The influence of female executives on corporate reputation

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1 Amsterdam Business School

Renee Lubbersen (10839135)

15 June 2016

Word count: 15,808

Supervisor: Prof. Dr. B.G.D. O'Dwyer

MSc Accountancy & Control, specialization control

Faculty of Economics and Business, University of Amsterdam

THE INFLUENCE OF FEMALE EXECUTIVES

ON CORPORATE REPUTATION

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R. Lubbersen | University of Amsterdam 2

S

TATEMENT OF ORIGINALITY

The document is written by student Renee Lubbersen 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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A

BSTRACT

Compared to men, female board members are underrepresented in the boardroom. This research examines the influence female board members have on corporate reputation and whether corporate social responsibility (CSR) mediates this relationship. A database study of 256 European companies is used to perform an analytical assessment of regression analyses and bootstrapping tests to examine the influence of female executives on the conduct of business. In line with the resource dependence theory and prior research, the results show that female board members and especially female CEOs have a significant influence on corporate reputation. However, despite a strong positive relation between female board members and CSR, an indirect relation of female board members on corporate reputation is not found.

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T

ABLE OF CONTENT

1 Introduction ... 5

1.1 Research question ... 7

2 Literature Review ... 8

2.1 Female Board Members ... 8

2.2 The direct influence of female board members on corporate reputation...10

2.3 The influence of CSR on corporate reputation ...11

2.4 The influence of female board members on CSR ...12

3 Theoretical framework and hypothesis development ... 14

4 Research Methodology ... 18

4.1 Sample and data collection ...18

4.1.1 Female board members ...18

4.1.2 Corporate reputation ...18

4.1.3 Corporate Social Responsibility ...19

4.2 Variables ...22 4.2.1 Independent variable ...22 4.2.2 Mediator variable ...22 4.2.3 Dependent variable ...22 4.2.4 Control variable ...22 4.3 Research design ...26 5 Results ... 28 5.1 Descriptive statistics ...28 5.2 Correlation matrix ...29 5.3 Regression analysis ...34

5.3.1 Regression analysis: Female board members influence corporate reputation ..34

5.3.2 Regression analysis: CSR as a mediator ...35

5.3.3 Regression analysis: Additional research ...37

5.3.4 Regression analysis: The influence of female CEOs ...37

6 Discussion ... 41 7 Conclusion ... 46 References ... 49 Appendix 1 – Multicollinearity ... 56 Appendix 2 – Homoscedasticity ... 57 Appendix 3 – Model 5 ... 58

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1 I

NTRODUCTION

In a recent discussion about and with Dutch female board members in discussion center De Rode Hoed (Amsterdam, 24 April 2016) Herna Verhagen, CEO of Dutch listed logistics company PostNL questioned; “How can a company be successful if it excludes 50% of its talent?”

With this statement, Verhagen asked for attention on the limited representation of women in the boardroom, often related to the so-called ‘glass ceiling’, the invisible barrier which minorities face before achieving leading positions (Burgess and Tharenou 2002). A legal notice when looking at the numbers. Currently, a dispersed picture is seen between countries. Norway takes the lead with more than 35% female board members while the United States (U.S.), Germany, Spain and Switzerland do not reach 20% and Japan has less than 5% women presented on the board by October 2014 (Glinski, 2016).

Prior studies of Hillman et al. (2002) and Burgess and Tharenou (2002) already show that female board members provide a different set of resources to the board, compared to their male partners. And a more diverse set of resources leads to more heterogeneity on the board which enables effective management (Singh et al., 2008; Burt, 1997; Pfeffer and Salancik, 1978).

The question is whether the introduction of more women in top positions actually has impact on the corporate reputation. Reputation is challenging to cover in one absolute number, because reputation is linked to subjectivity. It is a result of multiple stakeholders’ impressions which is viewed through a number of information channels (Sabater and Sierra, 2001). Although there is not one standardized metric to measure companies’ reputation score, there are a few leading institutes which provide reputation scores. Nevertheless, corporate reputation depends on the history of one’s actions and affects future opportunities (Wilson, 1985). In turn, a positive reputation could inter alia enhance the company’s brand, affect employee turnover rate and might positively affect financial performances (Bear et al., 2010). Prior research shows two significant relations.

First, prior research indicate that female board members have a stronger orientation towards corporate social responsibility (CSR) compared to their male board members, who are more concerned about economic performances (Ibrahim et al., 2003; Ibrahim and Angalidis, 1994). The significant positive influence of female leaders on the level of CSR is confirmed by different studies. For instance, research of Williams (2003) states that having more women on the board relates to a higher level of charitability giving and Soares et al. (2011) state that it also results in higher quality CSR initiatives. This can all be traced back to the different set of resources women provide to the board (Hillman et al., 2002; Burgess and Tharenou, 2002).

Second, several authors claim that CSR has positive influence on corporate reputation (Dowling, 1986; Porter and Kramer, 2006; Williams and Barrett, 2000; Worcester, 2009). External stakeholders

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hold organizations accountable for social and environmental issues and this will be reflected by organization’s reputation. The impact of CSR on reputation is clearly visible in a positive way with companies like Ben & Jerry’s and The Body Shop. These companies strongly focus on CSR, upon which their brand is based and how they differentiate from their competitors (Porter and Kramer, 2006).

The lack of CSR can also greatly impact a company’s reputation. The recent scandal of Volkswagen (VW) concerning the manipulation of pollution emissions shows a decrease of corporates’ reputation (Kreske et al., 2015; Fd.nl, 2015). Besides, Nike and Walmart faced a consumer boycott in the 1990s after it became clear that they abused labor practices and in 1995 protests started against Shell due to the plan of dumping an obsolete oil platform, the Brent Spar, in the ocean (Porter and Kramer, 2006; Cedillo et al., 2012). According to Porter and Kramer (2006), these examples show that CSR should be integrated in the conduct of business as organizations are dependent on their external environment.

So, prior studies demonstrate the influence of female board members on CSR and the influence of CSR on reputation separately. But, does a female board member have any direct impact on the firm reputation? Or will the impact be strongly influenced by the mediator ‘CSR’ and does it only indirectly improve corporate reputation? Research on this direct relation is not widely available. Findings of Argudan (2012) states that female board members positively influence corporate reputation, due to their position as role model for female employees and their focus on sustainable and effective strategies. Besides, some studies find a relation between women on the board and reputation, yet the direction of this causal relation could not be determined (Larkin et al., 2012; Bernardi, 2009). Also, most research is performed on the link between women on the board and performance measures instead of reputation.

Furthermore, compared with the existing studies, the geographical area of this research will be different, as most prior research have been conducted in the U.S.. This is interesting since it is possible that studies performed in the U.S. can not be generalized to Europe, due to inter alia the institutional environment which influence the CSR activities. Secondly, Matten and Moon (2008) show remarkable differences between the U.S. and Europe when it comes to CSR. There is a difference in describing their involvement in society. Traditionally seen, U.S. companies make their attachment to CSR more explicit than in Europe. Also important for this research is that more and more European countries are introducing gender quotas for the composition of the board, compared to the U.S. where such quota or legislation has not been introduced so far.

