Where are the Women? Board Decisions and Female Director Location

Abstract

Using the addresses of over 4,000 directors on the boards of S&P 1500 firms, we document that female board members tend to live closer to large metropolitan areas than do male board members. Nearly 53% of the female directors in our sample reside in five metropolitan areas. The combined statistical area of Washington DC/Baltimore/Arlington by itself accounts for nearly 21% of all female directors. In contrast, only 36% of male directors reside in the top five metropolitan areas. We hypothesize that this geographic clustering constrains the supply of qualified female board members who can be located close to corporate headquarters. Consistent with this hypothesis, we find that, in most regions of the U.S., women directors tend to reside farther than male directors from corporate headquarters. We also hypothesize that the differences in geographic distances from corporate headquarters will influence how female and male directors use information. To test this hypothesis, we examine whether director location and gender diversity affect board decision-making. We find that gender-diverse boards rely more heavily on stock price performance when determining CEO compensation and when deciding whether to dismiss the CEO. However, these effects largely disappear when we control for directors’ geographic distance from headquarters. Moreover, we find a positive stock price reaction to public announcements of female director appointments when these female directors are proximate to headquarters. We do not document a reaction to the appointment of distant female directors or male directors. Thus, the geographic remoteness of female directors, rather than gender-based differences in monitoring per se, can explain why gender-diverse boards are tougher monitors. More generally, our results suggest that it is important to consider local supply constraints created by geographic clustering when evaluating the effects of gender diversity on the operations of boards of directors.