? Journal of Accounting and Economics, 51(3), 314–338.

  • Habib, A., Bhuiyan, B. U., & Hasan, M. M. (2017). Firm life cycle and advisory directors. Australian Journal of Management, 00, 1–18. https://doi.org/10.1177/0312896217731502

    Article  Google Scholar 

  • Habib, A., Bhuiyan, M. B. U., & Sun, X. S. (2019). Audit partner busyness and cost of equity capital, (September 2018), 57–72. https://doi.org/10.1111/ijau.12144

  • Hair, J. J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (1998). Multivariate data analysis (3rd ed.). Macmillan.

    Google Scholar 

  • Hart, O. D. (1983). The market mechanism as an incentive scheme. The Bell Journal of Economics, 14(2), 366–382.

    Article  Google Scholar 

  • Herring, C. (2009). Does diversity pay?: Race, gender, and the business case for diversity. American Sociological Review, 34(2), 208–224.

    Article  Google Scholar 

  • Hill, C. W. L., & Hansen, G. S. (1991). A longitudinal study of the cause and consequences of changes in diversification in the U.S. Strategic Management Journal, 12(3), 187–199.

    Article  Google Scholar 

  • Hillman, A. J., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. The Academy of Management Review, 28(3), 383–396.

    Article  Google Scholar 

  • Hillman, A. M. Y. J., Shropshire, C., & Cannella, A. A. (2007). Organizational predictors of women on corporate boards. Academy of Management Journal, 50(4), 941–952.

    Article  Google Scholar 

  • Huse, M., & Solberg, A. G. (2005). Gender-related boardroom dynamics: How Scandinavian women make and can make contributions on corporate boards. Women in Management Review, 21(2), 113–130.

    Article  Google Scholar 

  • Issa, A., Elfeky, M. I., & Ullah, I. (2019). The impact of board gender diversity on firm value: Evidence from Kuwait. International Journal of Applied Science and Research, 2(1), 1–22.

    Article  Google Scholar 

  • Kajola, S. O., Olabisi, J., Soyemi, K. A., & Olayiwola, P. O. (2019). Board gender diversity and dividend policy in Nigerian listed firms. ACTA VŠFS, 13(2), 135–151.

    Google Scholar 

  • Kang, H., Cheng, M., & Gray, S. J. (2007a). Corporate governance and board composition : Diversity and independence of Australian boards. Journal of Corporate Governance : An International Review, 15(2), 194–207.

    Article  Google Scholar 

  • Kang, H., Cheng, M., & Gray, S. J. (2007b). Corporate governance and board composition : Diversity and independence of Australian boards. Journal of Corporate Governance : An International Review, 15(2), 194–207.

    Article  Google Scholar 

  • Karuna, C. (2007). Industry product market competition and managerial incentives. Journal of Accounting and Economics, 43(August), 275–297. https://doi.org/10.2139/ssrn.775284

    Article  Google Scholar 

  • Kim, J. H., & Lee, W.-M. (2018). How does board structure affect customer concentration? SSRN Electronic Journal 1–43. https://doi.org/10.2139/ssrn.3238644

  • Laksmana, I., & Yang, Y. (2015). Product market competition and corporate investment decisions. Review of Accounting and Finance, 14(2), 128–148. https://doi.org/10.1108/RAF-11-2013-0123

    Article  Google Scholar 

  • Milliken, F. J., & Martins, L. L. (1996). Searching for common threads: Understanding the multiple effects of diversity in organizational groups. Academy of Management Review, 21(2), 402–433.

    Article  Google Scholar 

  • Mirza, S. S., Majeed, M. A., & Ahsan, T. (2020). Board gender diversity, competitive pressure and investment efficiency in Chinese private firms. Eurasian Business Review, 10, 417–440. https://doi.org/10.1007/s40821-019-00138-5

    Article  Google Scholar 

  • Nickell, S. J. (1996). Competition and corporate performance. Journal of Political Economy, 104(4), 724–746.