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1.1 RESEARCH QUESTION

The research question of this study for the European market will be:

‘Does gender diversity on the executive board influence the reputation of listed European companies, and/or is this relation mediated by corporate social responsibility?’

Figure 1: Research question

This study will examine whether gender diversity in the boardroom has a positive impact on firm’s reputation and whether this relation is stronger via the mediator CSR. As mentioned, the relationship between the three variables is rarely investigated before and limited research exists concerning the relation between these variables in Europe. This research could provide new insights and strengthen existing research. The findings of this study can especially be useful for European companies in practice. If the findings show a positive indirect and/or direct influence of female board members on firm reputation, companies could take this into account when appointing new members to the board. Gender Diversity in the Boardroom Corporate Social Responsibility Corporate

Reputation

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2 L

ITERATURE

R

EVIEW

In this chapter prior literature concerning female board members, CSR and corporate reputation will be discussed. The direct and indirect influences of these three variables are examined in separate subheadings.

2.1 FEMALE BOARD MEMBERS

Although women obtain more supervisory and middle management positions, women are rarely appointed as an executive board member (Eagly and Karau, 2002). Notwithstanding, a study of Egon Zehnder (2014) does show that the great attention given in the past decade to gender diversity in the European boards has paid off. In 2014 more than 20% of the directors on the boards are women, compared to 8% in 2004. However, as the executives are the ones who are responsible for the day to day operations of the organization, it will be more interesting to specifically focus on the executive directors and not on the whole board of directors (executive plus supervisory board members). In contradiction, the representation of women in executive boards is still relatively low, with only 5.6% in 2014, see figure 2.

Figure 2: Gender diversity in Europe

Source: Egon Zehner, 2014

The sparse representation of female directors can be traced back to the fact that traditionally seen most boards consist of men from similar backgrounds, called the ‘old boys network’. This traditional focus is in line with the idea that women have family responsibilities and they do not show enough their motivation or they do not have the skills to attain higher level positions (Eagly and Karakau, 2012). Besides, Fisher (2013) argues that men receive more often “high-profile assignments, mission critical roles and international experiences” that generally leads to the board room.

However, women in board positions are of great importance “due to the fact that women bring different skills than men and that can lead to more thoughtful deliberations about risk-taking and appealing to female consumers” (Egan, 2015). More studies have been performed to examine the influence of female board members on the conduct of business. Findings of Hillman et al. (2002) give a clear overview of the differences between white male directors (old boys network) and female

4.2% 4.8%

5.6%

2010 2012 2014

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(and other minority) directors in the U.S. boardroom. Compared to white male directors the standards of achievement for minorities are higher, which for instance results in a much higher educational degree. They state that 19.19% of the white male directors has a doctoral degree compared to 52.81% of white females who participate in a board (Hillman et al., 2002: 755). So, women and other minorities must achieve substantially more than white male board members to participate in the board. Besides, the background of female board members and minorities were often not related to the traditional career path of directors, by which women contribute different capabilities to the board (Hillman et al., 2002). An equivalent overview of why women are needed on the board is given by Burgess and Tharenou (2002); more women on the board will lead to increased diversity of opinions, they bring strategic input, influence the decision making process and the leadership styles, act as role models and mentors, improve the image of the company with different stakeholders and improve the behavior in the boardroom. Additionally, they state that female board members are becoming more favorable due to their specific capabilities and their availability to take a leading position.

These studies are in line with the assumption of theorists who claim that the balance between the human resources is of great importance to improve the effectiveness of the board, in which also gender diversity could play a significant role (Singh et al., 2008; Burt, 1997; Egan, 2015). This balance of human capital is related to the broader spectrum of the resource dependency theory (RDT) of Pfeffer and Salancik (1978).

The RDT implies that organizations are part of a network of interdependencies and are coupled with uncertainties. Due to the dependencies of interorganizational and intraorganizational powers, organizations need to manage their environment in which the board of directors is one of the instruments to deal with this (Pfeffer, 1987; Pfeffer, 1972). Gender diversity in the boardroom could have significant influence on the conduct of business. A more diverse board could more easily link with their broad set of stakeholders and has more access to a variety of resources which is critical for the firm’s success (Gallego-Alvarez, 2009; Luckeerath-Rovers, 2009). The influence of the RDT on this study will be more broadly discussed in the theoretical framework section.

Contradictory to the findings and studies that female leaders make a difference, psychological studies like for instance Hyde (2005) demonstrates that in general males and females are highly similar on most psychological variables. A more comprehensive study of Hyde (2014) based on numerous meta-analyses once more confirmed his previous findings. However, more specifically it is argued that gender differences are small in domains like verbal skills, personality dimensions, effectiveness and even leadership, which is also confirmed in studies of different behavioral scientists (Zell et al., 2015). These findings should be taking into account when interpreting this study. However, this

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research focuses on the influence women in general have on the level of CSR and corporate reputation and not on the specific characteristics.

2.2 THE DIRECT INFLUENCE OF FEMALE BOARD MEMBERS ON CORPORATE REPUTATION Given the contradicted findings regarding gender similarities and differences it will be interesting to investigate the influence of female board member on corporate reputation.

How people construct firm reputation is dependent on a lot of factors. The way organizations allocate their resources, their level of social responsibility, institutional ownership, media exposure and corporate diversification postures are all signals that significantly influence firm’s reputation (Fombrun and Shanley, 1990). Nowadays with the influence of social media, reputation is becoming even more fragile as organizations can easily reach a broad range of stakeholders at very short notice (Lee et al., 2015; Wyman, 2014). This could be of great convenience to reduce the information gap between the organization and their stakeholders, to increase their trustworthiness and to strengthen their reputation in times of crisis (Lee et al., 2015; Kietzmann et al., 2011).

A strong reputation generally provides sustainable competitive advantage as customers prefer doing business with you, suppliers’ trust leads to fair trading terms, employees turnover rate declines and investors satisfaction and loyalty secures a sustainable future (Bear et al., 2010; Helm, 2007; Harrison, 2013). However, when managing a good reputation all different stakeholders’ expectations should be taking into account.

In turn, as seen with the latest scandal of for instance Volkswagen, a reputational damage results in a breakdown of trust. Visible effects like declining earnings and share price and less measurable effects like brand degradation could appear. The impact of reputational damage is dependent on the event itself, the broader context and the quality of organization’s response (Wyman, 2014). Besides, the impact will vary over time. Short term effects are mostly visible in financial performances and customers who are switching to competitors, however long term effects could result in a loss of market share and in worst case scenario in a devastation of future operations. But, most likely organizations mitigate the potential long term impact along strong recovery processes (Wyman, 2014). All in all, reputation is dependent on the history of one’s actions and it will affects future opportunities (Wilson, 1985).

