In recent decades, the focus on women on boards has grown significantly. Significant legislative changes have been made in many countries to achieve a fixed percentage of women on boards.
In the EU, the proposal came in June to require at least 25 percent women on the boards of large companies. It is already happening in countries like Australia, Canada, India and Brazil.
Also in the United States, the number of female leaders has grown steadily over the past twenty years, while agreements on women quotas there are still voluntary. It can be concluded from this that companies have also become aware that it is ethically appropriate and socially responsible to have more women at the top.
Previous research has shown that female managers mainly have above-average audit qualities. But it is not enough to state that women’s supervisory abilities are generally better than men’s. New research led by Alaa Mansour Zalata of Southampton Business School shows that women’s financial background on boards is crucial.
In the study, Alaa Mansour Zalata, Collins Ntim, Mostafa Hussien Alsohagy and John Malagila state that women are not only more aware of administrative opportunism, but are also better at combating it. This seems to be very much dependent on a solid financial background. It is crucial, for example, to supervise the companies’ financial reporting, the researchers conclude.
Women are often considered a homogeneous group in such studies, but it gives a distorted picture. The differences can be large in economic background alone. According to the researchers, it is too short-term to only look at women’s quotas if one is not aware of their specific qualities, such as financial supervision.
Profit management with tires
Using a sample of U.S. companies, the researchers found evidence that the presence of female executives is associated with less profit management – the active impact of profits from a company’s management. This is especially true of female directors with a solid financial background: female directors without that background were hardly better able to keep unwanted profit management in check.
To study the financial background of female managers, the researchers used the database ISS (formerly RiskMetrics). Since 2007, data on the financial background of managers has been available. The sample therefore runs from 2007 to 2013. They obtained the necessary financial data from the annual Compustat file.
Further analyzes show that there is a correlation between the financial expertise of the female board members and their accumulated experience in the company: Women with a relevant financial background benefit even more from long-term employment relationships. The experience within the same company has far less influence on the performance of female directors without the financial background.
Points of departure for politics
The study adds to and expands the political discourse on gender diversity, the researchers say. The results suggest that the mere presence of female directors does not necessarily lead to greater profitability. In addition to introducing female quotas on boards of directors, it is also crucial to assess the relevant financial background when hiring female directors.
On average, women are more motivated to tackle management opportunism. But without the right financial skills, it often turns out to be impossible in practice. This is necessary, for example, to be able to read accounts properly. Therefore, it is advisable for companies to take a good look at the background of female directors.
The results of the survey provide important starting points for politicians and politicians in countries that work or want to work with women’s quotas. By taking into account women’s financial background, one really contributes to gender equality and a good balance in the boardroom, the researchers believe.
There is a need for further research into the precise effect of financial background on the performance of the Board of Directors. The ISS database used for this study does not provide sufficient insight into this. In addition, it is not clear whether the results can be translated one-on-one to other countries or other time periods. Therefore, it will be good if future studies provide new insights from consulting firms from different contexts and countries, and over different or more time periods.
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