Gender diverse board of directors in Belgium : the effects of having at least one female director in private companies

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Gender Diverse Board of Directors in Belgium

The effects of having at least one female director in private companies

University of Amsterdam Supervisor: Dr. C. Gelhard

Second Reader: Michelle Westermann-Behayo Final – 24 June 2016

Student: Margaux Lourtie Student ID: 11086963

MSc Business Administration Track: International Management

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STATEMENT OF ORIGINALITY

This document is written by Margaux Lourtie who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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ABSTRACT

The effects of gender diverse board of directors remain a topic often studied, as the findings stay mitigated. The purpose of this research is to find out if the presence of at least one female director on boards has effects on a firm performance, investment rate, and number of female employees. Additionally, it aims to find out if the types of industry and the culture of the regions influence the effects generated by boards having at least one female director. In a sample of 198 private Belgian firms coming from three different industries, a positive relationship, based on the parameters of estimation, was find between boards with at least one female director and the number of female employees for companies from the food and pharmaceutical industries. These results suggest that in the food and pharmaceutical industries, companies having at least one female director on boards tend to have more female employees, than boards without female directors.

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TABLE OF FIGURES AND TABLES

Figure 1: Cultures’ comparison ... 24

Figure 2: Schematic representation of the hypotheses ... 27

Table 1: Industries' ANOVAs ... 33

Table 2: Regions' ANOVAs ... 33

Table 3: Characteristics of the BOD composition, industries, and regions ... 35

Table 4: Detailed characteristics of the BOD composition, industries, and regions ... 36

Table 5: Frequencies' of the independent and dependent variables ... 36

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1 INTRODUCTION

Today’s societies see an increase in the women’s education level as well as in the number of female graduates, and yet gender disparity remains strongly present in the workforce. Gender inequalities are everywhere, from sport teams to classrooms, all the way up to the board of companies. Indeed, men have always occupied more seats than women on boards. Still today, it is common to find boards composed of only male directors, as if they do not want to get rid of their so-called nickname “the old boys club” (Singh, Terjesen, & Vinnicombe, 2008). The presence of women on boards can be considered recent, as it is not until 1985, that companies began to appoint their first female directors. Yet, women have been on board of directors since 1900. Indeed, it is in 1900, more than 100 years ago, that Clara Abbot obtained a seat on the Abbot Laboratories company board and became the first female director ever. 34 years later, Coca-Cola appointed Lettie Pate Whitehead, whom became the first female director of a notorious and prominent company. However, the presence of women on boards can depend on the culture and laws of a country as they affect how women, and other minorities, are perceived. Women from western countries have different roles and rights than women from eastern countries, and vice versa. Female employees will have more chance to be promoted and become directors in countries that support and respect equal rights between men and women. Numerous countries have already strengthen their position on equal rights by creating and implementing legislations, with or without quotas, to enforce the presence of women on board of directors. The Netherlands, France, The United Kingdom, Spain, Portugal, Germany, Australia and more have implemented legislations concerning the presence of women on board of directors. Even Japan, a country in which women are seen as the family and house keeper, started the implementation of a law in 2013 facilitating the

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augmentation of female directors. However, the European Nordic countries are leading the rest of the world having the highest representation, 32,5%, of women on their boards, with Norway at the top seat. Norway created its legislation in 2006 requiring all the public and state owned companies to have at least 40% of women on boards. Today, Norway has the highest percentage, 36-40%, of female directors in the world. Belgium was a late mover, compare to other European countries, concerning

the implementation of a law. It is only on July 28th, 2011 that Belgium implemented a

law to increase the number of women on boards of directors. The July 28th, 2011 legislation stimulates that by 2018 all the public and listed companies, as well as the National Lottery in Belgium should have a minimum of 33% of gender diverse directors present on board. Since the implementation of the law, the percentage of women directors in the companies listed on the BEL20 went from 11% in 2011 to 20% in 2013. An increase in female directors is observed in Belgian listed companies due to the July 28th, 2011 legislation.

The goal of this research is to find out if, in Belgium, boards with at least one female director affect their companies’ outcomes (performance and investment rate) and their number of female employees.

The first step of the research is to determine if there exist significant differences of the effects between boards with at least one female director and the boards without female directors on companies’ performances, investment rates, and number of female employees in 198 companies in Belgium.

The second step consists to determine if there exist significant influences depending the type of industry on the effects of gender diverse board of directors on companies’ performances, investment rates, and number of female employees.

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Finally, the last step of this research consists to find out if there exist significant influences depending the culture of the region where the companies are located on the effects of gender diverse boards of directors on companies’ performances, investment rates, and number of female employees.

With this research, I hope to demonstrate that, in Belgium, having at least one female director on boards has significant effects on the companies’ outcomes (performance and investment rate) and their number of female employees. In addition, a question rise from this research: do the different Belgian regions and type of industries significantly influence the effects on performance, investment rate and the number of female employees generated by the presence of at least women on boards?

In this master thesis, you will first find a literature review containing the conceptual framework. It will be followed by the methodology part explaining each of the variables as well as the analytical methods. Next, you will find the results with both the descriptive and the statistical analysis. Finally, the findings, limits and future researches will be discussed. A conclusion will wrap this thesis.

2 LITERATURE REVIEW

2.1 Board of directors

For decades, boards of directors consisted of white males over the age of 40 years old with similar education, and background. (Singh, Terjesen, & Vinnicombe, 2008) There was no gender, race or ethnicity diversity. In order to respond adequately and stay up to date to the changes in the world, the boards of directors had to become more diversified. More sectors were created, different corporate governance emerged, and with the human and equal rights constantly evolving and improving, the boards

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had no other choice than to redefine and reorganize their compositions over the years. (Terjesen, Sealy, & Singh, 2009) A lot of previous researches studied the effects and consequences of having diverse board of directors. The board of directors kept the same roles, such as monitoring, implementing strategy and service (Ruigrok, Peck, & Keller, 2006; Pearce & Zahra, 1992), and functions throughout the years, but its composition changed over time. Nowadays, establishing diverse board of director can be easier or more difficult depending of the culture (subculture) of the company’s location.