The direct influence of female board members on firm reputation is not widely investigated, however some studies do find a positive relation. Argudan (2012) demonstrates a strong relation between female executives and corporate reputation. It is presented that women in board positions act as role models for female employees and they are more focused on sustainable and effective strategies which enhances corporate reputation. Brammer et al. (2009) confirm this relation for companies in industries which operate close to the final consumer, which also demonstrates the need

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to reflect diversity among customers. This is also confirmed by research of Shamsie (2003) who argues that the purchase frequency is also related to the reputation score, since companies that are operating close to the final consumer are able to build a stronger reputation with a customer in a short time period.

An interactive effect between female board members and corporate reputation is also confirmed by Larkin et al. (2012), however the causal relation between these two variables cannot be determined. These findings are in line with the results of Bernardi (2009), who showed that companies with higher percentages of female board members are more likely to be listed on the ‘most ethical companies’ list of Ethisphere magazine.

2.3 THE INFLUENCE OF CSR ON CORPORATE REPUTATION

Since Ethicspere magazine equates the list of ‘most ethical companies’ to the most reputable companies, it is assumed that reputation is influenced by organization’s CSR approach. In general, CSR contains the major public concerns regarding the relationship with business and society (Carroll, 1999). Or like Wood (1991: 695) describes, “the basic idea of corporate social responsibility is that business and society are interwoven rather than distinct entities; therefore, society has certain expectations for appropriate business behavior and outcomes”.

Although researchers are not agreeing on one specific CSR definition, the different definitions are to a large extent identical to each other and refer to the following five dimensions; voluntariness, stakeholder, social, environmental and economic (Dahlsrud, 2008). But, as this study is related to the European market, the definition of the European commission is most interesting; “CSR is the responsibility of enterprises for their impacts on society” and it outlines what an enterprise should do to meet that responsibility (European Commission, 2011: 1).

Still, a positive reputational effect is not necessarily a direct reason for organizations to operate in a social responsible manner. Broadly seen there could be two reasons, namely purely economic benefits for the organization or ethical reasoning of managers. But looking more specifically, Porter (2006) lays out four reasons why a company behaves in a social responsible way. Reputation is indeed one of the reasons, but also moral obligation, sustainability and license to operate are factors to invest in CSR.

Considering the influence of CSR on corporate reputation, Dowling (1986) stresses that social responsibility is becoming more and more important in building a strong corporate image. CSR should be considered by management for short term decisions as well as for the long term vision. For the long term vision, CSR should be captured in the business and strategy by making CSR much more than only a cost. These investments should be seen as an opportunity, an innovation and a competitive advantage (Porter and Kramer, 2006). Findings of McGuire et al. (1988: 855) endorse

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this line of reasoning, they state; “an increase in perceived social responsibility may improve the image of the firm’s management and permit it to exchange costly explicit claims for less costly implicit charges”.

Besides, research also shows that corporate philanthropy, one of the CSR components, positively effects organization’s reputation (Williams and Barrett, 2000; Worcester, 2009). These findings coincides with Arendt et al. (2010), even though they argue that this relationship could be dependent on the industry. Equal to the influence of gender diversity on reputation, this relation could especially be important for companies that are consumer-oriented. CSR could positively influence company’s identity-building and increases their attractiveness and subsequently their competitive advantage and company’s performance (Arendt et al., 2010). An example of a company that distinguishes themselves through a long term CSR commitment is Ben & Jerry’s. CSR campaigns could attract customers and can simultaneously be projected as a marketing campaign when new products are introduced, which subsequently increases their sales (Porter and Kramer, 2006). This dependence on industry, concerning the effects of CSR on firm reputation and performances, has also been underpinned by other researchers (Spencer and Taylor, 1987; Arendt et al., 2010; McGuire et al., 1988).

2.4 THE INFLUENCE OF FEMALE BOARD MEMBERS ON CSR

Having discussed the direct influence of female board members on corporate reputation and the impact of CSR on reputation, the direct impact of female directors on CSR is also demonstrated by a number of researchers (Ibrahim et al., 2003; Ibrahim and Angalidis, 1994; Williams, 2003; Wang et al., 1992; Soares et al., 2011; Hafsi and Turgut, 2013; Setó-Pamies, 2015)

Studies of Ibrahim et al. (2003) and Ibrahim and Angalidis (1994) state that female directors have a stronger orientation towards CSR components compared to male board members who are more concerned about economic performances. There are different lines of reasoning why women are more concerned about CSR. Seto-Pamies (2015) marks several reasons, like women improve stakeholder relations, increase accountability, have greater concern for the environment and are in stricter compliance with ethical behavior. But the overall conclusion is that it could be traced back to the different skills and approaches women have compared to men (Burgess and Tharenou, 2002; Seto-Pamies, 2015). Besides, several studies state that the focus of female directors on CSR components is related to their diverse background in fields like education, nonprofit activities or law (Hillman et al., 2002; Williams, 2003; Harrigan, 1981).

Studies of Williams (2003), Wang et al. (1992) and a research of the Harvard Business School and Catalyst, confirm this positive influence of female directors on CSR. They show that firms which are having a higher proportion of women serving on the board are related to a higher level of charitability

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giving, which is one of the CSR components (Soares et al., 2011). This investigation of Soares et al. (2011) went further, as they state that having more female leaders is also liable to result in higher quality CSR initiatives and that more gender diverse leadership teams contribute more to charitable funds.

Summarizing, it could be said that there is a direct relation between the gender diversity in the boardroom and corporate reputation and that this relation will most probably be positively influenced by the mediator ‘corporate social responsibility’. Some research has already been done to investigate the effect of gender diversity in the board, but not that much research has been done in Europe. Besides, research on the interrelation between these three variables is rare. Therefore, this study investigates the effect of gender diversity in the executive board (via CSR) on corporate reputation in the European market.

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3 T

HEORETICAL FRAMEWORK AND HYPOTHESIS DEVELOPMENT

The resource dependence theory (RDT), as introduced in the literature overview, will be the broad theoretical framework for how gender diversity in the executive board affects (via CSR) corporate reputation. Research of Pfeffer and Salancik (1978) has led to the RDT which is written down in The

External Control of Organizations; A Resource Dependence Perspective. This theory is concerned with the idea

that an organization is an open system which is dependent on its external environment (Pfeffer and Salancik, 1978). Pfeffer (1987: 26) gives five basic arguments for this resource dependence perspective;

“(1) The fundamental units for understanding intercorporate relations and society are organizations; (2) these organizations are not autonomous, but rather are constrained by a network of interdependencies with other organizations; (3) interdependence, when coupled with uncertainty about what the actions will be of those with which the organization is interdependent, leads to a situation in which survival and continued success are uncertain; and, therefore, (4) organizations take actions to manage external interdependencies, although such actions are inevitably never completely successful and produce new patterns of dependence and interdependence; (5) these patterns of dependence produce interorganizational as well as intraorganizational power, where such power has some effect on organizational behavior”. The fact that organizations are dependent on the external environment does not mean that organizations can not take any action to minimize these environmental dependencies. One way to manage the external environment is related to the composition of ‘the board of directors’, as “the board of directors is considered as an instrument for dealing with the organization’s environment” (Pfeffer, 1972: 218). Therefore, diversity on the board is of great importance because “an effective board of directors is one of firm’s major competitive or strategic tools” (Ibrahim et al., 1994: 37). Different backgrounds of board members will lead to different perspectives which consequently leads to less group thinking and more creativity. Besides, it is associated with a broader range of knowledge and a more extensive network (Ferreira, 2010; Pfeffer and Salancik, 1978). So the board provides critical resources to the firm to manage strategic uncertainties, to perform effective management and gain legitimacy (Boyd, 1990). These resources support the board to understand and respond to the external environment and their demands (Boyd, 1990).

