Abstract
Given the ongoing demand for gender equality in business leadership and the scarcity of literature on private firms, this thesis explores the impact of board gender diversity on the observable outcomes of private firms. Using empirical methods to analyse a large pool of private firms from the United Kingdom (UK), this thesis examines the following research questions:
• Chapter 2: How does board gender diversity affect private firm performance?
• Chapter 3: What is the association between board gender diversity and private firm risk?
• Chapter 4: What is the relationship between board gender diversity and private firm capital structure?
Chapter 2 examines the association between board gender and private firm performance. The relationship is estimated using pooled multivariate regressions for an unbalanced panel dataset of 115,253 firm-year observations (26,046 unique firms). The baseline findings suggest that younger, less busy, local women directors enhance private firm performance. Firms with 40% or more women directors report triple the economic benefits compared to boards with at most 20% women directors. Considering the firm size, women directors significantly increase small firm profitability, and the effect is more pronounced for high-risk firms. Greater board gender diversity enhances small firm performance, as the monitoring role of women directors benefits the firm even in the presence of busy men directors. Consistent with agency theory, women directors improve small firm profitability in the presence of agency costs. The results point to the need for private firms to increase board gender diversity and consider women directors’ busyness, age, nationality, and firm size when making board director appointments.
Chapter 3 extends the understanding of women on boards by investigating the effect of board gender diversity on private firm risk. The analysis draws on a sample of 26,045 UK private firms for the period 2005–2017. Consistent with the risk-averse role of women, the main result indicates a negative association between board gender diversity and firm risk. Additional tests report no evidence of a critical mass effect, as even a token percentage of women directors (as low as 20%) can reduce firm risk. Further analysis shows that lower director busyness in gender-diverse boards is the channel that enables women directors to reduce firm risk. Less busy women directors are able to direct more attention to fiduciary responsibilities. Additional analysis reveals that more risky, small to medium-sized firms benefit the most from gender-diverse boards in terms of firm risk. Considering women director nationality, firm risk is lower (higher) for boards with local (foreign) women directors, as local market knowledge is more valuable for private firms. These results complement the findings of chapter 2 and further confirm the need for private firms to increase board gender diversity.
Chapter 4 investigates the effect of women directors on private firms’ capital structure using 25,564 UK firms. Baseline models show that women directors reduce short-term debt but increase retained earnings. Further analysis reveals that women directors have a significant effect when the board constitutes a critical mass of 20% or more women. Subsample analysis indicates that women directors’ positive effect on internal equity is significant for all subsamples. But women directors decrease leverage in medium and large firms and are associated with less short-term debt for medium firms only. Moreover, women directors decrease short-term debt for low-risk firms, whereas their impact on retained earnings is greater for riskier firms. They reduce leverage and short-term debt and increase internal equity for the duration of the sample period except during the global financial crisis (GFC) from 2007 to 2009. Moreover, their positive impact on internal equity is present across both concentrated and dispersed ownership structures. Overall, results indicate that the risk-averse nature of women directors is reflected in their choice of financing sources, but their impact is dependent on firm size, risk, and ownership type. I also find characteristics of women directors such as age, tenure, busyness and nationality have considerable impact on the firm capital structure choice. Endogeneity tests provide mixed results.
The results of the thesis are robust to alternate measurements. To address endogeneity concerns, the models are estimated using (i) the Heckman (1979) correction for self-selection bias; (ii) instrumental variables; (iii) three-stage least squares; and (iv) propensity score matching. A key recommendation from this work is that privately-held firms need to adopt board gender diversity policies to increase women directors’ representation over time. Special attention should be given to the firm size, risk, and attributes of women directors.
Despite playing a critical role in the economy and being fundamentally different to publicly listed firms (Brav, 2009), private firms are largely absent in the mainstream research literature due to challenges of data acquisition. This work contributes to the scarce existent literature on private firms and extends understanding about gender-diverse boards that particularly benefits private firms. This thesis also highlights topics for future research. In particular, more work needs to be undertaken to increase knowledge concerning the impact of women directors in a multi-country setting of private firms.