2.1.1 The roles of the board of directors

The directors on boards have several roles and functions to complete. In addition of making important business decisions, it is agreed that the boards have three interdepended roles: monitoring and controlling, strategy, and service. (Ruigrok et al., 2006; Pearce & Zahra, 1992) The first role, monitoring, consists of controlling the senior executives. Monitoring involves selecting and terminating (dismissing) the top managers, the CEO and the future employees. (Ruigrok et al., 2006; Pearce & Zahra, 1992) The selection process of future candidates for the board of directors has changed throughout the years. At first, only male were considered for a position on the boards. Today, the boards are looking for any potential candidates with several specific criteria, such as human capital characteristics (Johnson, Schnatterly, & Hill, 2012), that would bring extra value to the boards. (Van den Berghe & Levrau, 2004). Monitoring also involves valuing and rewarding their performances, overseeing internal and external auditing, and creating compensation packages. (Ruigrok et al., 2006; Pearce & Zahra, 1992) In addition, boards use their role of controlling in order to minimalize agency cost by aligning the interests of both the shareholders and the senior executives. (Pearce & Zahra, 1992) The second role of the board is to define,

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select and apply corporate strategy. (Ruigrok et al., 2006) The board strategic role includes involving the directors to define the firm’s business concept, creating a company mission statement, and choosing and implementing the strategies of the company. The purpose of the strategic role is for the directors to improve the competitive position of their firm in order to increase the capital of the shareholders. (Pearce & Zahra, 1992) In addition, the strategic role is making sure that firms follow the specific strategies chosen to pursue their goals. (Pearce & Zahra, 1992) The third role, service, includes the boards signifying the company’s interest in the community (Pearce & Zahra, 1992), linking their firm with their external environment and developing the company’s legitimacy through ceremonial functions such as contributing in company’s functions or overseeing the shareholders’ meetings. (Ruigrok et al., 2006; Pearce & Zahra, 1992) Through these service activities, “directors enhance a company’s identity, reputation, commitment to mission and standing in the community and ensure company survival.” (Pearce & Zahra, 1992, p.412)

2.1.2 The composition of the board of directors

The board of directors used to be composed of only old men that were also referred to as the “old boys club” (Singh et al., 2008, p.49). The composition is now changing as it become more diversified. The composition of the board is extremely important as it impacts the deliberation and decision making of the directors (Pearce & Zahra, 1992) as well as determines “the ability of directors to exercise controls over top management in order to protect shareholders’ interest and impacts directors’ ability to provide strategic direction and performance.” (Pearce & Zahra, 1992, p.411) The board composition refers to its size, number of directors (Pearce & Zahra, 1992) and the type of the members, insider versus outsider members. (Johnson et al.,

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2012) It also includes the human capital characteristics of the directors such as their experiences and skills (Johnson & al., 2012; Dunn, 2012), as well as their demographic and social capital characteristics. (Johnson et al., 2012)

The size consists of the number of directors on the boards. Both small and large boards have different effects on the directors’ decisions making. Increasing the number of directors on boards provides a larger team of expertise. Large boards of directors have access to more knowledge, experiences and skills. In addition, large boards have more power on decision making as they have the ability to diminish the power of the CEO on making decision. (Van den Berghe & Levrau, 2004) Larger boards also have a higher ability to create relations with business partners. (Ruigrok et al., 2006) On the other side, smaller boards of directors are easier to manage. There are less chances to have disputes between directors, and it is easier to organise meetings, which results in higher attendance. This also means that smaller boards are faster in decision-making. (Ruigrok et al., 2006)

Boards are composed of insider and outsider directors. Insider directors are related to the company as being both employees of the company and members of the top management team. (Pearce & Zahra, 1992) As current members of the company, insider directors are not new to the members of the board. The current board members know the insiders’ skills, experiences and the potential resources they will be able to add to the board. On the other hand, outsider directors are not associated to the company and can either be affiliated or non-affiliated (independent) directors. (Pearce & Zahra, 1992) Affiliated outsider directors are often former executive or companies’ consultants. They are related to the companies, but are not members of the top management team or employees of the company. (Pearce & Zahra, 1992) Non-affiliated outsider directors, also called independent directors, are recruited for their

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experiences, skills and reputation. They bring extra value from outside of the company that is indispensable for the success of the firm. (Pearce & Zahra, 1992)

Composition can also refer to the demographic, human capital and social capital characteristics of the directors. Demographic characteristics consist of the features of directors including their age, education background, gender, and ethnicity and race, all influencing the boards’ decision making, cognition, and dynamics. (Terjesen et al., 2009) The age of the directors is an indicator of their experience in the business and their cautious way to make decisions. The education background of the directors influences their decision-making, and having gender diversified board of directors is thought to bring extra value on the board (Terjesen et al., 2009), as well as to affect the firm outcomes, the board reasoning, and the decision making process. (Johnson & al., 2012; Terjesen et al., 2009) Experience, personal values and skills are human capital characteristics that will influence the directors during the decision-making processes of the board directors. (Johnson & al., 2012) Human capital characteristics can be the knowledge of directors on a particular type of industry as well as their experience in an industry. It can also be that they have experience as a CEO or in finance and venture capital. In addition, it can be that they are experienced with specific activities and responsibilities such as firing a CEO or supporting new acquisitions. (Johnson & al., 2012) Human capital characteristics of directors are influencing the board activities as the experiences and skills of the directors affect the way they make decisions. (Johnson & al., 2012) Social capital characteristics on the other hand are characteristics that can influence how directors work as well as the whole board together. Social capital characteristics can be the ties that directors have to other firms or the personal relationship directors have with the firm manager. It can also be the social standing of the directors, their reputation, and status in the firm.

