Do Women and Ethnic Minority Directors Influence Firm Value? Evidence from Post‐Apartheid South Africa

Abstract

Previous studies on the value relevance of board gender and ethnic diversity have produced mixed results. This paper re-examines this relationship using hand-collected data of 245 South African listed firms over the period [2008][2009][2010][2011][2012][2013]. We document a positive and significant effect of both board gender and ethnic diversity on firm value. We also find that the increase in firm value is greater when boards have three or more women directors. In contrast, ethnic minority directors contribute less to firm value when there are three or more on the board. Furthermore, we document that ethnicity has a concave relationship with firm value, but gender does not. We demonstrate that in better-governed firms, ethnic diversity is more value relevant than gender diversity. Our results also suggest that financial crisis is associated with the propensity to restructure boards along gender and ethnicity. This paper sheds new light on the effect of board diversity in South African firms as the government increasingly pursues policies aimed at eradicating the effects of apartheid. Our results are robust after controlling for self-selection and various forms of endogeneity.

Trustee board diversity, governance mechanisms, capital structure and performance in UK charities

“…Empirically, the negative link between TGD and CS is empirically supportive of the results of previous studies (e.g., Adams & Ferreira, 2009;Elmagrhi et al, 2016;Gyapong et al, 2016;Ntim, 2015;Terjesen et al, 2015), which suggest that gender-diverse boards are associated with better monitoring over management, and thereby reducing agency problems that are often associated with managers having access to large free cash flows.…”

“…Additionally, Delis et al (2016), Gyapong et al (2016) and Ntim (2015) argue that organisations with more women and ethnic minorities on their boards may be better place to improve FP by monitoring managers more closely. This implies that charities with gender/ethnically diverse boards may not need to employ higher levels of leverage in order to monitor and encourage trustees to act in line with stakeholders' interests.…”

“…Further, and from legitimisation perspective, board diversity can enhance organisation's reputation/image by increasing public accountability and confidence (Loukil & Yousfi, 2015;Ntim & Soobaroyen, 2013;Sila et al, 2016;Terjesen & Sealy, 2016). In contrast, TBD can increase managers' power and influence over board decisions by appointing a few women and ethnic minorities mainly for symbolic reasons (Estelyi & Nisar, 2016;Gyapong et al, 2016). In this case, charities with a token gender/ethnic representation may need to use more debt in order to reduce opportunistic behaviour of managers that may arise from potential poor managerial monitoring.…”

“…However, prior studies suggest that TBD (gender and ethnic diversity) impacts positively on FP (e.g., Borghesi et al, 2016;Carter et al, 2003;Delis et al, 2016;Estelyi & Nisar, 2016;Gyapong et al, 2016;Ntim, 2015;Terjesen et al, 2015), voluntary CG disclosure (AlBassam et al, 2016;Elmagrhi et al, 2016;Abdulrahman et al, 2017;Elamer et al, 2017), audit quality (Gul et al, 2008), board monitoring (Triana et al, 2013), board meetings (Adams & Ferreira, 2009), dividend payout (Byoun et al, 2013), risk disclosure and social responsibility (Barako & Brown, 2008;Brammer et al, 2007;Ntim & Soobaroyen, 2013;Haque & Ntim, 2017), but negatively on executive pay (Gregory-Smith et al 2014;Newton, 2015;Ntim et al, 2015Perryman et al, 2016) and earnings management (Elghuweel et al, 2017). Observably, none of these studies relate to the charity sector and therefore, highlighting the lack of evidence.…”

“…First, and following prior studies (Calabrese, 2011;Rosen & Sappington, 2016;Sheikh & Wang, 2012), the ratios of long-term debt, short-term debt and total debt to total assets are our main dependent variables (CS). Second, our main independent variables are trustee board gender (TGD) and ethnic (TED) diversity and they are measured following prior studies (Gyapong et al, 2016;Liu et al, 2014) using: (i) the percentage of women/ethnic minorities on the trustee board; and (ii) a dichotomous variable of presence (1) or absence of (0) of women and ethnic minorities on charity boards. Finally, and in order to address possible omitted variables bias (Gujarati 2003), we added a number of control variables that may affect CS.…”