Corporate opacity and effectiveness of independent female directors

Abstract

Research shows female directors are associated with proxies for improved monitoring, yet finds mixed results as to their effect on firm performance. Hypothesizing that their performance impact depends on the firms' information environment, we find that independent female directors have a negative (positive) effect on performance in opaque (transparent) firms, an effect which is incremental to that of independent male directors. We then explore the channels which drive this finding. The standard measure of the information environment considers opacity from the view of external parties such as analysts and investors. However, independent directors have greater access to information than external parties. Consequently, we investigate whether additional data sources, if they exist, mitigate the impact of “external” opacity on the effect of independent female directors on firm performance. We find that when independent female directors have greater access to information either from sources inside, e.g., an independent board chair, or outside, e.g., a large network, the firm, their negative effect on performance in opaque firms dissipates. Investigating their positive impact in transparent firms, we find that independent female directors decrease both discretionary accruals and the likelihood of an Accounting and Auditing Enforcement release.