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Such characteristics will affect the way directors make decisions as well as their suggestions and recommendations. (Johnson & al., 2012)

2.2 Belgian Legislation

The Belgium legislation concerning a quota for gender diverse board of

directors is really recent. On July 28th, 2011, Belgium modified the March 21st, 1991

law and administrated a quota for gender diverse board of directors in order to

guarantee the presence of women on boards. The July 28th, 2011 law stipulates that at

least one third of the directors on boards have to be from the opposite gender than the other members. This new quota only applies to listed and public companies, as well as to the National Lottery. Private Belgian companies do not have to follow the July

28th, 2011 quota law yet. Each big company has six financial years in order to apply

and respect the new law, while smaller companies have eight financial years. Smaller companies are characterized as having less than 250 employees, balance sheets lower or equal to 43.000.000 euros, and sales revenues lower or equal to 50.000.000 euros. In addition, starting from January 1st, 2018 (big companies) and from January 1st, 2019 (smaller companies), the companies will have to mention the efforts they made and are still making in order to apply the new quota legislation in their annual reports.

If the company does not respect the July 28th, 2011 quota law, all the current directors

will see their advantages, both financial and others, suspended. The members of the boards will receive their advantages back once the law is correctly respected. The impact of the law concerning the quota of women directors will be evaluated in 2023, or respectively 12 years after its implementation. (Moniteur Belge, 2011)

2.3 Gender diverse boards of directors

The effects of gender diverse board of directors are a topic often researched, as the findings stay mitigated. Researches were made all around the world focusing

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on firms from Denmark, UK, Switzerland, and USA (S&P 1500). All the researches are leading to different outcomes. Some of them are finding positive relations/effects between gender diverse board of directors and performances, while others are finding negative or no relations at all. Other researches like the one conducted by Johnson et al. (2012) are finding different outcomes, on top of performance, affected by gender diverse boards. They suggest that the presence of women on boards increases the attendance at meetings, and decreases the number of crises within the board (Johnson et al., 2012). On the other hand, researches about gender diverse board of directors and their effects on investment rates and the number of female employees remains minim. Concerning the number of female employees in a company, a lot of researches were made testing the opposite relations. Those researchers found that the number of female employees has a positive effect on the amount of females having a seat in the boardroom. (Mattis, 1993)

Concerning the firm performance, Caspar Rose (2007) found in his research based on Danish companies that gender diverse board of directors did not influence firms’ performance. Supporting Rose’s findings, Farrell and Hersch (2005) found that women are more likely to be on firms performing better, but that there is nothing explicit explaining why the firms are performing well. Is it because there are women on the boards that firms are performing well or is it due to other reasons? This research question remains unknown. In addition, Adams and Ferreira (2009) found out that forcing boards, in well-governed firms, to become gender diverse could harm the firm’s performance rather than improving it.

On the other hand, Miller and del Carmen Triana (2009) found in their research that gender diverse boardrooms are positively influencing the performance of the firms. (Miller & del Carmen Triana, 2009) While women may have influences on

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the firms’ performances, Singh and al. (2008) found out that woman on board are more likely to have extra human capital, as well as international experience compared to their male colleagues (Singh et al., 2008), which could be the reason explaining that companies with female directors are performing better. By bringing more experience and human capital characteristics to their companies, female directors might improve their companies’ performances as they might already know, or know more about, what works better or not and what to do in order to perform well. Firms’ performance can be positively affected as women add legitimacy, recommend and counsel, and connect to the firms. (Dunn, 2012) Female directors on boards often have specifics knowledge or are specialized in law or finance in order to bring extra value to the boards. Unlike their male colleagues, women need to bring additional values to the boards in order to be considered for a board position. (Dunn, 2012)

Even though a lot of researches were already studied about gender diverse board of directors and their effects and consequences, this research is based on companies listed in the Top Trends Industries 2016 in order to have access to multiple sectors as well as different regions of Belgium. As I will compare the effects in general, in the different industries and in the different regions, this research will aim to answer if the presence of at least one woman on board of directors affects the performances, the investment rates, and the number of female employees of companies? Therefore, the purpose of this research is to find out if having at least one woman on boards is impacting the performances and investment rates of Belgian private companies, as well as the number of female employees in the companies. Second, this research will aim, with the help of moderators, to find out if the region in which the company is located, as well as the type of industry of the company will

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influence the effects that companies, with at least one female director, have on their performances, investment rates, and number of female employees.

2.4 Conceptual framework

2.4.1 Agency theory

The agency theory is the theoretical framework most frequently used to understand the relation between board characteristics and firm value. (Carter, Simkins, & Simpson, 2003) The agency relationship, as described by Jensen and Meckling (1976), is an agreement between one person (principal) engaging another person (agent) to act or serve on his/her behalf. In business, shareholders are the principles and agents are the managers. In agency theory, conflicts of interest can arise between the principle and the agent when both parties aim to maximize their own benefits, resulting in the agent not acting towards the shareholders’ best interest. (Jensen & Meckling, 1976; Hillman & Dalziel, 2003) Conflict of interest can be avoided through the monitoring and controlling of the activities of the managers. Agency theorists argue that the most important role of the boards is to monitor and control the activities of the managers (Hillman & Dalziel, 2003) to ensure that the managers operate in the shareholders’ interest, thereby avoiding conflicts of interest. (Hillman & Dalziel, 2003; Carter et al., 2003; Jensen & Meckling, 1976) It is the directors’ duty to ensure that the managers act in the best interest of the shareholders, as aligned interests of both the shareholders and the managers reduce agency costs and thus improve performance. (Pearce & Zahara, 1992) On top of the boards’ monitoring role, the independency of the directors is a key element to ensure the maintenance of the shareholders’ interests.