As gender is one of the diversity perspectives in the board, it could significantly influence the conduct of operations. In the previous sections some differences between female and male board members are already discussed; like the higher educational degrees of women, different professionals and educational backgrounds, different leadership characteristics, their stronger orientation on CSR

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components and so on (Hillman et al., 2002; Burgess and Tharenou, 2002; Singh et al., 2008; Burt, 1997; Egan, 2015).

Also, next to the findings of prior research a positive direct relation between female board members and corporate reputation could be presumed through the resource dependence theory (Pfeffer and Salancik, 1978). Along this theory it could be argued that female board members positively influence the reputation of a company since they increase the board effectiveness due to their different competencies and capabilities compared to male board members. This increased effectiveness could influence the perception of external actors and improve the company’s image (Burgess and Tharenou, 2002).

In addition to the RDT of Pfeffer and Salancik (1978), the theory of Bourdieu (1986) clearly specifies the resources/capitals which could lead to legitimacy and reputation. Pierre Bourdieu (1986) analyzes the theory of society where some relation between gender diversity on the board and reputation is expected. To understand the social positions and power relations, he distinguishes four various forms of capital; economic capital (money and financial resources), social capital (network and social

connections), cultural capital (skills, expertise and knowledge) and symbolic capital (reputation, legitimacy).

The diversity in human resources is among others related to people’s social network, which creates value for the company and increases board effectiveness (van der Walt and Ingley, 2003). Gender diversity on the board creates a mixture of human resources and this together will be the pool of social capital for the organization (van der Walt and Ingley, 2003). In turn, board diversity will enhance the network structure, which leads to information benefits and thus increases the value of social capital (Burt, 1997). Moreover, the cultural capital which consists of the skills and expertise of a person could be enhanced when more women are appointed to the board since they possess other competencies and capabilities (Burgess and Tharenou, 2002).

Since symbolic capital is related to reputation and cultural and social capital are the fundamentals to obtain this form of capital, more diversity on the board by appointing more female board members could gain the diversity of recourses and lead to an increase of the reputation. So, cultural and social capital may fortify when an organization has more female executives and in turn, this will increase organization’s reputation.

Summarizing, assuming that female board members have different competencies and capabilities compared to their male partners, having more women on the board increases the heterogeneity on the board and consequently gains boards’ capital, which positively influences organization’s reputation. Considering prior research and the theories discussed, the first hypothesis is as follows:

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Along the findings of the discussed studies and the presumed relation concerning the RDT and the theory of Bourdieu (1986), examination of the first hypothesis is of great importance. However, due to the limited amount of research of the direct relation between female board members and corporate reputation, I expect that this relationship is mediated by another factor; CSR.

Based on prior research it could be argued that the unique competencies and capabilities of women, related to the RDT, are the backbone of the relationship between female executives and CSR. Among others, women’s leadership style, their focus on CSR components and on a broader stakeholder group are human resources which influence the operations of an organization and are expected to increase the degree of CSR (Ibrahim et al., 2003; Ibrahim and Angalidis, 1994; Williams, 2003; Wang et al., 1992; Soares et al., 2011; Hafsi and Turgut, 2013; Setó-Pamies, 2015). Having more women on the board and (consequently) applying CSR in the daily operations of an organization, could create more valuable and rare resources which are difficult to imitate and could lead to competitive advantages. In turn, this leads to better performances (Barney, 1991; Grant, 1991; Branco and Rodrigues, 2006).

Next to the specific resources of female board members, CSR by itself could also be seen as a valuable resource for an organization, as it provides any internal or external benefits for the company. These external benefits of CSR are related to the corporate reputation (intangible resource), which could be created or depleted by CSR decisions (Branco and Rodrigues, 2006). Besides, investments in CSR can lead to resources or capabilities that generate sustainable competitive advantage (McWilliams et al., 2006; Hart, 1995).

Thus considering the theory and findings of previous studies, it seems reasonable to assume that women are more focused on CSR initiatives and a higher level of CSR increases the public image of the company and in turn increases corporate’s reputation. This assumption is tested with the following hypothesis:

 Hypothesis 2: CSR mediates the relationship between gender diversity on the board and the reputation of the company

To investigate these hypotheses the presence of female board members in the executive team will be used, as the executives are the directors who are responsible for the day to day operations of the organizations. In contrast, non-executive board members are not engaged in the day to day operations but monitor the executive board, brings objectivity to the board and are mostly involved in policy making. Non-executive board members are externally employed to the organization and hold a position on the board due to inter alia their expertise, their extensive industry network or prior experiences (Burgess and Tharenou, 2002). Because the executive team is close to the business and

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is responsible for the daily operations, they will also have more direct influence on the level of CSR and the reputation of the company.

However after analyzing the first hypothesis, it is interesting to investigate whether the influence of female CEOs on corporate reputation is stronger than women appointed to other board positions. This positive relation is assumed, as the CEO of the company is the top position of the executive board and has in general a decisive role in decision making processes (Hitt et al., 2013). In the end, the CEO is the person who is responsible for managing reputational risk, since he/she is ultimately responsible for the whole organization (Eccles et al., 2007). Besides, like research of Wyman (2014) state; “Chief Executives should set the tone from the top in building corporate resilience to reputation risk. They must also show visible leadership in a crisis and commit the company to putting things right”. Bruckmuller et al. (2014) confirm this statement. Their analysis demonstrate that a female CEO is better in managing a crisis. Women contain the most desirable characteristics for managing an unsuccessful company, as inter alia they are seen as more understanding, intuitive and tactful than men (Bruckmuller et al., 2014; Business.com, 2015). Consequently, when organizations want to change, appointing a female CEO is the best thing to do and will positively influence corporate’s reputation.

Focusing on the numbers, studies emphasize the influence of female CEOs. Catalyst (2013) marks that Finnish firms with female CEOs were on average 10% more profitable compared to companies with male CEOs. Also, a study of Kozlowska et al. (2015) show that the cumulative returns of S&P 500 companies led by a woman are significantly better than companies that have a male CEO. These better performances will be reflected in their reputation score. But, women who hold a CEO position are very rare. In 2010 less than 5% of the largest companies in OECD countries (Organisation for Economic Co-operation and Development) are in charge of a female CEO (International Labour Organization, 2015). However as previously discussed, the influence of women on the board and especially female CEOs could have significant impact on the conduct of business. So, investigating specifically the influence of female CEOs instead of female board members in general will provide this study more scope.

