Abstract
In recent years, the composition of boards, particularly the appointment of female directors to the boardroom has attracted significant political and social debate. Despite several studies that have examined links between the representation of women on boards and the corporate performance, research on the board gender diversity in merger contexts is limited. We assess whether the presence of women on corporate boards affects merger and acquisition (M&A) performance. Using acquisition bids by public Canadian companies during 2012-2017, we find that an increasing number of female directors in acquiring companies is associated with an enhanced merger performance and a reduced bid premium. After controlling for gender diversity on executive teams, the value added by having women on boards is particularly noticeable when acquiring firms have few women in the executive teams, and where overconfidence is prevalent. Thus, there is a substitutive relation between gender diversity on the board and gender diversity on the executive team.
Highlights
Most studies have found merger and acquisition (M&A) performance less than encouraging
We argue that gender-diverse board keeps firms away from these risky decisions that impair firm value, and hypothesize that: Hypothesis 2 (H2): Female board representation is positively related to the acquiring firm performance when the proportion of female executives is low
Our results show that the mean cumulative market model abnormal returns (CAR) to acquiring firms obtained in the eleven-day window around the announcement date (-5, +5) is positive and significant (1.3%, p < 0.01)
Summary
Most studies have found merger and acquisition (M&A) performance less than encouraging. In an M&A context, managerial overconfidence/hubris leads to an overly optimistic view of the synergy, resulting in frequent M&A, high bid premium, and thereby in poor performance for the acquiring firm (Roll, 1986; Hayward & Hambrick, 1997; Hayward, 2007; Harford, Humphery-Jenner, & Powell, 2012; Claxton, Owen, & Sadler-Smith, 2013; Zollo & Meier, 2008). We provide new evidence adding to the finding by Levi, Li, and Zhang (2014), and Chen, Crossland, and Huang (2016) on an association between gender diversity and corporate decisions These papers are among the few works examining the effect of board gender diversity on M&As’ characteristics.
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