Divestitures and the proportion of women on firms’ boards: The effect of shareholders and visibility

Abstract

This study examines whether and when divestitures impact the gender composition of the divesting firm's board. Building on agency theory and the potentially different interests of shareholders and board members, we argue that the proportion of female directors decreases when firms divest, especially with an increase in ownership by the largest shareholder, who may experience self-interested decision-making and attributional bias. In contrast, the proportion of women on a board may increase for highly visible firms as a result of public scrutiny and legitimacy-enhancing efforts. Using data on 465 divesting and non-divesting US-based firms matched with board information over the 2000–2019 period, we find a negative relationship between divestitures and firms' female board representation. Our results also suggest that divestitures impact boards' gender composition with outcomes that depend on firms' ownership structure and external visibility.