The Differential Impact of Risk Preferences of Board on Ownership Decisions in Foreign Acquisitions

Abstract

Drawing on gender role theory and the information economics perspective, we aid in contributing to the ongoing debate of the risk preferences of female directors. Thus we distinguish between types of risk and take the position that the concept of risk is not a monolithic one. By decomposing acquisition risk into ex-ante and ex-post hazards, this cross-national study investigates how female representation on acquirers’ boards affects the level of ownership in foreign acquisitions. We further test how the relationship is moderated by institutional distance. Using a sample of 1,118 firm-year observations in 48 countries from 1997-2016, we find that greater female representation is associated with lower levels of ownership. We also find that institutional distance between home and host countries magnifies this relationship. Our findings support our arguments that female directors prefer different types of risk than their male counterparts, which drives choices about the appropriate level of ownership. We challenge the assumption of rational-risk assessment and unidimensional risk attitudes of female directors, offering unique theoretical implications. Recognizing that the presence of female directors influences the type of preferred risk in acquisitions provides insights that may help match board composition to the optimal risk profile of a firm.