The influence of the reputation of a firm on the relationship between board
diversity and financial performance: A comparative study between Asia
and Europe.
Nicky Thelosen 11027894
05-09-2018 2017/2018
Bachelor Thesis Economics and Business First supervisor: E. Dirksen MSc
2 Abstract
Among gender discriminations, gender-based labor inequality is a well-known global issue. Previous research shows that women hold 14,7% of the board positions of organizations, whereas men hold the other 75,3%. The most diverse boards are found in Europe, the least diverse boards in Asia. However, gender diverse boards can lead to different benefits, such as better communication and more diverse perspectives during the decision-making process. While some studies find no relation between a more diverse board and a better performance, other studies find only a negative relation. This thesis aims to find the relation between three important variables: board diversity, reputation and financial performance. Through an analysis based on three individual steps, this research investigates the effect of the reputation of a firm on the relation between board diversity and financial performance. This thesis is focused on three European countries and three Asian countries and compares different companies from different industries, operating in different environments. The analysis finds that there exists a positive relation between board diversity and financial performance. Also, there is a positive relation between board diversity and the reputation of a firm. Thirdly, a positive relation exists between the reputation of a firm and its financial performance. The variables all know a positive relation with each other. The analysis shows that a gender diverse board has a lot of benefits and leads to a better reputation and a better financial performance. Therefore, it is important to keep women represented on corporate boards. Europe is using different policies and quotas to increase the share of women on board of organizations. Asia, on the other hand, does not have a big share of women on corporate boards. A reason for this can be found in the beliefs of Confucianism and the work-life conflict. However, since women on boards bring a lot of benefits, it is important that Asian countries act to increase women’s participation on corporate boards.
Statement of originality
This document is written by Student Nicky Thelosen, who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document are 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.
3 Table of Contents
1. Introduction………..p.5 2. Theoretical framework………...p.7 2.1. Gender diversity……….p.7
2.1.1. Gender diversity in Europe……….p.10 2.1.1.1 Gender diversity in France………p.10 2.1.1.2 Gender diversity in Italy………p.11 2.1.1.3 Gender diversity in The Netherlands………...p.11 2.1.2. Gender diversity in Asia………..p.12 2.1.2.1 Gender diversity in Taiwan………....p.12 2.1.2.2 Gender diversity in South-Korea………....p.13 2.1.2.3 Gender diversity in Japan………..p.13 2.2. Quotas and policies on gender diversity ……….p.14
2.2.1. Quotas and policies on gender diversity in Europe………..p.15 2.2.1.1. Quotas and policies in France………p.16 2.2.1.2. Quotas and policies in Italy………...p.16 2.2.1.3. Quotas and policies in The Netherlands………...…….p.17 2.2.2. Quotas and policies on gender diversity in Asia…………...p.17 2.2.2.1. Quotas and policies in Taiwan………...……....p.17 2.2.2.2. Quotas and policies in South-Korea………..….p.17 2.2.2.3. Quotas and policies in Japan………..p.18 2.3. Board diversity and financial performance………...,,,p.18 2.4. Board diversity and reputation……….p.19 2.5. Reputation and financial performance……….p.20 2.6. Conceptual model and hypotheses……..………...…….p.21 3. Methodology……….….p.22 3.1. Overall research design………..…….p.22 3.2. Sample……….……p.23 3.2.1. Sample of companies...………..…………...p.24
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3.3. Dependent variable: Financial performance………..p.26 3.4. Independent variable: Board diversity………...p.26 3.5. Mediating variable: Reputation of the firm……….…..p.26 3.6. Data analysis……… ….………p.28 3.7. Strengths & limitations………..…p.29 4. Results………..…p.31 4.1. Descriptive statistics….………...……..p.31 4.2. Reputation of a firm……….….p.32 4.3. Testing hypotheses: Analysis….……….………. p.33 5. Discussion………....p.38 5.1. Findings and compliance with literature………...p.38 5.1.1. Board diversity and financial performance………p.38 5.1.2. Board diversity and reputation………..….p.38 5.1.3. Reputation and financial performance……….…..p.38 5.2. Limitations………..……..p.39 5.3. Future research……….……….p.40 6. Conclusion………...…………p.41 References………...……….p.43 Appendices………..……….p.52
5 1. Introduction
“Discrimination against women shall mean any distinction, exclusion or restriction made on the basis of sex which has the effect or purpose of impairing or nullifying the recognition, enjoyment or exercise by women, irrespective of their marital status, on a basis of equality of men and women, of human rights and fundamental freedoms in the political, economic, social, cultural, civil or any other field” is the official definition that CEDAW (The Convention on the
Elimination of All Forms of Discrimination against Women, 1979) gave to gender
discrimination. This definition was accepted and supported globally, since discrimination against women is happening all over the world (Charles, 2011).
Among gender discriminations, gender-based labor inequality is a well-known global issue. Women all over the world are paid around 15 to 50 percent less than men in the same position (Burnett, 2010). Physical and mental reasons are attributed to this phenomenon. Next to this are men also assumed to have a greater need of income, since they are the primary source of money within the family (Steans, 2003). Also, on boards of an organization, there exists a difference between men and women. According to Catalyst (2017), looking at more than 3000 companies worldwide, women held 14.7% of the board positions available. Nearly 75% of the boards have at least one women represent. If countries are compared, Catalyst (2017) concludes that European countries are the world leader when it comes to diversity. Norway, France and Sweden had, with respectively 46.7%, 34.0% and 33.6%, the highest percentages of women on their boards. The lowest percentages of women on boards are found in Taiwan (4.5%), South Korea (4.1%) and Japan (3.5%).
Since the world is getting more globally connected, forces that are promoting gender equality are getting more internationally focused. Borders are getting vague and people are moving more easily to other countries and different companies. Businesses are getting more internationally oriented and since gender diversity has become an upcoming topic of interest, it is an important aspect of a business to keep in mind (García-Meca, García-Sánchez & Martínez-Ferrero, 2015).
As earlier described, Europe has the highest percentage when we look at the number of women that holds positions on a board, Asia lags far behind. Taiwan, South-Korea and Japan have the lowest percentages. A reason for this can be the absence of quotas set by the government of those countries. This research investigates the effect of the quotas, set by the government, on the financial performance of a firm. Do the quotas influence the performance and, if they do, in a negative or positive way? In the theoretical framework, more information
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will be provided on these regulations and policies that countries implement to reach a higher percentage of women on their corporate boards.
This thesis aims to find the relationship between three important variables: board diversity, reputation and financial performance. Therefore, the research question is: “What is the effect of the reputation of a firm on the relationship between board diversity and the financial performance of that firm?”. In this research the differences between European countries that implement quotas and Asian countries that are not using certain quotas is being investigated.