Empirical studies argue that female directors are better monitors than their male counterparts. (Adams & Ferreira, 2009; Dang, Bender, & Scotto, 2014; Carter,

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D’Souza, Simkins, & Simpson, 2010) Adams and Feirrera (2009) found that female directors are more likely to invest energy and put effort in monitoring responsibilities. They also attend more and are better prepared for boards meetings (Johnson et al., 2012), serve more actively their boards and raise more questions (Dang et al., 2014; Terjesen, Couto, & Fransisco, 2015). In addition, Adams and Ferreira (2009) found that female directors are more likely to be on monitoring committees. Additionally, Johnson et al. (2012) found that female directors are more frequently performing monitoring and control activities while male directors are more associated to financial activities. Finally, female directors control and monitor better the company’s managers (Carter et al., 2010) and are being described as tougher controllers than their male colleagues. (Dang et al., 2014)

In the agency theory, the independency of the boards is a key element for the boards to act towards the shareholders’ best interest. (Carter et al., 2003) Independent directors are directors from outside of the corporation (outsider directors) and are not related to the company, meaning that they are not former employees nor former executives. (Pearce & Zahra, 1992) Independent directors are, like earlier mentioned, recruited for their experiences, skills, reputation, and bring extra values from outside of the company that is indispensible for the success of the firm. (Pearce & Zahra,

1992) Terjesen et al. (2015) suggest that independent directors embody easier the

shareholders’ interests and are less likely to create conflicts of interests. Additionally, they suggest that with their prior experience, independent directors are supposed to be better and more efficient monitors. (Terjesen et al., 2015) Carter et al. (2003) suggest that the board independency is intensified by board diversity. Terjesen et al. (2015) specify Carter’s et al. (2003) findings by stating that the gender diversity on the board is increasing the independency of the board of directors. Furthermore, studies found

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that female directors represented only a few of the insider directors position on a board and that most of them were outsider directors brought on boards for their external expertise and resources. (Sing et al., 2008)

According to the previous points illustrated in the agency theory, female directors are superior monitors and more independent. As they control and monitor the managers’ activities more frequently, they increase the financial performance of the firm.

2.4.2 Resource dependency theory

The resource dependency theory is another theoretical framework often used to examine the effects of gender diverse boards of directors on their firms’ performances. In order to succeed, firms need to gain and exchange resources, which develop a need from the external environment. (Terjesen et al., 2009) In this theory, boards are seen as the connectors between their organization and external units in order to address the dependency created between the two parties. (Carter et al., 2010) This linkage connecting the two parties is seen, in this theory, as a fundamental resource brought by the directors on the boards and is indispensable for the success of the company. (Carter et al., 2010; Terjesen et al., 2009) Pfeffer and Salancik (1978) propose four benefits derived from the external linkage: 1) directors provide informational and expertise resources, 2) they create channels of communication with important external organizations for their company, 3) they assure the support from important external organizations, and 4) they create legitimacy. Carter et al. (2010) suggest that the more diverse the boards are the more valuable resources the boards can benefit from. They add on that companies with boards benefiting from more valuable resources should perform better. (Carter et al., 2010)

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In the resource dependency theory, female directors add different valuable resources to the boards than their male colleagues. (Carter et al., 2010; Terjesen et al., 2015) Singh et al. (2008) found that female directors add different human capital, international and national experiences, and skills to the boards. In addition, Dunn (2012) suggests, as previously mentioned, that women directors often have specific knowledge and/or owns higher degrees often in law or finance. Furthermore, Dunn (2012) adds that women bring legitimacy, recommend and counsel more, and connect better to the firm as well as to other firms. Dang et al. (2014) propose that the legitimacy of boards increases by having women directors as it forward the current and future women employees an optimistic and encouraging message. Women directors also increase the linkage between their companies and external important organizations. They have higher circle of networks (Terjesen et al., 2015), and connect to customers, other boards members, as well as current and future employees more frequently. (Dang et al., 2014) The women directors’ knowledge’s and experiences, allow them to have a better understanding of some consumers and markets differencing from the ones’ of their male counterparts. (Terjesen et al., 2015) In a resource dependency view, female directors bring extra valuable resources on the boards and ease the linkage with external organizations. More valuable resources on a board results in better firm performance. Therefore, this illustrates that gender diverse board of directors will increase a firm financial performance. Supported by both the agency theory and the resource dependency theory, gender diverse board of directors’ increase firms financial performances.

H1a: Gender diverse board of directors will increase the company financial performance.

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The resource dependency theory can also be used to examine the effects of gender diverse board of directors on a company investment rate. One of the main role of the board of directors is strategy. As previously mentioned, the role of strategy is to define, select, and apply corporate strategy. (Ruigrok et al., 2006) The board strategic role includes involving the directors to define the firm’s business concept, creating a company’s mission statement, and choosing and implementing the strategies of the company. The purpose of the strategic role is for the directors to improve the competitive position of their firm in order to increase the capital of the shareholders. (Pearce & Zahra, 1992) As the business environment change rapidly, companies need a greater range of valuable resources in order to maintain their competitive advantage and to improve their competitive position in their industries. (Ruigrok, Peck, & Tacheva, 2007) Carter et al. (2010) suggest that the greater the diversity on boards is, the more the boards benefit from valuable resources. Women directors are closer to the society and care more about the development and well-being of their employees. (Ruigrok et al., 2006; Pearce & Zahra, 1992) Furthermore, Dunn (2012) found that women directors add more valuable resources as they bring legitimacy, recommend and counsel more, and connect to their firm as well as to other firms. As just mentioned, women are better at counseling and at giving recommendation, which are necessary in order to develop and implement strategies. Choosing where to invest and how much to invest is part of a strategy, as a result the investment rate of a company is part of a firm’s strategy. Additionally, the investment rate of a company is how much a firm invests of its added value into its company for its development. Thus by investing into their firm’s development, companies are getting ready for the future, which relates to the purpose of the strategies to improve the competitive position of the firm. (Pearce & Zahra, 1992)

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The abovementioned points explain that in a resource dependency view, women directors will increase the investment rate of a firm.

H1b: Gender diverse board of directors will increase the company investment rate.

