Board Gender Diversity, Family-Connected Directors and Firm Value

Abstract

The problem that plagues Indian family-controlled firms is expropriation of minority shareholders by majority shareholders. Gender quota legislation that mandates appointment of at least one female director without specifying the director type as “independent” exacerbates this principal-principal agency problem. This study investigates the effect of family-connected female directors on the performance of family-controlled firms. Using a large sample of 978 publicly listed Indian firms spanning the period 2013-2016, we find some novel results. First, we show that the presence of family-connected female directors has a negative impact on firm performance. Second, we show that the presence of independent female directors has a positive impact on firm performance. We also show a positive association between board gender diversity and firm performance. In additional analysis, we find that the increasing presence of family-connected directors has a negative impact. Taken together, our findings contribute to the growing literature on board gender diversity, especially in emerging markets where boards are perceived to be ineffective monitors.