This thesis applies the empirical, quantitative, theory-oriented approach. Hypotheses are being established, based on earlier research and theories. To test these hypotheses, quantitative data is being collected through a survey and through online databases. Sixteen different firms are the subject of this research. Eight firms from Europe are being compared with eight firms from Asia. The European firms are Italian, French and Dutch, the Asian firms are Taiwanese, South-Korean and Japanese. These countries are chosen because the European countries know quotas on board diversity and have a relative high rate of women on their boards. The Asian countries have no quotas and have the lowest rate of women on their boards. From each country two or three companies are selected from the top 50 best brands of that country based on the lists of Brand Finance. Data about the reputation of a firm is gathered through a survey. Data about the financial performance and board diversity is gathered from annual reports, posted on their official websites. After all the variables are known, all the data will be compared with each other. Due to comparison of different data, more information about the relations between the three variables will be gathered. The analysis will the effect of the reputation of a firm on the relationship between board diversity and financial performance. This approach, that starts with hypotheses that are developed from already existing theories, is called a deductive approach (Field, 2013). This research provides several contributions to the already existing literature. Firstly, it provides direct evidence on the association between board diversity and performance. Secondly, the different regulations and policies on board diversity are inspected, which makes this research concerned with the corporate governance of countries. Thirdly, this study is more comprehensive than earlier ones, since it is not only focused on financial performance, but also on the evaluation of a firm by the public, which has an influence on financial performance on its own. Finally, the study provides an international contribution, since it gives a comparison of corporate governance regulations and their influences on a firm’s performance and evaluation between Asia and Europe. This makes it possible to provide recommendations, because results can indicate which country follows the most effective governance regulation. It is a comparative
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research which examines the important topic of board diversity and its effect on financial performance.
This thesis is organized as follows. The next chapter provides a theoretical framework. Here will be explained more about important terms as board diversity, firm reputation and financial performance. Theories will be provided and an overview of what is already known about these terms from earlier literature is given. Based on this information, the conceptual model will be designed and the hypothesis will be formed. The chapter that follows describes the methodology of the thesis. The kind of research that is being used to answer the research question and to find evidence to support or reject the hypothesis is explained. The different variables used in the analysis are introduced and the way that calculations are being made is described. Also, strengths and limitations of the method are described. In the fourth chapter, the results of the analysis are given. Chapter 5 contains the discussion and will take the findings into consideration and compare them with the academic literature. Also, limitations are described and recommendations for further research are provided. The sixth chapter is the conclusion. In the conclusion, an answer will be given on the research question. After the conclusion, the references and appendices are attached.
2. Theoretical framework 2.1. Gender diversity
Diversity in organizations, based on gender, has been an important topic of research for a long time. This research was firstly based on the lack of promotion of women at lower and middle management levels (Farrell & Hersch, 2003). Since the start of the 21st century, this research made its switch towards top management functions and the board of directors. Farrell and Hersch (2003) argue that although women increased their presence in corporate boardrooms, the exact number is still low, compared to the total number of women represented in the workforce. This low representation of women in corporate boards also has an effect on women that are represent in the top management teams of other companies. Thompson and Sekaquaptewa (2002) argue that when women are not well represented in boards, their actions can face more critique and may be judged harder by men on the board. They experience a solo status, since they are the only members of their social category in the group (Thompson & Sekaquaptewa, 2002). The openness of women can be reduced when they are represented with less than three women in a group. When there are at least three female directors on a board, women are able to have a positive influence on board communication, effectiveness and governance (Vinnicombe, 2009). The progress of getting more women on boards of
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organizations goes slowly. There are a few barriers which hold women back from achieving a position in a corporate board. Burke (1997) found that business contacts are the second most crucial characteristic to gather a board position. Most board positions are acquired through informal networks, which is mostly an “old boy’s” network. Many good, female candidates will not get the attention from this small group of men (Burke, 1997). Next to the lack of access to informal networks, the work-life conflict, biased stereotypes of women as leaders of companies and the lack of women in similar positions are barriers to achieve a top management function (Vinnicombe, 2009).
Burke (1997) argues that another reason for the lack of women on corporate boards is that companies do not know when to look for qualified women. When companies have already women serving in their boards, they are less likely to hire another female director. When the only female board member resigns, the board of directors will be more likely to hire a new female director, instead of a man (Farrell & Hersch, 2003).
But when are companies more likely to hire women instead of men? This is explained by an effect called the ‘Glass-Cliff’ (Bruckmüller & Branscombe, 2010; Farrell & Hersch, 2003; Ryan & Halsam, 2005). After the terms ‘glass ceiling’ and ‘glass escalator’ were introduced, Michelle Ryan and Alexander Haslam conducted a research in 2005 and brought the term ‘Glass-Cliff’ into the world. Whereas glass ceiling and glass escalator are related to climbing the corporate ladder from lower management to middle management functions, is glass cliff related to the achievement of leadership roles (Ryan & Haslam, 2005). Women tend to experience a glass ceiling when they try to climb the ladder in their organization, while men tend to be in an escalator, achieving higher functions in a rapid tempo (Maume, 1999; Morrison, White & Van Velsor, 1987). Ryan and Haslam (2005) did research among 100 companies before and after the hiring of a male or female corporate board member. The research showed women are likely to get leadership positions that are less promising than the positions that men get. So, next to the glass ceiling and the lack of access to a glass escalator, are women, when they have a board position, placed on a glass cliff (Ryan & Haslam, 2005). Next to this, their study states that women are placed in a more uncertain position, which makes them more likely to fail. Further research of Ryan and Haslam (2006) was consistent with their earlier research but showed different insides. Women are, more likely than men, placed in leadership positions of companies that are performing bad. It provides evidence that the appointment of women is not related to the declining performance of the company, but to a market increase and rising share prices of the company (Ryan & Haslam, 2006). Also, female candidates are being regarded as more suitable for a senior position, having a better ability for leadership and the
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stereotype characteristics of women are being regarded as favorable. Some of these stereotypes are: being aware of the feelings of others, creative, intuitive and suited to stress management. The study of Bruckmüller and Branscombe (2010) showed that women are indeed regarded as more suited for leadership positions in times of crisis than men. This mainly relies on the fact that women have traits that are needed in uncertain times. These traits are: communication skills, willingness to cooperate, ability to work in teams and the ability to encourage others (Bruckmüller & Branscombe, 2010). Women are appointed in leadership position in precarious times, not because of the criticism and failure that they will go through during it, but because men are not fitted for these positions and women have the characteristics needed to solve the crisis (Bruckmüller & Branscombe, 2010). So, glass cliff positions offer women the best opportunity to reach the top-level management and are not necessarily a negative thing (Haslam & Ryan, 2008).