    Article  Google Scholar 

  • Pandey, R., Biswas, P. K., Ali, M. J., & Mansi, M. (2019). Female directors on the board and cost of debt: evidence from Australia. Accounting and Finance.https://doi.org/10.1111/acfi.12521

  • Peress, J. (2010). Product market competition, insider trading, and stock market efficiency. The Journal of Finance, 65(1), 1–43.

    Article  Google Scholar 

  • Post, C., & Byron, K. (2015). Women on boards and firm financial performance: A meta-analysis. Academy of Management Journal, 58(5), 1546–1571.

    Article  Google Scholar 

  • Prevost, A. K., Rao, R. P., & Hossain, M. (2002). Board composition in New Zealand : An agency perspective. Journal of Business Finance & Accounting, 29(5–6), 731–760.

    Article  Google Scholar 

  • Pucheta-mart, C., Bel-Oms, I., & Olcina-Sempere, G. (2016). Corporate governance, female directors and quality of financial information. Business Ethics: A European Review, 1–23.https://doi.org/10.1111/beer.12123

  • Quinones, M. A., Ford, J. K., & Teachout, M. S. (1995). The relationship between work experience and job performance: A conceptual and meta-analytic review. Personnel Psychology, 48(4), 887–910.

    Article  Google Scholar 

  • Rossi, F., Hu, C., & Foley, M. (2017). Women in the boardroom and corporate decisions of italian listed companies : Does the “ critical mass ” matter ? Management Decision, 55(7), 1578–1595.

    Article  Google Scholar 

  • Rumsey, D. (2007). Intermediate Statistics for Dummies. Wiley Publishing Inc.

    Google Scholar 

  • Schmidt, K. M. (1997). Managerial incentives and product market competition. The Review of Economic Studies, 64(2), 91–213.

    Article  Google Scholar 

  • Searby, L., & Tripses, J. (2006). Breaking perceptions of "old boys’ networks": Women leaders learning to make the most of mentoring relationships. Journal of Women in Educational Leadership, 4(3), 29–46.

    Google Scholar 

  • Shen, W. (2003). The dynamics of the Ceo-board relationship: An evolutionary perspective. Academy of Management Review, 28(3), 466–476.

    Article  Google Scholar 

  • Shin, Y. Z., Chang, J., Jeon, K., & Kim, H. (2019). Female directors on the board and investment efficiency : evidence from Korea. Asian Business & Management, (April), 1–42. https://doi.org/10.1057/s41291-019-00066-2

  • Slade, M. (2004). Competing models of firm profitability. International Journal of Industrial Organization, 22, 289–308.

    Article  Google Scholar 

  • Srinidhi, B., Gul, F. A., & Tsui, J. (2011). Female directors and earnings quality. Contemporary Accounting Research, 28(5), 1610–1644. https://doi.org/10.1111/j.1911-3846.2011.01071.x

    Article  Google Scholar 

  • Srinidhi, B., Zhang, H., & Chen, S. (2020). How do female directors improve board governance? A mechanism based on norm changes. Journal of Contemporary Accounting & Economics, 16(1), 1–18. https://doi.org/10.1016/j.jcae.2019.100181

    Article  Google Scholar 

  • Stoiljkovic, N. (2011). Women on boards: A conversation with male directors. In M.-L. Guy, C. Niethammer, & A. Moline (Eds.), Global Corporate Governance Forum (pp. 1–60). The International Finance Corporation.

    Google Scholar 

  • Terjesen, S., Sealy, R., & Singh, V. (2009). Women directors on corporate boards : A review and research agenda. Corporate Governance: An International Review, 17(3), 320–337. https://doi.org/10.1111/j.1467-8683.2009.00742.x

    Article  Google Scholar 

  • Terjesen, S., Couto, E. B., & Francisco, P. M. (2015). Does the presence of independent and female directors impact firm performance ? A multi-country study of board diversity. Journal of Management & Governance, 20(3), 447–483. https://doi.org/10.1007/s10997-014-9307-8

    Article  Google Scholar 

  • Wang, S. F., Jou, Y. J., Chang, K. C., & Wu, K. W. (2014). Industry competition, agency problem, and firm performance. Romanian Journal of Economic Forecasting, 17(4), 76–93.