2.4.3 Number of female employees hypothesis

The industry-based view can also be used in order to examine the effect of gender diverse board of director on the number of female employees. Although, a very little amount of studies explicitly researched if having gender diverse board of directors has an effect on the number of female employees in the companies. Mattis (1993) did, based on a survey, find that female directors influenced positively the number of women recruited in a company. On the other hand, more studies found that the number of female employees influenced the presence of women on boards. Hillman, Shropshire, and Cannella (2007), based on the resource dependency theory, found that companies with a larger number of female employees are more prone to have women directors on their boards. Additionally, Christiansen, Lin, Pereira, Topalova, and Turk (2016) found that women were more likely to be directors in companies with more female employees. Using these findings, we can infer by reversing the relationship that gender diverse board of directors increases the number of female employees.

H1c: Gender diverse board of directors will increase the number of female employees.

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2.4.4 Industry moderator

The industry type seems to have an effect on the number of female directors on boards. Industries can be male oriented, female oriented or be oriented to both men and women. A male oriented industry is an industry dominated by men and male consumers, while a female oriented industry is an industry dominated by women and female consumers. Brammer, Millington, and Pavelin (2007) suggest that it is more probable that women sit on board of directors in female oriented industries. In addition, Christiansen et al. (2016) found that female directors have greater chance to be on boards in industries that request more innovative and creative skills. Gender diverse board of directors are better at making innovative decisions as women directors add valuable resources to the boards, such as social and human capital resources. The more there are valuable human and social resources on the boards, the more innovative and creative skills boards have. (Miller & del Carmen Triana, 2009) Furthermore, Eagly, Karau, and Makhijani (1995) suggest that gender diverse board

of directors operate more efficiently in female oriented industries.Therefore, based on

these findings, we can expect that the orientation of industries will influence differently the effect that gender diverse board of directors have on a firm’s performance, firm’s investment rate, and on the number of female employees in a firm.

H2a: The type of industry will influence differently the effect that gender diverse boards of directors have on company’s performance.

H2b: The type of industry will influence differently the effect that gender diverse boards of directors have on company’s investment rate.

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H2c: The type of industry will influence differently the effect that gender diverse boards of directors have on the number of female employees.

2.4.5 Hofstede’s culture dimensions

Hofstede’s culture dimensions are often used to identify the differences between two or more national cultures. The five dimensions are power distance, individualism, masculinity, uncertainty avoidance and long-term orientation. (Hofstede, 1994) However, only three dimensions (power distance, individualism, masculinity) will be analyzed in order to study the regions’ influences on the effects that gender diverse boards of directors have on firms’ performances, firms’ investment rates, and the number of female employees in firms. The power distance dimension describes the fact that people with less power accept that power is distributed unevenly within a country. (Hofstede, 1994) This means that less powerful people accept that nobody is equal. A high power distance means that inequalities are accepted, while a low power distance means that inequalities are not accepted. The second dimension, individualism, identifies how well people are integrated or not into groups. (Hofstede, 1994) This dimension looks at if people work as individuals or as groups. High individualism means that people prefer autonomy and private opinions, focus on tasks, take care of themselves, and recognize individual success. On the other hand, in low individualistic culture, also known as collectivistic cultures, people are part of a group, are team-oriented and favor collective work and reward. (Hofstede, 1994) Finally, the masculinity dimension describes how the society is. A country with high masculinity means that the people are ambitious, successful, driven by competitions, work toward achievements, and are work oriented. On the other hand, a country with low masculinity, a femininity country, has people that are driven

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by the quality of life, care for others, focus on interpersonal relationships, and love their jobs (activities). (Hofstede, 1994)

Although Belgium has one national culture, each region has its own sub-culture. The Flemish region sub-culture is similar to a Dutch culture while both the Walloon and Brussels-Capital region

sub-cultures are similar to a French culture. Belgium scores high on the power distance index (65%), very high on the individualism index (75%), and has an intermediate score for the masculinity index (54%). These results suggest that Belgium

accepts inequalities, is an

individualistic society, and are in

between a masculinity and

femininity culture. This last dimension identifies shared feelings between the north of the country, with a masculinity score of 43%, and the south of the country with a score of 60%. This means that the north of Belgium wants to keep Belgium’s culture and values intact, while the south wants to have more global values. France scores high on the power distance index (68%), very high on the individualism index (71%) and low on the masculinity index (43%). These results show that France accepts inequalities, is an individualistic society, and has a feminine culture. The Netherlands scores low on the power distance index (38%), very high on the individualism index (80%), and extremely low on the masculinity index (14%). These results suggest that

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The Netherlands is independent, supports equal rights, maintains the personal/work life balanced, and managers in The Netherlands empowers.

The abovementioned points suggest that different cultures, and thus regions, will have different influences on the effects generated by gender diverse board of directors. Regions with lower power distance and higher femininity will be more likely to accept women in the society as those regions support equal rights and have management styles that supports their employees. In addition, the managers are involved in decision-making and each individual is valued. By interpreting the aforementioned points, we can hypothesize the following:

H3a: The regions’ culture will influence differently the effects of gender diverse boards of director on the performances of companies.

H3b: The regions’ culture will influence differently the effects of gender diverse boards of director on the investment rate of companies.

H3c: The regions’ culture will influence differently the effects of gender diverse boards of director on the number of female employees in companies

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Figure 2: Schematic representation of the hypotheses

3 METHODOLOGY

3.1 Sample & data collection

The sample consists of companies from the Trends Top Industrie 2016. This magazine ranks 2000 Belgian companies based on the revenue of their fiscal year 2014. In addition, Trends Top Industrie offers a ranking of the companies per sectors and sub-sectors based on their revenue. The initial sample of this study consisted of 223 companies listed in three different sub-sectors in the Trends Top Industrie 2016. Companies that were missing data regarding 1) the composition of their board of directors, 2) their investment rate, 3) their firm performance, and/or 4) the number of their female employees, were removed from the sample. Therefore, after removing the missing data, the final sample consists of 198 companies, which 87 companies are from the food industry, 47 companies are from the construction machine industry, and 64 companies are from the pharmaceutical industry.