A good example of women that are bringing companies back on track in precarious times are the female inhabitants of Iceland. In October 2008, the worldwide financial crisis struck Iceland at first. Before this event, Iceland has always believed it was strong and independent, while it was actually bankrupt and beholden to creditors (Boyes, 2009). The fall of Iceland was partly caused by the lending practices of US mortgage banks. But also by the collapsing confidence of the inhabitants of Iceland. This lack of confidence was caused by the division that existed. Iceland is positioned between America and Europe and was regarded as an intersection between these two (Boyes, 2009). The crisis of Iceland was unique in its sort since it is such a small island. The country counted at that time 320.000 inhabitants, it had three major banks, high rates of literacy, an intimate political system and an isolated position from the rest of the world. These six aspects made the crisis of Iceland a micro-version of the crisis that the rest of the world was facing. Economist Vilhjalmur Bjarnason calculated that the meltdown of Iceland was caused by thirty people. These were the people that were the core of the country’s decision-making directors (Boyes, 2009). The world was curious about how the small country was going to solve this problem on its own. Christmas 2008, the people’s patience with the government was gone. They came together in front of the parliaments building and threw eggs, food and paint at the building. The Icelanders wanted the government and the leaders of big financial institutions to resign. The coalition finally broke down and the prime minister resigned (Olafsdottir, 2009). In February 2009, Icelanders choose Johanna Sigurdardottir as their new prime minister. Also, the government was moving more towards a left position. She was the world’s first lesbian head of a state (Rosin, 2012). Sigurdardottir claimed that men had destroyed the nation’s banking system and caused the banking crisis in
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her country. Her first job was to fire the directors of the central bank of Iceland (Olafsdottir, 2009). For a group of women, the destruction of the economy turned into an opportunity to step into the positions that were first occupied by men who, eventually, were blamed for the crisis. These women played a leading role in creating a more balanced economy (Sunderland, 2009). The positioning of women in Iceland’s major banks resulted in a rise of the economy, Halla Tómasdóttir and Kristin Petursdóttir set up an investment in 2007 to boost the economy by investing in green technology. Their company, called Audur Capital, is a firm which brought female values in the male industry of private equity, wealth management and corporate advice (Lagarde, 2010). Audur Capital is mostly managed by women and is the only firm in its industry that survived through the crisis without a scratch. The values that they brought into the economic industry are: risk awareness, profit with principles, emotional capital, straight talking and independence (Ertel, 2009). Also, Elin Sigfusdottir and Birna Einarsdottir took over the lead of two failed, nationalized banks: Glitner and Landesbank. The businesswomen brought the financial sector of Iceland back in shape (Prügl, 2012).
2.1.1. Gender diversity in Europe
In Europe, women are outnumbered by men when it comes to leadership positions. In 2016, 65.3% of the European women had work or was actively looking for work (Catalyst, 2017). However, they are still underrepresented in positions on corporate boards. In 2016, 22.6% of board seats of all countries of the European Union was held by women (European Commission, 2016). In 2010, this percentage was 11.9% (Catalyst, 2017), which means there was a big increase. Europe still has a long way to go to eventually achieve gender balance. From 2010 till 2016, the share of women on corporate board positions had increased extremely (European Commission, 2016). Research of the European Commission (2016) shows that the highest growth was found in Italy, with +25.5%. The runner up was France, with a rise of 24.8%. The Netherlands were found on the seventh place of the list with a growth of 13.2%. The absolute percentage of women in board positions in 2016 are 34% in France, 30.8% in Italy and 26.2% in The Netherlands (Credit Suisse, 2016).
2.1.1.1. Gender diversity in France
France has the highest percentage of women on their boards. Research by Credit Suisse (2016) and the European Commission (2016) showed that 34% of the board positions of companies in France in 2016 were occupied by female directors. Nekhili and Gatfaoui (2013) argue that there is a trade-off between corporate board job characteristics and the glass-ceiling effect in France. If women accomplish to break through the first glass ceiling, they will find
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another one when they reach the level of the corporate board (Nekhili & Gatfaoui, 2013). This leads to women being less competitive than men on the corporate ladder. Family ownership is also an important factor in the process of hiring new board members. According to Nekhili and Gatfaoui (2013), a structure based on family ownership leads more women to a corporate board position.
2.1.1.2. Gender diversity in Italy
The big increase in Italy, which led to an amount of 30.8% in 2016 of female board members, was an important milestone for the Italians. In 2017, CONSOB (2017) marked the highest rate of women represented on boards since the gender quota became obligated by law. CONSOB (2017) argues that on average, every board in Italy has three women directors and that two-third of all female directors are operating independent.
In 2016, women held 30.8% of the board positions in organizations in Italy (CONSOB, 2017; European Commission, 2016). Sylvia Gutierrez argues that it is time to put the discussion on gender diversity among boards a step further. By not only focusing on gender, but also on age, race and background, diversity will be looked at from a wider vision (Deloitte, 2017). The more diverse a board is, the more various perspectives and ways of thinking you generate. This can help companies to reach a higher level of performance (García-Meca, García-Sánchez & Martínez-Ferrero, 2015; Midavaine, Dolfsma and Aalbers, 2016; Shehata, Salhin & El-Halaly, 2017).
2.1.1.3. Gender diversity in The Netherlands
In the Netherlands, the topic of female directors on corporate boards is getting a lot of attention during the past few years. This attention has a positive influence and increases the percentage of female board members recently. In 2016, 26.2% of the board positions in the Netherlands were held by female members (European Commission, 2016). However, The Times recently published an article that argues that almost half of the Dutch people are working part-time (Sage, 2018). This is more than in other European countries. The difference in working hours between women and men is in no other European country as big as in Holland (de Waard, 2018). 63% of the Dutch women between 18 and 25 years old are working part time. This is high, compared to the fact that 30% of the Dutch men between 18 and 25 are working part time. 68% of women between 31 and 35 are working part time, against 13% of the Dutch men in this age category (Sociaal en Cultureel Planbureau, 2018). This high amount of part time female workers can form a reason for the lack of women among board positions in the Netherlands. Part-time working on corporate boards is rare (House of Commons & Business,
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innovation and Skills Committee, 2013). Since there are so many women working part-time in the Netherlands, this has important limitations for the position of them on the corporate ladder. Employers will not consider part-time workers for their board functions, which can therefore lead to a lack of female candidates for the board position (House of Commons, 2013).
2.1.2. Gender diversity in Asia
In Asia, women are more outnumbered by men when it comes to leadership positions. However, women form a big part of the workforce in Asia, namely, 64% in East Asia, where Taiwan, South-Korea and Japan are positioned. Even though many women participate in these big economies, they are still underrepresented in positions on corporate boards. In 2017, only 7.8% of board seats in Asia were occupied by female directors (Catalyst, 2017).