After the examination of the first two hypotheses a more in-depth investigation will be conducted to analyze the relation between the board position women hold and corporate reputation using the following hypothesis:

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4 R

ESEARCH

M

ETHODOLOGY

4.1 SAMPLE AND DATA COLLECTION

To conduct this quantitative research three databases and additional public available archival data are used. The research methods per database are explained below.

4.1.1 Female board members

First of all, the number of female board members and their board positions are derived from BoardEx. BoardEx is a database which contains biographical information of most board members (corp.boardex.com, 2016). The information published on BoardEx is gathered by 250 analysts and verified by multiple sources before the information is entered into the database. As not all necessary information of the board members was available for the year end 2014, the dataset was manually complemented with public available data conducted from annual reports. Additionally, due to the absence of an executive board for some companies the executive committee/management team was the primary decision making body in the organization and is included in the dataset.

4.1.2 Corporate reputation

As mentioned already in the introduction, reputation is challenging to cover in an absolute number as it is linked to subjectivity (Sabater and Sierra, 2001). It is about the perception of multiple stakeholders, like customers, partners, policy makers and regulators, the media and your employees, which should all be taken into account when measuring and comparing reputation scores. These stakeholders have certain perceptions which will be translated into (un)supportive behavior and subsequently influences the business results of the organization, see figure 3.

Figure 3: Reputation framework

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Most previous research concerning corporate reputation of U.S. companies uses Fortunes ranking of ‘Worlds most admired companies’ (Bear et al., 2010; Brammer et al., 2009; Dowling, 2006; McGuire et al., 1988; Williams and Barret, 2000). However the ranking of the European companies is too small, therefore this study makes use of the reputation score of the Reputation Institute. Reputation Institute is a worldwide leading research and advisory firm for reputation (Reputationinstitute.com, 2016). They possess reputation measures over 7,000 companies, examined along fifteen stakeholder groups in more than twenty-five industries and in more than fifty countries (Reputationinstitute.com, 2016). These scores are based on the emotional bond stakeholders have with a company, which ensures that ‘people will buy the product/services, they will recommend and invest in your company, policy-makers and regulators will give you the benefit of the doubt and employees are aligned and deliver on the strategy of the company (Reputationinstitute.com, 2016). This is investigated with the means of seven dimensions of reputation; (1) product & services, (2) innovation, (3) workplace, (4) governance, (5) citizenship, (6) leadership, (7) performance, across twenty-three attributes of reputation. These dimensions result in an overall performance score, in which companies with strong reputation scores are getting more support from the public, see table 1.

Source: Reputationinstitute.com, 2016 4.1.3 Corporate Social Responsibility

Next to measuring the diversity on the board and corporate’s reputation, a CSR measurement is necessary. Important to note is that CSR, equivalent to reputation, is challenging to cover. There are various databases that measure CSR scores of companies, however they all use different methods. Previous research mostly use the KLD database which provides social ratings for U.S. companies and is known as one of the first social investment benchmarks (Library.hbs.edu, 2015). However, as this current study takes place in Europe and the KLD database does not contain the most recent data, the Tomson Reuters ESG index is used.

Table 1: Reputation Institute - Reputation score framework Poor (0-39) Weak (40-59) Average (60-69) Strong (70-79) Excellent (80+)

Would buy the products 8% 14% 32% 57% 85%

Would recommend company 7% 10% 27% 52% 85%

Would say something positive 7% 12% 29% 56% 86% Would trust to do the right thing 7% 10% 25% 47% 81% Would welcome into local community 9% 15% 32% 56% 85%

Would work for 7% 10% 22% 38% 69%

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The Reuters index is particularly suitable to measure the mediator ‘CSR’ as it fits the definition of CSR of the European Commission (2011: 1); “CSR is the responsibility of enterprises for their impacts on society and it outlines what an enterprise should do to meet that responsibility”. Besides, the three main facets of CSR are incorporated in the ESG index (see table 2), therefore it is an appropriate index for CSR investors. Furthermore, the latest performance scores provided are very recent as the data is of 2014 year end. The data sources used to deliver a complete ESG index are all publicly available; annual reports, company websites, NGO websites, stock exchange fillings, CSR reports and news sources. With these data sources they assess companies on approximately 150 indicators which are assigned into three pillars; (1) environmental performance; (2) social performance and; (3) corporate governance performance. These pillars are subdivided into several categories which results in an overall score.

Table 2: Thomson Reuters ESG Index – Data framework

OVERALL COMPANY PERFORMANCE Environmental Performance Social Performance Corporate Governance Performance  Resource Reduction  Emission Reduction  Product Innovation  Employment Quality  Health & Safety

 Training & Development  Diversity  Human Rights  Community  Product Responsibility  Board Structure  Compensation Policy  Board Functions  Shareholder Rights  Vision and Strategy

Source: Thomson Reuters, 2015

For the reason that this study makes use of three separate databases, the sample size for this research is mostly dependent on the overlap of companies between the datasets. As presented in table 3, the dataset was mostly dependent on the overlap between the Thomson Reuters ESG index and the reputation scores of the Reputation Institute. This is due to the fact that the board information could, next to the information collected from BoardEx, be complemented by public available data. Comparing the database of Thomson Reuters and the Reputation Institute, the sample of this research consists of 262 companies. Finally when combining all the datasets and adding the control variables derived from Datastream, some missing data causes a reduction of the sample by 6 companies. All together this study will investigate the influence of board diversity (via CSR) on firm’s reputation in 256 European companies.

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Table 3: Sample and Industry/Country composition

Description N

Initial Sample Thomson Reuters 1101 Removal of firms - Match with RepTrak - 791 Removal of firms with year-end ≠ 2014 - 48 Removal of firms with missing data -6 Sample before removal of outliers 256

Removal of outliers -0

Final Sample 256

SECTOR COUNTRY TOTAL

DK FI FR DE IE IT NL NO PL PO ES SE CH UK Basic Materials 1 0 2 8 0 0 2 1 0 0 0 3 3 3 23 Consumer Cyclicals 2 0 9 8 2 6 0 0 0 0 1 5 2 9 44 Consumer Non-Cyclicals 2 0 3 3 1 0 3 0 0 2 0 3 1 7 25 Energy 1 1 2 0 0 2 0 2 0 1 1 1 0 4 15 Financials 4 2 5 5 3 10 3 2 2 0 4 5 5 13 63 Healthcare 5 0 2 5 0 0 1 0 0 0 0 1 3 4 21 Industrials 3 1 6 4 0 2 5 1 0 0 4 9 4 3 42 Telecommunications Services 1 0 0 0 0 1 1 1 0 0 1 2 1 0 8 Utilities 0 1 3 2 0 3 0 0 0 0 3 0 1 2 15 TOTAL 19 5 33 35 6 24 15 7 2 3 14 29 20 45 256

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4.2 VARIABLES

All variables used in this study will be clarified and shortly discussed in the following section and are presented in table 4.