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Secondary data was used in order to gather all the necessary data and information. The data needed for the composition of the board of directors, the firms’ performances, the number of female employees, and the locations of the companies were all gathered in the 2015 annual reports of the companies. Each annual report of companies located in Belgium have a section listing all their board of directors with their full name, profession, home address, and their function within the company. The data needed for the firm performance was gathered from the financial report section and the data needed for the number of female employees was gathered from the social report section of the annual reports. The data required for the investment rate as well as for the industry type were gathered from the Trends Top Industrie 2016.

3.2 Independent variable

The independent variable of this study is board diversity. Here, diversity is defined as the presence of at least one female director on boards. This variable was expressed as a dummy variable. If a board had at least one female director, the dummy variable is equal to 1 and if the board had no female director the dummy variable is equal to 0.

3.3 Dependent variables

There are three different dependent variables in this study: the financial performances of a company, the investment rate of a company, and the total number of female employees in a company.

3.3.1 Firm financial performance

The performance variable was calculated by two accounting based measures separately, explicitly return on assets (ROA) and return on equity (ROE).

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Return on assets

The return on asset ratio is commonly used in the literature to measure firm performance as it shows the profitability of a company compared to its total assets. The return on assets ratio indicates the management’s efficiency to use the company’s total assets in order to generate profit. (Cerrada, De Rongé, De Wolf, & Gatz, 2011) Consequently, the lower the ROA, the least efficient managements are at using their assets to make profit, and the higher the ROA, the more efficient managements are at using their assets to make profit. ROA is calculated by dividing a company’s net income by its total assets (net income)/(total assets) and is expressed in percentage.

Return on equity

The return on equity ratio indicates how much of a profit firms make with the money invested by shareholders (Rose, C., 2007), as well as shows the shareholders how their investments in the company are being used. ROE is calculated by dividing a company’s net income by the shareholder’s equity (net income)/ (shareholder’s equity) and is expressed as a percentage.

3.3.2 Investment rate

Investing in the development of a company is preparing the future. Therefore, the investment rate is important, as it is the percentage of the company’s added value invested into the company for the development of the company. (Cerrada, De Rongé, De Wolf, & Gatz, 2011) The investment rate is calculated by dividing the total investments of a company by the company’s added value (Total investment/added value).

3.3.3 Number of female employees

The third dependent variable of this study is the number of female employees of a company. The total number of female employees is expressed in percentage. This

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percentage indicates the ratio of the number of female employees relative to the total number of employees in a company.

3.4 Moderators

A moderator variable changes the strength of a relationship between an independent variable and a dependent variable. It can increase or decrease the strength of the effect/relationship as well as changing the direction of the relationship

3.4.1 Industry moderator

Three different industries were chosen in order to examine the influence that industries have on the effects that boards with at least one female director (independent variable) have on the company’s performance, investment rate, and number of female employees (dependent variables). The industries are the pharmaceutical industry, the food industry and the construction machine industry. All three industries were chosen as they have different orientation. The pharmaceutical industry is more female oriented, the construction machine industry is more male oriented and the food industry is as well female as male oriented (mixed orientation). These industries were chosen for this study to examine if a female, male or mixed oriented industry would increase or decrease the effect of the independent variable on the dependent variables. The industries are expressed as dummy variables with the food industry as the reference category (industry), meaning that the food industry was not coded. The food industry was chosen to be the reference category as it is as well a female as a male oriented industry. The pharmaceutical industry is expressed as a dummy variable equal 1 when the companies are from the pharmaceutical industry and equal 0 when the companies are from the construction machine or the pharmaceutical industries. Same works for the construction machine industry. If a company is from the construction machine industry then the dummy variable equal 1,

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and if a company is not from the construction machine industry the dummy variable equal 0.

3.4.2 Region moderator

The region moderator variable is defined and analyzed as the culture of each region. This variable is divided into the Flemish region and the other region. The other region is the combination of the Brussels Capital region and the Walloon region. The Flemish region has a similar culture to the Dutch’s culture, and the other region has a similar culture to the French’s culture. With two strongly different sub-cultures, the region can have different effects on the relationship between the independent and dependent variables. The region moderator variable is expressed as a dummy variable equal to 1 when companies are located in the Flemish region and equal to 0 when the companies are located in the other region.

3.5 Analytical Methods

3.5.1 MANOVA analysis

A MANOVA analysis was conducted in order to measure the effects of gender diverse boards on firms’ performances, investment rates, and number of female employees. A MANOVA is a multivariate analysis of variance. It is simply a general linear ANOVA analysis with two or more dependent variables (DV). One-way MANOVAs have thus one independent variable divided into two or more groups, and multiple dependent variables. MANOVAs’ are used to test whether there are significant differences between two or more independent groups on multiple dependent variables. (Wackerly, Mendenhall, & Scheaffer, 2008) Hence, it is testing whether several vectors of means differ. MANOVAs results only show that at least two groups differ or not, but do not show which ones differ. Consequently, it is

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important to find out if two groups differ and which differs from which. The Wilks’ Lambda test of the multivariate test will tell if a MANOVA is statistically significant. If the MANOVA is significant, it is necessary to look at the test of between-subjects’ effects. In addition, if the independent variables consist of more than two groups, post-hoc tests such as the Tukey HSD are necessary to find out which groups differ and their own effects.

To test the framework described in figure 2 only one MANOVA analysis was conducted. The MANOVA will determine if the effects of having at least one female director differ among the firm performance DV, the investment rate DV, and the number of female employees DV. In addition, the MANOVA analysis will test the effects that two interaction terms have on those relationships. First, the MANOVA analysis will determine if the type of industry will influence the effects of having at least one female director on firm’s performance, investment rate and number of female employees. Then, it will determine if the regions influence the effects of gender diverse board of directors on the three, abovementioned dependent variables.