In Asia, the lowest percentages of women on boards are found. However, East Asia has a large participation rate of women in the workforce. But the difference with other parts of Asia, for example South-Asian and Central-Asian countries, is huge. This percentage can vary from 3% to 80% (ADB, 2016). Afghanistan has a female participation rate of 16%, whereas in Nepal, 83% of the workforce is female. This mainly depends on the culture differences between countries (ADB, 2016). In some countries, women are expected to stay at the house and take care of the children, whereas in other countries women are expected to work to generate money for elder family members (Steans, 2003).
Japan and South-Korea are overall high-income countries; however, women are only in the labor force for a short period. They enter when they become 20 years old, but leave when they are getting married and getting children. This withdraw usually occurs in their late 30s (ADB, 2016). Taiwan, South Korea and Japan have respectively 4.5%, 4.1% and 3.5% female directors on boards (Catalyst, 2017).
Taiwan and South Korea are two of the four Asian Tigers. They have become manufacturers, of especially consumer electronics, in a rapid tempo and therefore, they gained a high position within the world economy (Krugman, 1994). Next to this, Japan’s performance has also been remarkable, it experienced an extreme growth between 1950 and 1960, before the Asian Tigers started to rise (Krugman, 1994). Next to the fact that they are world leaders in producing consumer goods, they have something else in common. Namely, that they lack gender diversity.
2.1.2.1. Gender diversity in Taiwan
In Taiwan, women hold 4.5% of the board positions. The number is low, but it is increasing. The growth of this percentage is mainly caused by their newest female president,
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Tsai Ing-Wen, who puts gender equality within organizations at the top of her to-do list and supports pro-women initiatives (Solomon, 2016). In Taiwan, cultural values are regarded as the biggest obstacles for women while climbing the corporate ladder (Chou, Fosh & Foster, 2005). Confucianism is a belief originated in China. Although China and Taiwan have been separated for a long time, the Chinese gender and family belief still has its influence on the Taiwanese women (Chen, 2000). Career related, women have no chance to get the same success as men, and if they do, they do not receive equal recognition (Chen, 2000; Chou, Fosh & Foster, 2005). The philosophy emphasizes social roles and the responsibilities of the different social functions. The role of women in the 21st century in Taiwan is to work, get married and have kids (Chou, Fosh & Foster, 2005). The work-family conflict is a big obstacle for women in Taiwan, related to their career (Chen, 2000; Chou, Fosh & Foster, 2005).
2.1.2.2. Gender diversity in South-Korea
In South-Korea, the percentage of female directors on corporate boards is also rising. However, this rise is threatened by the fact that Korean companies know a strong Glass Ceiling (Choi & Park, 2014). Women in Korea are underrepresented on corporate boards. Only 4.1% of the Korean board seats are taken by female members (Catalyst, 2017). Korea knows a Confucian culture, which follows the belief that women are expected to support the family and their husbands earn the money (Palley, 1992). Choi and Park (2014) believe that the most important step to crack this ceiling is to implement regulations that make the upbringing of children easier. When this process gets easier, women can increase their participation in the workforce, since this is ending when they get children (ADB, 2016; Choi & Park, 2014). Next to the work and family conflict, gender stereotypes and male-oriented organizational cultures are the main obstacles that Korean women face in their career (Choi & Park, 2014).
2.1.2.3. Gender diversity in Japan
Keiko Hayashi (Deloitte, 2017) argues that the rising ratio of women among corporate boards in Japan reflects the increasing awareness of the importance of board diversity. Overall, in 2016, women held 3.5% of the board seats in Japan (Catalyst, 2017). Japan knows a highly concentrated ownership structure (Grosvold & Brammer, 2011). This means that the Japanese boards are extremely inside dominated. Potential new board members are drawn from a small group of committed managers (Aguilera, 2005). This small group is formed by mostly men. However, the Japanese government has changed. The Corporate Governance Code of 2015 required that each company has at least 2 outside members (Tokyo Stock Exchange, 2015). Because of this code, the composition of the board started to change and the number of female
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board members increased (Deloitte, 2017). At first, the Japanese companies did not see the benefits of having outside board members, their inside dominated views now had to change. Most CEO’s of Japanese companies had spent their whole career at one company (Grosvold & Brammer, 2011). By gaining access to views from outside, including those of women, they can create new opportunities for the company.
2.2. Quotas and policies on gender diversity among corporate boards
Since gender diversity has become an upcoming topic of interest, it is an important aspect of a business too (García-Meca, García-Sánchez & Martínez-Ferrero, 2015). Midavaine, Dolfsma and Aalbers (2016) argue that each board needs an amount of diversity to be successful. A more diverse management can lead to more perspectives and therefore to more diverse visions and better decisions (Shehata, Salhin & El-Halaly, 2017). To be able to get access to different perspectives, a company needs diversity. To make sure diversity in corporate boards exists, many countries have policies, regulations or quotas to guarantee and permit gender diversity among corporate boards. Especially quotas that obligate a specific number of women in a board have a big impact (Adams & Ferreira, 2009; García-Meca, García-Sánchez & Martínez-Ferrero, 2015; Shehata, Salhin & El-Halaly, 2017). In 1995, only four countries were using these quotes. Nowadays, more than 20 years later, 120 countries are using them (Zillman, 2017). Firms worldwide are being regulated to avoid under-representation of women in higher positions.
Europe is taking huge steps in its effort to increase diversity in corporate boards (Zillman, 2017). Norway introduced a 40% quota in 2006, which is met nowadays. Other countries that are using high quotas for diversity are: France, The Netherlands, Italy, Spain, Iceland, Finland and Belgium (Catalyst, 2017). Asia, on the other hand, lacks behind when it comes to gender quotas. Out of the 120 countries, there is only 1 Asian country that is implementing a gender quota. Indonesia has set a quota of a minimum of 1 female board member in each organization in 2013 (Zillman, 2017).
Most of the time, countries that are not following any quotas, follow other policies or implement other laws related to board diversity based on gender. In the following chapters, information will be provided about the different countries of the sample and how they try to create a gender diverse corporate culture.
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2.2.1. Quotas and policies on gender diversity in Europe
Countries in Europe have high percentages of women on corporate boards compared to other parts of the world. However, different annual reports of the European Union, show that it has been a difficult way to get there. The European Union took several actions to increase the presence of women in corporate boards. With its strategy for Equality between Women and Men, in 2010, they raised the attention for the problem (European Commission, 2010). In 2011, they called for self-regulation by companies to create a better gender balance in the boards (European Commission, 2016). In 2012, the European Union noticed that their call for self-regulation did not have the effect they expected it to have, so they went a step further. Because the percentage of women in corporate boards did not change, the European Union started to threaten companies to establish quotas and criteria’s regarding the selection process. On November 14th, 2012, the commission made a law, which had to make more equally divided boards in Europe happen (European Commission, 2012). The European Commission (2012) came up with a set of quantitative objectives where they stated to increase women’s participation on corporate boards to 30% by 2015 and 40% by 2020 on stock exchanges. Companies with a lower share had to make other regulations, relative to a comparative analysis of the recruitment process. The recruitment process had to be clear, gender-neutral and unambiguous. This approach would make sure that the core of the recruitment process, namely finding the right person for the job, would remain the same. Only when there are two candidates applying for the job, and they are equally rated on every aspect, priority must be given to the under-represented sex (European Commission, 2012). This legislative action to increase the presence of women on corporate boards led to a large increase in several countries.
