Abstract
We investigate whether female board representation affects investment efficiency at Korean publicly traded companies from 2006 to 2014. We find a positive association between female directorship and investment efficiency. For a subsample of firms that are classified into over- and under-investment groups, we find that the subsample of firms with female directors is less likely to over-invest compared to the group without female directors. This implies that female directors’ risk-aversion, conservatism, and prudence affect investment efficiency by reducing over-investment rather than reducing under-investment. Other robustness tests corroborate our conclusion that female directors help to improve investment efficiency.
Highlights
We investigate whether female directors serving on corporate boards are associated with investment efficiency in publicly traded firms in South Korea
We explore the direction of improvement and test our second hypothesis concerning whether female directors improve investment efficiency at firms that are more prone to over-invest
Intercept female director (FEMALE) SIZE MB LEV FreeCF CFO_SALE ROA standard deviation of cash flows from operations (SD_CFO) standard deviation of changes in sales (SD_SALE) SD_INV TANGIBILITY AGE BOD_SIZE inverse Mills ratio (IMR) Year fixed effect Industry fixed effect Adj_R2 Observations. This table reports the results of hypotheses 1 and 2 after incorporating the Inverse Mills Ratio (IMR) from the Heckman (1979) two-stage analysis; *, **, and *** denote significance at the 10, 5, and 1% levels, respectively; standard errors are adjusted for firm-clustering; all variables are defined in Table 2 association between female board directors and investment efficiency demonstrated in Tables 5 and 6 stems from the consideration that the voices of women directors will help reduce over-investment, rather than under-investment
Summary
We investigate whether female directors serving on corporate boards are associated with investment efficiency in publicly traded firms in South Korea (hereafter, Korea). Market participants and regulatory bodies are working to assign more board seats to female directors and are currently in the process of passing legislation on a gender quota requirement, affecting Korean firms. This study focuses on Korean firms because much of the previous discussion draws on theories and data from advanced economies and cultures that generally advocate gender equality, which may not extend to the strong male-centered business environment in Korea. The chaebol-driven business environment sets Korea apart from other advanced economies, offering a unique context in which to explore how female participation at the board level affects investment decisions, as relatively less is known about how gender affects corporate decisions in.
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