Do the Quota Applications for Women on Boards Improve Financial Performance

Sebahattin Yıldız,Önder Sakal,İlknur Taştan Boz,Cebrail Meydan

doi:10.3390/su11215901

Sebahattin Yıldız, Önder Sakal + Show 2 more

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https://doi.org/10.3390/su11215901

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Abstract

In the context of corporate governance principles, governments set regulations to increase the sustainable representation of women on boards. This paper seeks to answer the question of whether or not the application of compulsory or voluntary quotas for female board members improves firm performance. Based on difference analyses on the 2011 principles of the Capital Markets Board (CMB), we do not find significant differences between the companies with at least one female member on their board and those without any female board members in terms of financial performance indicators (return on asset (ROA), return on equity (ROE), market value/book value (MV/BV)). Based on difference analyses on the 2014 principles of the Capital Markets Board, we further find that the ROA of the companies with 25% and more female members is lower than the companies with <25% female members. These results don’t support the arguments of agency theory, because government regulations including the efforts of women to increase their representation rate on the board in a sustainable manner don’t improve the accounting-based and market-based performance indicators of companies. If the company is successful, a quota for women cannot be imposed, because the obligation may result in a negative effect. Policymakers and practitioners may benefit from the knowledge that women may be improved and prepared for these positions and be accompanied with mentors before filling the compulsory or voluntary quota for women. It is not enough to increase the rate of women. The policy implication of the paper is that women must be equipped with the resources, authority, knowledge, and skills to perform well.

Highlights

The representation level of women on boards is low [1]
When the literature indicating that board diversity has a significant role in the success of the companies is taken into consideration [8], it is important to examine the correlation between the composition of the board and the performance of the company, especially quota applications
The gender diversity on the board and the board size were used as independent variables; on the other hand, the return on asset (ROA), return on equity (ROE) and the market-to-book value ratio (MV/BV) of the companies were used as dependent variables

Summary

Introduction

The representation level of women on boards is low [1]. the governments have started to make compulsory or voluntary recommendations and arrangements to improve sex discrimination in recent years [2,3,4,5]. Known corporate scandals such as Enron and WorldCom, as well as the failure of the financial institutions such as Lehman Brothers, have shaken trust in large corporations and brought up discussions about the corporate governance, especially the role and compositions of the boards [9]. In this context, some countries have introduced new corporate governance laws, while other countries have focused on the diversity of boards, especially gender diversity. The role of women on boards has gained more importance [10]

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