Even though the European Union aims to create a general policy and strategy for women on corporate boards, the countries of the European Union must define for themselves how they want to implement it in their national regulations and policies. The criteria for board positions and the recruitment processes are therefore dependent on both the country of the company and the company itself. This is because the process must follow a comparative assessment, which is, on its turn, based on the core competencies that the companies establish themselves (European Commission, 2016).
Because this proposal does not have a ‘one size fits all’ solution, it allows some member states of the European Union to have a different strategy to reach the percentage of female directors on their boards, while not applying the requirements for the selection process. There is, nowadays, no final agreement or adoption of a general regulation among all the European countries. The European Union came up with a gender equality strategy (2015). The strategy
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functions as an addition to 2011 – 2020 European Pact for Gender Equality. This strategy aims to promote gender equality as a core activity of the European Union. It states that equality between men and women is a core value of the European Union and an important driver for the economic growth. The strategy argues that the European Union must promote this equality among five key priorities (European Parliament, 2015). These five areas are: equal economic independence, equal pay for work of equal value, equality in the decision-making process, dignity, integrity and ending gender-based violence, and promoting gender equality beyond the European Union. Next to these five key priorities, the European Union will continue to measure and promote gender equality.
2.2.1.1. Policies in France
France knows, since January 2017, a legislative quota of 40%. This quota holds for both companies on exchange stocks and for private companies with revenues or total assets over 50.000.000 euro, with more than 500 employees for three years (Deloitte, 2017). Also, governmental organizations must follow this rule. France also set a rule that, if a board has 8 or less than eight members, men or women can hold no more than a two-seat difference (European Parliament, 2015). The legislation that establishes the quotes comes forth out of other laws that have extended the Cope-Zimmerman law. In 2012, the Sauvadet law extended the gender quotas to governmental bodies. In 2014, the Vallaud Belkacem law went a step further (Lépinard, 2015). It extended the requirements to the governmental sector, social security organizations, the cultural sector and the sports sector.
2.2.1.2. Policies in Italy
Italy has known gender quotas since August 2011. The quota obligates companies to have a board in which the under-represented gender must hold at least 33% of the board positions. In the first term of the company, this requirement is 20% of the under-represented sex (Terjesen, Aguilera & Lorenz, 2015). The gender quote only applies to the first three terms of a company’s board. After these three consecutive terms the quota will expire. This quota applies to companies listed on regulated markets and those companies that are subject to public scrutiny. In 2012, another gender quota was introduced. However, this one was focused on state-owned companies. This quota also had effect for three consecutive board terms since the date the quota had passed, which was January 2013. If companies will not follow these rules, they will get a fine. If, after the fine, the board of the company is still not changed, the prime minister of Italy and the minister for equal opportunities can call to replace the board (Bianco, Ciavarella & Signoretti, 2015).
17 2.2.1.3. Policies in the Netherlands
The Netherlands hold, since 2013, a quota of 30% representation of each gender on management boards. The act was introduced on a comply-or-explain basis. This means that the quota did not have to be followed mandatory (Heemskerk & Fennema, 2014). The quota was expected to be expired by 2016 but was extended in 2017 under the same terms. However, the government explicitly stated that if the terms are not met, the gender quota will become mandatory. The Dutch Corporate Governance Code argues that diversity must be considered in every layer of the organization. The code is not mandatory but applies to a large amount of listed companies of the Netherlands (European Parliament, 2015).
2.2.2. Quotas and policies on gender diversity in Asia
Asia is not as strict as Europe when it comes to board diversity. The only Asian country that is implementing quotas on diversity among corporate boards is Indonesia (Zillman, 2017). Also, there is no general system that regulates board diversity among whole Asia. However, there are other initiatives to promote gender diversity among corporate boards within the three different Asian countries that this research focuses on.
2.2.2.1 Policies in Taiwan
Taiwan does not have any quotas related to women on corporate boards for publicly listed companies. However, Taiwanese state-owned companies and legal groups are required to have a presence of at least 33% of female directors on their boards (Huang, 2015). Next to this, the Corporate Governance Best Practice Principles for Taiwan stock exchange-listed organizations requires companies to focus on gender diversity and uses the number of female directors on boards as a key measurement in corporate governance evaluation as part of the implementation of the gender equality policy and the increasement of female board members (Chen, 2011). The Gender Equality in Employment Act is the most recent regulation. It prohibits discrimination in the recruitment process, strengthen the sexual-harassment laws and grant female employees maternity leave (Chen, 2011). Also, the Taiwanese government committed to the CEDAW (The Convention on the Elimination of All Forms of Discrimination
against Women, 1979). This convention was mentioned in the introduction of this research and
sets up an agenda for national action to end discrimination (Charles, 2011). 2.2.2.2. Policies in South-Korea
South Korea does not know any quotas for women on boards. However, they have set a target of 18.8% female directors in the public sector of South Korea. This plan had to include loads of training program to help the female workforce participants (Deloitte, 2017). However,
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they did not reach this target. South-Korea has a gender quota, but it is not related to corporate boards. It is an electoral gender quota (Shin, 2014). These gender quotas were introduced shortly before the 2000 national election. However, this law was to encourage 30% voluntary candidate quotas for women on the list. This quota was without sanctions and not mandatory, so political parties did not even try to reach this percentage. However, women’s presence became more noticed in the Korean elections of 2004. A two-vote mixed electoral system was introduced and had an immediate and direct impact on women’s representation in the legal body of the country (Schwindt-Bayer, 2009). 39 women were being elected in that year. In 2012, 47 women were taking part in the parliament of Korea, which is a percentage of 15.7% of all the seats (Shin, 2014).
2.2.2.3. Policies in Japan
Japans’ way to provide access to the labor market and high positions for women, has been ineffective. Even though in 1985 the Equal Opportunities Act passed, its effect was not what was hoped for (Gelb, 2000). Japanese women have pressed their government to conform new gender equity standards, leading to new rights. The maternity leave law of 1992 made it possible for women to participate in the work force. It increased women’s participation in the labor market, but most of the times for part time jobs (Abe, 2011). As mentioned before, employers will not consider part-time workers for their board functions, which can therefore lead to a lack in female candidates for the board positions of Japan (House of Commons, 2013). Prime Minister Shinzo Abe, set in 2014 a target to reach the 30% of female board positions by 2020. This holds for both the private sector as well as the public sector. Also, The Act on the Promotion of Women’s Participation in the Workplace, that Japan implemented in 2015, tends to rise the opportunities for women in the workforce and tends to give them a better chance to balance their career and family in a positive way (Deloitte, 2017).