4.2.1 Independent variable

The ratio of female board members is the independent variable. This variable is conducted from the BoardEx database and when necessary manually complemented with public available information of annual reports.

4.2.2 Mediator variable

The CSR rating is measured using the Thomson Reuters ESG index. The latest performance scores on the three pillars; environmental, social and corporate governance are reflected in one CSR rating of year end 2014. This score is used to measure the level of CSR in a company.

4.2.3 Dependent variable

The corporate reputation rating is based on the RepTrak score of the Reputation Institute. All companies have an ‘overall score’ which is used to investigate the impact female board members have on the reputation of an organization.

4.2.4 Control variable

To investigate the interrelations between the above mentioned variables, it is necessary to control the research for the most important external variables. This study is dependent on several environmental factors such as firm performances, the size of a company, the industry it is operating in, the political environment and the public concern of the company.

First of all, it seems plausible to include firm size and performance measures as control variables in this context. Prior research shows that it is likely that there is a correlation between firm performance and the degree of CSR investments and corporate reputation (Williams, 2003; Bear et al., 2010; McGuire et al., 1988).

Firm profitability and performances (Return on Assets and Return on Equity) could influence the ability of investing in CSR and reputation building (Brammer et al., 2009). Firms with strong profits and earnings could more easily engage in CSR activities like investments in innovations, quality, safety programs and charitability giving. So, in case of an economic downturn firms may be less able to invest in CSR related causes. According to Fombrun and Shanley (1990) corporate reputation is also influenced by firm performances, since financial performances act as market signals and are used for trade decisions by external analysts, creditors and investors. Thus, higher firm performances and profitability could lead to better reputation as the financial stability of the company is better. This relation is in line with the theory of Bourdieu (1986). As previously

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discussed, his theory explains four capitals from which economic capital is necessary to build social and cultural capital. This shows that it is appropriate to include performance measures as control variables.

Besides, prior research gives several reasons to include firm size (total sales) as a control variable. According to Burgess and Tharenou (2002) firm size is positively related the election of women on the board. But also, the bigger the company the more able they are to sustain competitive advantage and invest in CSR (Roberts and Dowling, 2002). Moreover, the availability of information and public scrutiny of large firms is disproportionally more compared to smaller firms, which results in a better reputation (Fombrun and Shanley, 1990).

However considering the mediator CSR, investments are needed. This makes return on invested capital (ROIC) another important control variable. At the same time, reputation has a financial component as stakeholders ask for proof of their communications programs, which is covered in the return on investment (ROI) (Schreiber, 2011).

This study is also controlled for the Free Cash Flows (FCF) since this is associated with a potential agency problem which could influence corporate’s reputation. For instance, most often shareholders would like to have the FCF paid out, while top managers prefer to reinvest this directly in the company (Fairchild, 2010; Furrer, 2010).

Furthermore, the market to book ratio could also influence corporate reputation. The higher this ratio, the more of their total assets are intangible, whereby reputation could be an important factor. Besides, the market value of a company provides additional information as this value contains the market’s expectations about future economic performances (Fombrun and Shanley, 1990; Roberts and Dowling, 2002).

Next to these financial control variables, this study is also controlled for the industry. It is likely that the degree of CSR reporting and the influence on firm reputation depends on the industry, due to the fact that the extent of disclosure of environmental information is not the same in all industries (Monteiro and Guzman, 2010; Sweeney and Coughlan, 2008). BP for example does have a lower reputation (50.5) compared to Ben & Jerry’s (76.8) as they are in a tough business which has negative impact on the environment. Besides, it could be that these firms are investing less in CSR as they are not able to improve their position, or it could be related to the consumer orientation of the company. A company that is acting close to the customer (Ben & Jerry’s) could be more focused on CSR as they have more pressure to do so.

Moreover, equivalent research of Bear et al. (2010) concerning the impact of board diversity and gender composition on CSR and firm reputation is limited to the health care industry in the

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U.S.. They argue that further studies should examine additional industries. So, the companies in this research are distributed along the economic sector classification of Thomson Reuters.

Next to controlling for sector, financial performances and the size of the company, the country can also influence the results. Despite that all the investigated countries are part of Europe, it is not assumed that there are no differences in inter alia economic wealth, culture, policy and regulations. Besides, some European countries give specific attention to the gender quota and others do not. Denmark for instance does not have a gender quota while others like the U.K., Italy and Sweden have voluntary quotas and Germany and France have legalized their gender quotas and apply strong sanctioning.

In addition to these control variables, hypothesis 3 makes use of another control variable; YRS. This variable signifies the total years the board member is part of the board, regardless of their position. The reason for adding this control variable is because the duration on the board could be of great relevance. The longer the CEO is part of the board, the more likely it is that she has more influence on the board and has greater social influence (Wade et al., 1990). Besides, a study of Shivdasani (1999) shows that CEO involvement is positively related to the CEO tenure.

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Table 4: Variable definitions

Variable Name Variable definition Independent variable

GEN_ed Dummy variable gender: 1=Female/ 0=No female board members Independent variable

REP2 Reputation score at the 31th of December 2014 Transformation: REP2 = REP^2

Mediator

CSR2 Corporate Social Responsibility score at the 31th of December 2014. Transformation: CSR2 = CSR^3

Control Variables

ROE Return on equity – Total (%)

ROA Return on assets

SALES2 Total sales in euros.

Transformation: SALES2= Log(SALES) MV2 Market value in euros

Transformation: MV2 = Log(MV)

MTBV2 Market to book value = Market value / Book value Transformation: MTBV = Log(MTBV)

ROIC Return on invested capital

FCF Free cash flow

SEC1 Dummy variable sector: Industrials SEC2 Dummy variable sector: Utilities SEC3 Dummy variable sector: Financials

SEC4 Dummy variable sector: Consumer Cyclicals SEC5 Dummy variable sector: Healthcare

SEC6 Dummy variable sector: Consumer Non-Cyclicals SEC7 Dummy variable sector: Basic Materials

SEC8 Dummy variable sector: Energy

SEC9 Dummy variable sector: Telecommunications Services COU1 Dummy variable country: Finland

COU2 Dummy variable country: Denmark COU3 Dummy variable country: Italy COU4 Dummy variable country: Poland COU5 Dummy variable country: Sweden

COU6 Dummy variable country: United Kingdom COU7 Dummy variable country: Switzerland COU8 Dummy variable country: Netherlands COU9 Dummy variable country: Spain COU10 Dummy variable country: Germany COU11 Dummy variable country: Ireland COU12 Dummy variable country: France COU13 Dummy variable country: Portugal COU14 Dummy variable country: Norway

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4.3 RESEARCH DESIGN

The most widely used method to investigate the mediation effect in a model is the analysis procedure of Baron and Kenny (1986). Baron and Kenny prescribe to perform a stepwise regression analyses to investigate the relationships. Four regression models are conducted, three simple regressions (the a, b and c line) and one multiple regression (c’ line) to analyze the overall impact when the mediator is included.