3.5.2 ANOVA analyses

In addition of the MANOVA, twenty single linear ANOVA analysis were conducted to tests separately the different hypothesizes of the framework described in

figure 2. An ANOVA analysis is an analysis of variance and tests whether there are

significant differences between two or more independent groups on one dependent variable. The conducted ANOVAs tested separately the direct effects of having at least one female director on the firm’s performance, investment rate and number of female employees in each regions and industries. The ANOVA analyses were conducted in order to verify the results of the effects of having at least one female

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director obtained in the MANOVA. Table 1 and table 2 provide an overview of the variables used in each ANOVA analysis.

Table 1: Industries' ANOVAs

Table 2: Regions' ANOVAs

4 RESULTS

4.1 Descriptive analysis

First the characteristics of the board of directors, industries and regions will be discussed. Followed by the discussion of the range, mean, and standard deviation of the variables included in the sample. The descriptive statistics are based on 198 boards of directors of Belgian companies listed in the Top Trends Industry 2016. There are no missing values in the analysis as 25 companies were removed from the

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sample prior to the analysis of the sample. The characteristics of the companies can be found in Table 3 and in Table 4 in more details. The companies studied were from three different industries. The most represented industry was the food industry with 43,9% of the total companies, followed by the pharmaceutical industry with 32,3% of the companies, and the construction machine industry with 23,7% of the companies. Furthermore, almost two third of the companies, 65,7%, were located in the Flemish region, while only 34,3% were in the other region (combination of both Brussels-Capital and Walloon Region). We note that the majority of the companies, 125, did not have female directors on their boards, which represents 63,1% of all the companies. In table 4, we find that the majority, 61,64%, of the companies with at least one female directors are located in the Flemish region. In addition, we note that most, 42,46%, of the companies with gender diverse board of directors are from the pharmaceutical industry, while only 19,18% of the companies with at least one female

directors are from the construction machines. Finally, table 4shows that 68% of the

companies with no female directors are located in the Flemish region and 47,2% of the companies with no female on their board of directors are from the food industry.

The range, mean and standard deviation of the independent and each of the dependent variables included in the sample can be found in table 5. There were maximum five female directors in one board at a time, while at least one board was made of only female directors. On average, 13% of the boards consisted of women directors. Further, we note that on average companies have returns on assets of 3,54%. A low return on assets indicates that the managements are not using their companies’ assets in the most efficient way. We also find that the highest return on asset is 27,7%, while the lowest is -36,9%. Companies with negative ROA suggest that they do not use their assets properly. The return on equity ratio range is from

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-74,98 (the minimum) to 42,83 (the maximum). On average, the return on equity ratio is equal to 1.92 meaning that on average the shareholders returns 192% on their investments. Some companies invested more in the development of their companies than others. In 2014, one company invested only 0,01% in the development of its company, while another one invested 198,73%. The latest number indicates a surreal percentage to invest in its company. Looking in the company more deeply, we found that it started in 2014, which could explain such a high investment rate. More realistically, we note that on average companies have an investment rate of 13,18%. Finally, there are on average 35,38% of women employees working in the 198 companies. Some company had no female employees, while a company had female employees counting for more than two third, 77,78%, of the total employees. The standard deviation of each variable can be found in the table 5.

Table 3: Characteristics of the BOD composition, industries, and regions

N PERCENTAGE BOD COMPOSITION NO FEMALE DIRECTOR 125 63,1 ONE OR MORE FEMALE DIRECTORS 73 36,9 INDUSTRY FOOD 87 43,9 CONSTRUCTION MACHINE 47 23,7 PHARMACEUTICAL 64 32,3 REGION FLAMISH 130 65,7 OTHER 68 34,3

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Table 4: Detailed characteristics of the BOD composition, industries, and regions

Table 5: Frequencies' of the independent and dependent variables

4.2 Statistical analysis

4.2.1 The effects of gender diverse board of directors on firm’s performance, investment rate, and the number of female employees

The results of the multivariate tests indicate that the presence of at least one female director on boards has no significant effects on firms’ performances, investment rates, or on the number of female employees, F (4; 187) =1,03, p>0,05, Wilk's Λ= 0,978. There is no support for hypotheses 1a, 1b, and 1c due to the lack of significant results and no significant estimated parameters for the effects of gender

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diverse board of directors on firms’ performances, investment rates, and number of female employees. Therefore, they are each rejected.

4.2.2 The effects of gender diverse board of directors on firm’s performance, investment rate, and the number of female employees with industry as a moderator

Based on the multivariate tests, there exist no significant effects of the interaction between gender diverse board of directors and the pharmaceutical industry dummy variable on the dependent variables, F (4; 187) =1,03, p>0,05, Wilk's Λ=0,753. Same as for the pharmaceutical industry dummy variable, the results of the multivariate test indicate that the interaction between gender diverse board of directors and the construction machine industry dummy variable has no significant effects on the dependent variables, F (4; 187) =1,03, p>0,05, Wilk's Λ=0,578. On the other hand, based on the estimated parameters, we find significant effects of the interaction between gender diverse board of directors and the industry dummies variables on some of the dependent variables. In the next section the results found based on the estimated parameters are described.

PERFORMANCE

No conclusion can be drawn as of the direct and indirect effects of the presence of at least one female director on boards, in each industry, on ROA and ROE as none of the results are significant. Because of non-significant results in both the multivariate test and the parameter of estimation, hypothesis 2a is not supported.

INVESTMENT RATE

The values found for the interaction between companies with no female directors and in non-pharmaceutical industries, p=0,011 and B=11,518, allow us to infer that investment rate is positively influenced when there are no female directors

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on boards and that the companies are in the food or construction industries, no matter what the region. In addition, the values found for the interaction between companies with no female directors and in non-construction industries, p=0,008 and B=11,823, allow us to infer that investment rate is positively influenced when female directors are not present on boards and that the companies are in the food or pharmaceutical industries, no matter what the region.

There is no support for hypothesis 2b as the influences found on the investment rate are for board of directors without the presence of at least one female member. Therefore, hypothesis 2b is not supported.