2.3. Board diversity and financial performance
Brand reputation has an influence on financial performance. These two terms are very important for a firm and its success. Is there a relation between the diversity of a board and the way in which a company experiences a good reputation and financial performance? Earlier research has showed mixed results on the relation between board diversity and the performance of a firm. Midavaine, Dolfsma and Aalbers (2016) argue that each team needs an amount of diversity to be successful. This should also hold for the board of directors of a firm. It will, eventually, improve its strategic choices and performance. Overall, it can be argued that a more diverse management can lead to more perspectives and therefore to more diverse visions and
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better decisions (Shehata, Salhin & El-Halaly, 2017), whereas teams with the same characteristics will make decisions faster, but therefore with less comprehensive information and perspectives (Midavaine, Dolfsma & Aalbers, 2016).
It can be said that board diversity may lead to different perspectives, so to better decisions (García-Meca, García-Sánchez & Martínez-Ferrero, 2015; Midavaine, Dolfsma and Aalbers, 2016; Shehata, Salhin & El-Halaly, 2017). However, some studies found a significant impact on firm outcomes by female directors, however, the average effect was most of the time negative (Adams & Ferreira, 2009; Zahra & Stanton, 1988). The mixed results of earlier research form a good reason to do more research about this relationship between diversity and performance.
2.4. Board diversity and reputation
The reputation of a firm is important. It is a representation of a company’s past actions and future prospects. A good reputation leads to a lot of benefits for a firm. But in which way does board diversity influence the reputation of a firm? Since gender diversity has been an important topic of research lately, it has an influence on the reputation of a firm (Brammer, Millington & Pavelin, 2009). A firm’s reputation is determined by the signals the public receives, related to its behavior. Whether this information comes from the media, from the firm itself or from the stock market does not matter (Fombrun & Shanley, 1990). The role that women on corporate boards might have, related to the reputation of a firm lies in the fact that female directors may have an influence on external agents (Brammer, Millington & Pavelin, 2009). They will think that the board functions more effectively because of the female board members. They expect women to bring important skills, knowledge and competencies into the boardroom. Moreover, they expect women to help the organization manage the relationship with the stakeholders and with the employees and customers (Bass & Avolio, 1994; Burke, 1997; Daily, Certo & Dalton, 1999; Vinnicombe, 2009). Because of the view that women bring valuable resources that are needed for an effective decision-making process, board diversity may contribute to the reputation of a firm in a positive way. Earlier research is consistent with this. Women can take part in enhancing board independence or take a role of mentors for other women within the same organization (Brammer, Millington & Pavelin, 2009). Also, women are being regarded as more effective and more satisfying leaders by both other men and women (Bass & Avolio, 1994)
20 2.5. Reputation and financial performance
Gender composition of a board can affect the quality of the financial performance of a firm, and because of the increasing attention for it, it can even affect a firm’s reputation (Shehata, Salhin & El-Helaly, 2017). Corporate reputation represents the way that the public looks at the firm over time (Bear, Rahman & Post, 2010). Earlier research has proved that there are a lot of benefits related to having a good reputation. A good reputation leads to less employee turnover, a higher employee satisfaction and a higher employee engagement (Shirin & Kleyn, 2017). These benefits, on its turn, will lead to financial benefits for the firm. Since employees are more engaged with the company, they will become more proactive towards their job, which will lead to a better performance of the firm (MacLeod & Clarke, 2009).
Also, it affects corporate branding in a positive way. It makes it easier for a firm to use its’ brand equity to enter new markets or launch new products (Bear, Rahman & Post, 2010). This information states that there will be financial benefits generated from investing in brand reputation. Dowling (2006) concluded out of research that corporate reputation enhances the market value of a company. Earlier research by Roberts and Dowling (2002) implicates that firms have a better chance in reaching and sustaining superior performance over time if they also possess good reputations. This is in line with the growing attention for strategy research that links high-quality intangible assets, like reputation, with sustained superior performance. This is mainly because reputation is impossible to imitate since it is an intangible resource (Barney, 1991; Roberts & Dowling, 2002). Several studies have indicated that reputation leads to a higher corporate value (Dowling, 2006), sustained superior performance (Roberts & Dowling, 2002), higher customer retention (Caminiti, 1992), lower cost through reduced personnel fluctuation (Caminiti, 1992, Preece, Fleisher & Toccacelli, 1995) and a higher customer satisfaction (Bontis, Booker & Serenko, 2007).
21 +
+ +
2.6. Conceptual model and hypothesis
Based on the results of earlier literature the conceptual model is formed: Figure 1
Conceptual model
The research question of this thesis is: “What is the effect of the reputation of a firm on the relationship between board diversity and the financial performance of that firm”. This research question compares the difference between the existence of quotas and the non-existence of quotas with each other. Based on findings out of earlier research the following hypothesis are formed:
H1: Board diversity knows a positive relation with financial performance H2: Board diversity knows a positive relation with reputation
H3: The reputation of a firm is positive related to financial performance
The plus symbols in Figure 1 show that each relation is expected to be positive. The three variables of this research are: the independent variable board diversity (X), the dependent variable financial performance (Y) and the mediating variable reputation (M).
Board diversity (X) Financial performance (Y)
22 3. Methodology
In this chapter, the overall research design, the sample and the variables of interest will be introduced. An explanation about how the different variables will be measured is given. This concerns the dependent variable, the independent variable and the mediator. Also, information about the strength and limitations of the research will be provided.
3.1. Overall research design
As earlier mentioned, the main purpose of this thesis is to find the effect of a firm’s reputation on the relationship between board diversity and financial performance. This thesis compares Europe with Asia. The aim of the purpose is to find out whether or not it is beneficial for countries to use gender quotas or other policies, regarded to corporate boards. This is a theory-oriented, empirical thesis, which means that the main objective of the research is to contribute to the already existing theory. In other words, the thesis knows a deductive research process. Deductive research starts by going through already existing literature and then make conclusion out of it in the shape of different hypotheses (Spens & Kovács, 2006). These hypotheses are tested empirically, and conclusions are based on the rejection or support of the, before designed, hypotheses (Arlbjørn & Halldórsson, 2002; Spens & Kovács, 2006). The deductive research design constitutes a valid reasoning and includes the deducing of the results from the premises (Arlbjørn & Halldórsson, 2002; Spens & Kovács, 2006; Zalaghi, 2016). If the premises of the research are accepted, the conclusion must be accepted. The results are derived from a quantitative test. The main reason for choosing the deductive approach is that the assumptions based on the theory are clearly specified, so they can be studied very punctiliously. Godfrey and Hodgson (2010) even argue that the deductive research method has the most descriptive power and is preferred over other methods.