To test hypothesis 1:

To test hypothesis 2:

Analyses

(1) Simple regression  GEN predicting REP – testing for path c (2) Simple regression  GEN predicting CSR – testing for path a (3) Simple regression  CSR predicting REP – testing for path b (4) Multiple regression  GEN predicting CSR and REP

Path c in this overview is the direct effect of gender diversity on corporate reputation. However, when all four regressions are met there is complete mediation, GEN does not longer affect REP when CSR has been controlled, so path c’ is zero. Partial mediation could also occur when the first three regressions are met, but the last one is not. In this case path c’ is reduced (c’ <c), but is not equal to zero when the mediator is inserted (Baron and Kenny, 1986; Davidakenny.net, 2016; Upa.pdx.edu, 2015). So, for hypothesis 1 the first simple regression formula is enough (REP = β0

+ β1 GEN + εi) and for the second hypothesis all four regressions are conducted to measure the

impact of the mediator.

Next to the analyses of Baron and Kenny (1986) a bootstrapping test will be performed to verify the significance of the regression analyses. Bootstrapping is an alternative approach for testing mediation to evade the power problem. This approach does not have the assumption of normality

c ’

a b

Women on

Board (GEN) Reputation (REP) Corporate

CSR (CSR)

c

Women on

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of the sampling distribution and can be applied to small samples. Besides, the bootstrap analyses include only complete replications whereby the results are excluded from any form of multicollinearity or correlation. However, the minimum number of replications is set at 2,000 to obtain reliable results (Preacher and Hayes, 2008 and Preacher and Hayes 2004).

Furthermore the sample size for the third hypothesis turns out to be too small. Only 96 female board members are represented on the board of the 256 companies. Thus to obtain reliable results, this third hypothesis will not be conducted with a simple regression analysis of Baron and Kenny (1986), but with another bootstrapping test. Table 5 presents all empirical models to perform this study.

Table 5: Final empirical models Model Regressions

1. REP = β0 + β1 GEN + β3ROE + β43ROA + β5SALES + β6MTBV + β7MV +

β8ROIC + β9FCF + β10SEC1 + β11SEC2 + β12SEC3 + β13SEC4 + β14SEC5 + β15SEC6

+ β16SEC7 + β17SEC8 + β18SEC9 + β19COU1 + β20COU2 + β21COU3 + β22COU4 +

β23COU5 + β24COU6 + β25COU7 + β26COU8 + β27COU9 + β28COU10 + β29COU11

+ β30COU12 + β31COU13 + β32COU14 + εi

2. CSR = β0 + β1 GEN + β3ROE + β43ROA + β5SALES + β6MTBV + β7MV + β8ROIC

+ β9FCF + β10SEC1 + β11SEC2 + β12SEC3 + β13SEC4 + β14SEC5 + β15SEC6 +

β16SEC7 + β17SEC8 + β18SEC9 + β19COU1 + β20COU2 + β21COU3 + β22COU4 +

+ β30COU12 + β31COU13 + β32COU14 + εi

3. REP = β0 + β2 CSR + β3ROE + β43ROA + β5SALES + β6MTBV + β7MV + β8ROIC

+ β9FCF + β10SEC1 + β11SEC2 + β12SEC3 + β13SEC4 + β14SEC5 + β15SEC6 +

β16SEC7 + β17SEC8 + β18SEC9 + β19COU1 + β20COU2 + β21COU3 + β22COU4 +

+ β30COU12 + β31COU13 + β32COU14 + εi

4. REP = β0 + β1 GEN + β2 CSR + β3ROE + β43ROA + β5SALES + β6MTBV + β7MV

+ β8ROIC + β9FCF + β10SEC1 + β11SEC2 + β12SEC3 + β13SEC4 + β14SEC5 +

β15SEC6 + β16SEC7 + β17SEC8 + β18SEC9 + β19COU1 + β20COU2 + β21COU3 +

+ β29COU11 + β30COU12 + β31COU13 + β32COU14 + εi

5. REP = β0 + β1CEO + β2YRS + β3ROE + β4ROA + β5SALES + β6MTBV + β7MVx

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5 R

ESULTS

5.1 DESCRIPTIVE STATISTICS

Before performing the regression analyses, the assumptions of the Ordinary Least Squares (OLS) must be met. The primary assumptions are; normality, homoscedasticity, independence of observations, reliable measures, linearity and a corrected specified model. Besides this, attention must be given to correlation and multicollinearity.

First of all some dummy variables are added. The independent variable ‘gender’ is transformed into a dummy variable (GEN_ed: 1=female board members/ 0=no female board members). The same is done for the different sectors and the countries of domicile, which resulted in dummy SEC1 – SEC9 and COU1 – COU14.

To start the analyses in STATA the primary assumptions to perform the analyses are tested and outliers are removed. The outliers are removed based on the winsorizing function. Winsorizing is a way to detect the outliers in the dataset, set at >99% and <1%, and the specific data will be replaced to respectively the value of the 99th _{% and 1}th _{% instead of removing companies from the}

dataset. As some control variables are exposed to greater error possibility and more outliers are detected, the control variables ROE, ROA, ROIC and FCF have been winsorized for the percentage of 95% and 5%. This function is applied to all the (not dummy) variables of the dataset. Thereafter Skewness and Kurtosis have been tested to detect variables for their normality of distribution. Based on the ladder of powers (Tukey, 1977) some variables have been transformed into normally distributed variables; CSR2=CSR^3; REP2=REP^2; SALES2=Log(SALES); MV2=Log(MV); MTBV=Log(MTBV).

Table 6 presents the descriptive statistics of the untransformed variables. Reputation and CSR scores are measured on a scale of 0-100. The mean of the reputation scores is 65.50 and has a standard deviation of 8.28, which shows that the overall reputation is above average. In comparison with the reputation score, the CSR score is in general higher, with a mean of 79.80. However the standard deviation is much higher, 20.04. This means that the CSR rating of companies fluctuates highly and could be a mediator in this analysis. As already predicted and shown in previous literature, the representation of women on the board is significantly below average. Only in 25% of the companies a female board member is present.

When looking at the descriptive statistics the importance of adding control variables is underpinned. The firm size of the companies is relatively large as the control variable SALES has a mean of 20.7 million. Besides, ROE and ROA with a mean of respectively 12.8 and 5.2, are considered to be quite healthy ratios. However, the standard deviation of these ratios are high and

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reflect the importance of adding these measures as control variables. The same applies to the other investment and performance measures as well as to the market values.

All the companies of the dataset are divided into nine sectors. As already shown in table 3, 63 of the 256 companies are classified in sector 3 – financials, which explains the relatively high mean (0.246) compared to the other sectors. However as discussed in section 4.3, an extra bootstrap test will be conducted to be sure that the sample is large enough and the analysis will not be biased.

