Do the Quota Applications for Women on Boards Improve Financial Performance

Abstract

In the context of corporate governance principles, governments set regulations to increase the sustainable representation of women on boards. This paper seeks to answer the question of whether or not the application of compulsory or voluntary quotas for female board members improves firm performance. Based on difference analyses on the 2011 principles of the Capital Markets Board (CMB), we do not find significant differences between the companies with at least one female member on their board and those without any female board members in terms of financial performance indicators (return on asset (ROA), return on equity (ROE), market value/book value (MV/BV)). Based on difference analyses on the 2014 principles of the Capital Markets Board, we further find that the ROA of the companies with 25% and more female members is lower than the companies with <25% female members. These results don't support the arguments of agency theory, because government regulations including the efforts of women to increase their representation rate on the board in a sustainable manner don't improve the accounting-based and market-based performance indicators of companies. If the company is successful, a quota for women cannot be imposed, because the obligation may result in a negative effect. Policymakers and practitioners may benefit from the knowledge that women may be improved and prepared for these positions and be accompanied with mentors before filling the compulsory or voluntary quota for women. It is not enough to increase the rate of women. The policy implication of the paper is that women must be equipped with the resources, authority, knowledge, and skills to perform well. Author Contributions: This article is the result of the joint efforts of the authors, who equally contributed to the work. Conceptualization, S.Y., and C.M.; Data curation, C.M.; Formal analysis, S.Y. andİ.T.B.; Investigation, Ö.S.; Methodology, S.Y. and Ö.S.; Supervision, S.Y. and C.M.; Validation,İ.T. and Ö.S.; Visualization, S.Y., C.M.,İ.T.B. and Ö.S., Writing-original draft, S.Y. and C.M.; Writing-review and editing,İ.T.B. and Ö.S. Funding: This research received no external funding. Conflicts of Interest:The authors declare no conflict of interest.

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“…The first consisted in introducing as independent variables lagged financial performance variables (1 year lag for ROA and Tobin's Q), because managers and investors may adopt strategies based on past performance that may affect future performance [72]. In the second modification, an alternative accounting measure of financial performance was used-return on equity (ROE)-computed as the ratio of net income to equity [41,42,53,68,70]. The results, presented in Appendix B, in Tables A2 and A3, respectively, do not change the previous conclusions regarding the effect of gender diversity on financial performance.…”

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