The deductive approach requires a test. In this thesis, the test is quantitative. Quantitative methods are associated with numerical data (Field, 2013; Spens & Kovács, 2006). In this research, the test is formed by a survey and a three-step analysis. To find this relation, we need to the define first which variables are the independent variable, the dependent variable, the mediating variable and the control variable.
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3.2. Sample
Since this thesis aims to compare Europe with Asia, a sample of sixteen different companies is being used: eight from Asia and eight from Europe. The countries are chosen based on the lowest and highest percentages of board diversity in the world in 2016.
Research by Credit Suisse (2016) showed that the highest percentages of board diversity are found in Europe. Norway (46.7%), France (34%) and Sweden (33.6%) have the highest percentages of women on their boards (Credit Suisse, 2016). However, since the thesis aims to find the effect of gender quotas, it is important that the European countries used for comparison are using quotas, whereas the Asian companies do not. Therefore, Sweden will be excluded from the sample since it does not use quotas. Italy will replace Sweden in this research, since it is the number four in the list of highest percentages of board diversity (Credit Suisse, 2016). Also, Norway will be excluded from the sample. More about this will be explained later. Research by Credit Suisse (2016) showed that the lowest percentages of board diversity are found in Asia. Taiwan (4.5%), South-Korea (4.1%) and Japan (3.5%) have the lowest percentages of women on their boards (Credit Suisse, 2016).
The sample for this research is formed by sixteen companies, coming from the following countries: France, Italy and the Netherlands for Europe and Taiwan, South-Korea and Japan for Asia. The specific companies used are retrieved from the ranking lists of Brand Finance. Brand Finance is a company that was founded in 1996. It is an independent branded business valuation and strategy consultancy, based in London but represented in approximately 20 countries. Each year, Brand Finance creates a list for each country, ranking the 50 best brands of that country. The brand value is calculated using the Royalty Relief Methodology. This method is based on the license payments that a company would pay to have the ownership of the asset (Rubio, Manuel & Pérez-Hernández, 2016). According to Rubio, Manuel and Pérez-Hernández (2016), it is the most important method, compared to others. The Royalty Relief Method consists of three elements: the Brand Strength Index, the Brand ‘Royalty Rate’ and the brand revenues (Rubio, Manuel & Pérez-Hernández, 2016). The first element, the Brand Strength Index, is on a scale of 0 to 100 and based on a balanced scorecard of a few relevant attributes (e.g. emotional connection, financial performance and sustainability). The royalty rate is Brand Strength Index, multiplied by the forecast of sales and the third element is the royalty rate, multiplied by the brands historic revenues and forecasts of economic growth rates. This final number represents the brand value of the company (Rubio, Manuel & Pérez-Hernández, 2016; Salinas & Ambler, 2009). Different authors argue that Royalty Relief should be the methodology of choice for valuations of brands (Manuel & Pérez-Hernández, 2016; Salinas & Ambler, 2009). Also, the
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‘Big 4’ accountancy firms are regarding this method as the most reliable one. Benefits of the method are that the valuation is specific to the industry that the brand is operating in and it is based on brand licensing practices (Salinas & Ambler, 2009).
The lists where the companies are retrieved from, based on their success, are from 2016. The lists of 2016 are used, since the countries of this research are chosen based on their diversity percentages of 2016. There is not specifically chosen for the highest brands in the list. The brands are coming from various positions. Since the list of Norway only consists of 10 different brands, of whom there were not many internationally operating brands, there is decided, that due to the lack of choice, to exclude Norway from the sample. Based on the list by Credit Suisse (2016), the next country with the highest percentage of board diversity will be Finland. However, Finland is not using gender quotas (Deloitte, 2017), so will not be used in this thesis. The next country is Denmark, however, Denmark is also not using quotas (European Parliament, 2015). Belgium, the number seven in the list of Credit Suisse (2016), is using gender quotas (European Commission, 2016), but due to the lack of choice, Belgium is also excluded from the sample. The number eight on the list, The Netherlands, uses gender quotas (Deloitte, 2017) and has a list of 50 top brands available. This makes the following countries the main subject of this thesis: France, Italy and the Netherlands for Europe and Taiwan, South-Korea and Japan for Asia.
The chosen companies, based on the top 50 best brands by Brand Finance are for Europe: Louis Vuitton, L’Oréal, Carrefour (France), Fiat, Ferrari (Italy), ING, Shell and Heineken (Netherlands). For Asia, Asus, Acer (Taiwan), Samsung, LG, Hyundai (South-Korea), Toyota, Honda and Sony (Japan) are chosen.
3.2.1. Sample of companies
Louis Vuitton is a French fashion house. The luxury retail company was founded in 1854. The logo of the brand, namely LV, appears on almost all the products. Louis Vuitton produces bags, shoes, watches, jewelry, sunglasses and more. The brand operates in 50 countries with more than 460 stores (LVMH, 2017).
L’Oréal is a French personal care company. It is the biggest brand in cosmetics and was founded in 1909. L’Oréal sells products that focus on hair color, make-up, sun protection, skin care and more (LOREAL, 2017).
Carrefour is a supermarket chain with its origin in France, the company was founded in 1958 and now operates in more than 30 countries. Carrefour is represented in Europe, North America, South America, Asia and Africa (Carrefour, 2017).
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The Italian car brand Fiat was founded in 1899. The company is the largest automobile manufacturer of Italy and is selling their products mostly in Europe. However, it also has South-American, North-South-American, African and Asian clients (Fiat Chrysler Automobiles, 2017).
Another big Italian car brand is Ferrari. The company, that sells luxury sport cars, was founded in 1939, out of the race division of Alfa Romeo. The Italian company is also known for its continuing participation in racing (Ferrari N.V., 2017).
Dutch bank ING was founded in 1991. The financial services corporation serves clients in more than 40 countries including Australia, Mexico, The United States, Colombia and Japan (ING Group, 2017).
Shell is a multinational oil and gas company and is headquartered in the Netherlands. In more than 70 countries, Shell has around 44.000 service stations. The oil giant was founded in 1890 (Royal Dutch Shell plc, 2017).
Heineken is a Dutch brewing company, that was founded in 1864. By 2017, Heineken had over 165 breweries worldwide. Heineken produces 250 international, regional, local and specialty beers and ciders (Heineken, 2017).
Asus is a Taiwanese company which produces computer and phone hardware. Asus was founded in 1989 and sells its products worldwide (Asus, 2017).
Acer is a Taiwanese multinational that is specialized in advanced electronics technology and produces laptops, tablets, storage devices and more. The company was founded in 1976 and is the sixth-largest PC vendor in the world (Acer, 2017).
The South-Korean, electronics manufacturer Samsung was founded in 1969. The company is a huge manufacturer of phones, tablets, computers and more (Samsung, 2017).