All in all, the high standard deviations show the importance for controlling these factors in the analysis to achieve the most valuable results concerning the influence of female board members on the reputation and CSR scores of the company.

Table 6: Descriptive Statistics – untransformed variables

Variabel N Mean Std. Dev. Min Max

1. REP 256 65.5332 8.284762 38.2 84.3

2. GEN_ed 256 .25 .4338609 0 1

3. CSR 256 79.80047 20.0367 10.63 95.85

4. ROE 256 12.76816 11.93704 -10.84 41.52

5. ROA 256 5.170549 4.805669 -.14 17.71

6. SALES 256 2.07e+07 2.85e+07 318700 1.61e+08

7. MV 256 21685.2 30599.52 554.13 195654 8. MTBV 256 2.946643 2.911899 .31 17.21 9. ROIC 256 8.94543 7.514364 -.21 29.4 10. FCF 256 2028.368 4343.102 -2279 16626 11. SEC1 256 .1640625 .3710577 0 1 12. SEC2 256 .0585938 .2353228 0 1 13. SEC3 256 .2460938 .4315776 0 1 14. SEC4 256 .171875 .3780108 0 1 15. SEC5 256 .0820313 .2749499 0 1 16. SEC6 256 .0976563 .2974308 0 1 17. SEC7 256 .0898438 .2865179 0 1 18. SEC8 256 .0585938 .2353228 0 1 19. SEC9 256 .03125 .1743335 0 1 5.2 CORRELATION MATRIX

Before a correlation matrix is performed, a variance inflation factors test is conducted to test for multilinear relations. This test provides descriptive evidence of multicollinearity as most of the COU control variables appears to be highly collinear (VIF: COU6 – 20.46; COU10 – 17.70; COU12 – 16.33; COU5 – 14.87; COU3 – 12.65; COU7 – 10.95; COU2 – 10.82). Due to a restriction on availability of extra data, the dataset could not be expanded. However, as this study takes place in Europe and not oversees, it is possible that there is no significant difference between the countries. Besides, COU is a control variable with 14 dummy variables and omitting these

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variables increases the degrees of freedom and the reliability of this study. Therefore, in order to limit the multicollinearity in the analyses the dummy variable COU is eliminated. This results in a mean VIF of 4.361_{, indicating no further concerns for multicollinearity.}

After controlling for multicollinearity, Pearson’s correlations between the dependent, independent and the control variables are conducted, see table 7. These correlations and their related p-value provide some descriptive explanation about the coherence between two variables. Pearson’s correlation values for reputation shows that this dependent variable is significantly correlated with the mediator CSR at a 10% level (p=0.0763; r=0.1110). However control variables ROE (p=0.015; r=0.1518), ROA (p=0.000; r=0.2507), MTBV2 (p=0.0021; r=0.1916), ROIC (p=0.004; r=0.2192) are even stronger positively correlated with reputation. These variables are all significant at a 5% level and have a relatively high correlation value. However, these relations were expected and confirm prior research. The degree of CSR investments are partly dependent on the firm performance, which consequently can influence the reputation score (Williams, 2003; Bear et al., 2010; McGuire et al., 1988).

The significant positive relation at a 5% level between the mediator CSR2 and the control variables ROE (p=0.0002; r=0.2330), ROA (p=0.0191; r=0.1464), SALES2 (p=0.001; r=0.2492), MV2 (p=0.000; r=0.2769) and ROIC (p=0.0048; r=0.1756) were as well predicted, since firms that have healthy financial ratios could more easily engage in CSR investments. Furthermore, CSR is significantly correlated at a 10% level with SEC7, basic materials (p=0.0702; r=0.1134). This relation is in contrast to the assumption that women in companies that are operating close to the consumers have more impact compared to other companies. So, a plausible reason for the significance of the basic materials sector is hard to determine.

Although the dependent variable and the mediator are strongly correlated with most performance/size control variables, gender diversity in the boardroom is only strongly positive and significant correlated with CSR2 (p=0.0053; r=0.1738). Gender diversity is not significant related to corporate reputation (p=0.4872; r=0.0436). Nevertheless, as the independent variable GEN_ed is assumed to cause the mediation effect, gender diversity on the board should be correlated with CSR (Baron and Kenny, 1986).

Furthermore, the correlation between REP and the different sectors are important to denote. SEC 3, 4, 5 and 9 are all strongly correlated with corporate reputation. SEC3 represents the financial sector and is strongly negatively related to corporate reputation. This negative relation is most probably a consequence of the financial crisis (started in 2008), which greatly damaged the trust in

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and the reputation of the financial sector. However sector 4 and 5, respectively consumer cyclicals (p=0000; r=0.2580) and the healthcare industry (p=0.0319; r=0.1341) are strongly significant and positively related to reputation and in line with the existing literature (Brammer et al., 2009; Bear et al., 2010). On the other hand, the telecommunication industry (SEC9) is negatively related to corporate reputation (p=0.0289; r=-0.1366). This negative relation was not expected but could be related to the changes made and the globalization in this sector.

Summarizing, the assumptions made concerning the influence of control variables on the relation of the gender diversity on the board on CSR and firm reputation are confirmed by Pearson’s correlation matrix. So, adding these control variables is of great importance. Besides, with this descriptive correlation table it is assumed that gender diversity on the board is positively significantly correlated with the CSR score (p=0.0053; r=0.1738) and subsequently, CSR is positively correlated with corporate reputation (p=0.0763; r=0.1110). However, a direct correlation between gender diversity and firm reputation is not confirmed.

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Table 7: Correlation Matrix2

REP2 GEN_ed CSR2 ROE ROA SALES2 MV2 MTBV2 ROIC FCF

REP2 1 GEN_ED 0.0436 1 0.4872 CSR2 0.1110 0.1738 1 0.0763** 0.0053* ROE 0.1518 0.0215 0.2330 1 0.0150* 0.7323 0.0002* ROA 0.2507 0.0092 0.1464 0.7436 1 0.0000* 0.8837 0.0191* 0.0000* SALES2 0.0611 -0.0567 0.2492 -0.1349 -0.2915 1 0.3302 0.3659 0.0001* 0.0309* 0.0000* MV2 0.0272 -0.0342 0.2769 0.2006 0.0923 0.7249 1 0.6648 0.5862 0.0000* 0.0013* 0.1408 0.0000* MTBV2 0.1916 -0.0293 0.0381 0.6317 0.6048 -0.2203 0.1308 1 0.0021* 0.6413 0.5437 0.0000* 0.0000* 0.0004* 0.0365* ROIC 0.2192 0.0525 0.1756 0.7924 0.9120 -0.2585 0.0663 0.6175 1 0.0004* 0.4028 0.0048* 0.0000* 0.0000* 0.0000* 0.2909 0.0000* FCF 0.0607 0.0733 -0.0104 0.1303 0.0721 -0.0184 -0.0124 -0.0053 0.1397 1 0.3334 0.2428 0.8690 0.0372* 0.2505 0.7695 0.8432 0.9322 0.0254*