    Google Scholar 

  • Wooldridge, J. M. (2009). Introductory Econometrics: A Modern Approach (4th ed.). USA Cengage Learning.

    Google Scholar 

Download references

Acknowledgements

The authors acknowledge the insightful input of two anonymous reviewers. The authors are thankful to Md Borhan Uddin Bhuiyan for his constructive suggestions on an earlier version of this manuscript.

Author information

Authors and Affiliations

  1. Business School, University of International Business and Economics (UIBE), Beijing, China

    Ummya Salma & Aimin Qian

  2. Department of Business Administration in Management Studies, Bangladesh University of Professionals (BUP), Dhaka, Bangladesh

    Ummya Salma

Authors
  1. Ummya Salma
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Aimin Qian
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ummya Salma.

Additional information

Publisher’s note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendix A Variable definition

Appendix A Variable definition

Variables

Definition

Measurement

Dependent variables

  FD

Female/woman directors

We have considered three different proxies of female/woman directorship (FD)

  %FD

% of female/woman representation

Total number of female/woman directors divided by total board size

  D_FD

Dummy variable of the female/woman director

Assigned a value equal to 1 if the firms have a female/woman director, otherwise 0

  %INDFD

% of an independent female/woman director

Dividing the number of independent female/woman directors by total board size

  FD t-1

Previous year percentage of female/woman directors on board

Lagged percentage of female/woman directors on board

  D_FD t-1

Previous year female/woman director’s dummy

Lagged of female/woman directors’ dummy

  %INDFD t-1

Previous year percentage of independent female/woman directors on board

Lagged percentage of independent female/woman directors on board

  FAC

Dummy variable of the Audit committee

Assigned a value 1 if the audit committee has 1 or more female/woman director, otherwise 0

  FD TENURE

Dummy variable of female/woman directors' service tenure

Used as a proxy of female/woman experience. Assign value 1 if a female/woman director has more than 8 years of service tenure, otherwise 0

  FD1

Firms with only one female/woman director

Used as a proxy of tokenism. Assign value 1 if a firm has only one female/woman director, otherwise 0

  FD2

Firms with three or more female/woman directors

Assigned value 1 if a firm has two or more female/woman directors, otherwise 0

Independent variables

  HHI

Herfindahl–Hirschman Index. It is used as a proxy for product market competition (PMC)

It was calculated as the sum of the squared market share

  HHI1 t-1

Previous year competition

Firm’s competition with a lag of one period

  CR4

Four-firm concentration ratio also used as an alternative proxy of competition in the addition test section

Four-firm concentration ratio, calculated as the sum total market share of the four firms with the largest market share for each industry (classified by the two-digit GICS codes) and each year

  BODSIZE

Board size

Total number of directors in a board

  BODIND

Board independence

Measured by the proportion of independent directors on the total board

  CEODUAL

CEO duality

CEO was set equal to “1” if the role is held by the same individual and “0” otherwise

  CEOTENURE

CEO Tenure

Measured as the absolute number of years of CEO tenure

  OWNCON

Ownership concentration

Measured as the percentage shares owned by substantial shareholders

  ROA

Return on assets

It was measured by dividing net income by total assets

  LFSIZE

A natural log value of firm size

It was measured by total assets

  LEVERAGE

Firm’s leverage

This is the ratio of total debt to total assets

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Salma, U., Qian, A. Determinants of firm’s holding female directors: evidence from Australia. Asian J Bus Ethics 10, 245–273 (2021). https://doi.org/10.1007/s13520-021-00129-8

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s13520-021-00129-8

Keywords

Search

Navigation