NUMBER OF WOMEN EMPLOYEES

Four significant results were found for the interaction between gender diverse board of directors and the industry dummies variable. First, the values found for the interaction between companies with no female directors and in non-pharmaceutical industries, p=0,000 and B=-23,224, allow us to infer that companies without female directors and in the food or construction industries strongly and negatively influence the number of female employees. Second, the values found for the interaction between companies with at least one female directors and in non-pharmaceutical industries, p=0,000 and B=-17,677, allow us to infer that companies in food or construction industries and in which at least one female director is present have a strong negative influence on the number of female employees. Third, the values found for the interaction between companies without female directors and in non-construction industries, p=0,000 and B=21,687, allow us to infer that companies without female directors and in the food or pharmaceutical industry have a strong and positive influence on the number of female employees. Lastly, the values found for the interaction between companies with at least one female director and in

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non-construction industries, p=0,000 and B=23,830, allow us to infer that companies in the food or pharmaceutical industry and with at least one female director have a strong and positive influence on the number of female employees. Hypothesis 2c is supported.

The parameters of estimation find significant influences of industries on the effects generated by boards with at least one female director on the number of female employees. Therefore, hypothesis 2c is supported.

4.2.3 The effects of gender diverse board of directors on firm’s performance, investment rate, and the number of female employees with regions as a moderator

Based on the multivariate tests, there exist no significant effects of the interaction between gender diverse board of directors and the region dummy variable on the dependent variables, F (4; 187) =1,03, p>0,05, Wilk's Λ= 0,379. On the other hand, based on the estimated parameters, we find significant effects of the interaction between gender diverse board of directors and the region dummy variable on the dependent variables. In the next section the results found based on the estimated parameters are described.

PERFORMANCE

No conclusion can be drawn as of the direct and indirect effects of the presence of at least one female director on boards, in each region, on ROA and ROE as none of the results are significant. Because of non-significant results in either the multivariate test or the parameter of estimation, hypothesis 3a is not supported.

INVESTMENT RATE

No conclusion can be drawn as of the direct and indirect effects of the presence of at least one female director on boards, in each region, on investment rate

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as none of the results are significant. Because of non-significant results in either the multivariate test or the estimated parameters, hypothesis 3b is not supported.

NUMBER OF FEMALE EMPLOYEES

The values found for the interaction between companies with no female directors and not located in the Flemish region, p=0,033 and B=-5,585, allow us to infer that companies without female directors located in Brussels region or in Walloon region negatively influence the amount of female employees, no matter what the industry.

There is no support for hypothesis 3c as the influence found on the number of female employees concerns boards of directors without the presence of female members. Therefore, hypothesis 3c is not supported.

4.2.4 The direct effects of the types of industries on the dependent variables

PHARMACEUTICAL INDUSTRY DUMMY VARIABLE

The results of the multivariate tests indicate that the pharmaceutical industry dummy variable has direct significant effects on at least one of the dependent variables, F (4; 187) =20,649, p=0,000, Wilk's Λ= 0,694. Further, the test of the between-subjects’ effects indicates that the pharmaceutical industry dummy variable has direct effects on both the investment rate, p=0,040, and the number of female employees, p=0,000.

CONSTRUCTION INDUSTRY DUMMY VARIABLE

The results of the multivariate tests indicate that the construction industry dummy variable has direct significant effects on at least one of the dependent variables, F (4; 187) =23,175, p=0,000, Wilk's Λ= 0,669. Further, the test of the between-subjects’ effects indicates that the construction industry dummy variable only has a direct effect on the number of female employees, p=0,000.

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4.2.5 The direct effects of the regions on the dependent variables

The results of the multivariate tests indicate that the Flemish region industry dummy variable has direct significant effects on at least one of the dependent variables, F (4; 187) =2,564, p=0,040, Wilk's Λ= 0,948. Further, the test of the between-subjects’ effects indicates that the Flemish region industry dummy variable only has a direct effect on the number of female employees, p=0,006.

4.2.6 ANOVA analyses

The results of the independent ANOVA analysis confirm the findings of the multivariate tests of the MANOVA. Only one effect came out slightly significant. The values found for the direct effect of companies with no gender diverse boards of directors and not located in the Flemish region, p=0,040 and B=-0,036, allow us to infer that companies without female directors located in Brussels region or in Walloon region vaguely negatively influence the ROA of their companies, no matter what the industry. This means that companies without female director have a slightly lower ROA in the Brussels Capital region and Walloon region than companies with at least one female director in these regions. The remaining results of the ANOVAs indicate that there exist differences among the effects of having gender diverse board of directors on the firm’s performance, investment rate and number of female employees in each industry and region, but these differences are non-significant. In annex 1, the beta values and the signification of the direct effects of gender diverse board of directors on the dependent variables are shown for each region and industry.

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5 DISCUSSION

5.1 Findings

In this study, I analyzed 198 companies from two different regions and three different industries with the objective to find out whether the presence of at least one women director on boards will affect a firm performance, investment rate, and the number of female employees. Another objective of this research was to find out if the type of industry and/or the region of the companies will affect the effects of gender diverse boards of directors on firms’ performances, investment rates, and the number of female employees.

I was able to answer the research question based on the multivariate tests as I found that having at least one female director on boards did not have significant effects on firms’ performances, investment rates, or the number of female employees. Therefore, having at least one female director on board do not, positively or negatively, affect more or less the firms’ performances, investment rates or the number of female employees than boards composed of only male directors. Next, based on the multivariate tests and the estimated parameters, I found that, no matter the influence of the regions and industries, boards with at least one female director did not have more or less effects than non-gender diverse board of directors on the firms’ ROA and ROE.

The next seven following findings are strictly and only based on the parameters of estimation. First I found that, no matter the region, there are more chances that the investment rate is greater when the boards of directors is composed of only males and that the companies are from the food or construction industries. All male boards of directors tend to positively influence investment rate in the food and construction industries. In addition, I found that it is more likely that the investment

Gender diverse board of directors in Belgium : the effects of having at least one female director in private companies