LG is headquartered in Seoul and produces electronics, chemicals and telecom products. The company was founded in 1947 (LG, 2017).
Hyundai was founded in 1947 and started operating outside of South-Korea in 1965. The South-Korean vehicle manufacturer owns the world’s largest automobile manufacturing facility (Hyundai Motor Company, 2017).
Toyota is one of the top automobile manufacturers in the world. It was founded in 1937 in Japan and reached the 10 million sales of global electric vehicles in 2017 (Toyota, 2017).
Japanese corporation Honda is primarily known as a manufacturer of automobiles, aircrafts, motorcycles and power equipment. In 1946, the company was founded (Honda, 2017).
Sony is a diversified business that includes consumer and professional electronics, gaming, entertainment and financial services. The company was founded in Japan in 1946 (Sony, 2017).
26 3.3. Dependent variable: Financial performance
The dependent variable in this research is the financial performance of the firms. The financial performance is, in this thesis, measured by the ROA. The ROA indicates how profitable a company is, relative to its total assets. It is the most effective and available financial measure to calculate a company’s performance (Hagel, Brown, Samoylova & Lui, 2013). By looking at both the income statement performance and the assets that are required for the business, it looks at the fundamentals of the firm (Lu & Beamish, 2004). Also, returns on assets are less vulnerable to short term gaming, since assets mostly involve long-term decisions that are more difficult to tamper with in the short term (Hagel, Brown, Samoylova & Lui, 2013). The net income as well as the total assets can be derived from the annual reports of the companies. The annual reports of 2016 will be used.
𝑫𝒆𝒑𝒆𝒏𝒅𝒆𝒏𝒕 𝒗𝒂𝒓𝒊𝒂𝒃𝒍𝒆 (𝒀) = 𝑅𝑂𝐴 = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 3.4. Independent variable: Board diversity
The independent variable of this research is the board diversity rate of the different companies. Board diversity, based on gender, is calculated by deriving the number of female board members by the total number of board members. Both (Fm) and (Tm) can be derived from the official websites of the sample of brands.
𝑰𝒏𝒅𝒆𝒑𝒆𝒏𝒅𝒆𝒏𝒕 𝒗𝒂𝒓𝒊𝒂𝒃𝒍𝒆 (𝑿) = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑓𝑒𝑚𝑎𝑙𝑒 𝑏𝑜𝑎𝑟𝑑 𝑚𝑒𝑚𝑏𝑒𝑟𝑠 𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑏𝑜𝑎𝑟𝑑 𝑚𝑒𝑚𝑏𝑒𝑟𝑠 =
𝐹𝑚 𝑇𝑚 3.5. Mediating variable: Reputation of the firm
In this analysis, there is one mediator. Mediation occurs when the relationship between an independent variable and a dependent variable can be explained by their relationship with a third variable (Field, 2013). In this thesis, the firm’s reputation is the third variable.
The firm’s reputation is measured through a survey. The purpose of the survey is to produce data, that is quantitative and can be used for the analysis that will be done later in this research. Surveys allow an easy comparison of data, based on the answers collected. Therefore, surveys are a popular and common strategy in business and management research (Field, 2013; Saunders, Lewis & Thornhill, 2016; Spens & Kovács, 2006). A survey follows an explanatory and descriptive way of doing research, which means that the study is focused on getting an accurate profile of persons, events or situations (Saunders, Lewis & Thornhill, 2016). In this survey, the aim is to get to know more about the way people think about the companies. Saunders, Lewis and Thornhill (2016) state that data collection, using a survey, can also provide
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possible reasons for certain relationships between different variables and to produce models of these relationships. In this survey, respondents are asked about their opinion about certain firms. The survey first asks them about their general opinion on gender diversity. After this, they are provided with information about the way that the specific companies are managing diversity among their boards.
For the development of the survey, www.qualtrics.com is used. It provides different options for different types of questions. Also, it provides an easy way to share the survey with people, since it gives your survey its own link and provides options to directly share your survey on different social media channels. Next to this, it saves a lot of time. Since the data is not measured manually, www.qualtrics.com already has the answers on the internet, from which you can easily transport it to the program where you want to analyze your data with. In this thesis, the program used for this is SPSS.
Probability sampling is the way of sampling that is used in the survey research strategy. A probability sample is beneficial since it generates confidence that it is not a biased sample (Fowler, 2013). The population for this survey is everyone, male or female, young or adult. Since the survey is based on the publics opinion on the 16 different companies, everyone can fill out the survey. Also, the nationality of the respondent does not matter for this research. The target population for the survey is my own network. The survey is shared through different channels, but mostly through social media channels. Since my Facebook network is relatively big and includes a lot of different nationalities, a lot of respondents are reached. In addition, the link of the survey is shared with my WhatsApp contacts. Also, through email, people that I am not connected with on Facebook or WhatsApp are contacted. Mainly, elder family members and colleagues of my parents are contacted by email. Next to my own network, I asked family and friends to share the link of the survey with their own network. This way of sampling is called simple random sampling. The chance that a person from the target population is selected is equal for every case (Fowler, 2013; Saunders, Lewis & Thornhill, 2016). Also, since the survey is consistent across all respondents, it ensures that the data generated is comparable, so that statistics can be produced (Fowler, 2013).
According to Saunders, Lewis and Thornhill (2016) a suitable sample size depends on the following three things: the trust that you need to have in the generated data, the margin of error that you can tolerate, the types of analysis that you are doing and the size of the target population. However, there is no definitive answer about how large a sample size should be for any given study (Fowler, 2013; Saunders, Lewis and Thornhill, 2016). The margin of error represents the statistical imprecision due to the fact that the survey is filled out by a random
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sample, instead of the whole situation (Saunders, Lewis and Thornhill, 2016). My target population consist of approximately 600 people, as shown in Appendix A, Table 1, this will be rounded off to 500. As a margin of error of 5% is chosen, and a confidence level of 95%, I decided that approximately 217 respondents are needed for the sample. So, at least 217 respondents are required. All respondents will judge all 16 companies.
A Likert scale will be used in this survey. This means that categories are ordered, and the data generated is ordinal (Field, 2013). The data that comes out of this survey is ordinal but can be used as continuous. However, it can only be used as continuous if there are at least 5 points and the intervals are equal (Field, 2013). This is the case in the survey. The answer scale contains five values: strongly disagree, disagree, neither agree nor disagree, agree, strongly agree.
Out of the Likert scale, for each company, the average reputation is calculated. This is done by adding up all the points given for one company by all the respondents. Then, the total number of points is divided by the number of questions that had the be filled out for each company and divided by the number of respondents that answered the questions. The final average score for each individual company is used to compare the different variables and companies with each other during the analysis.
3.6. Data analysis
This research is interested in how the reputation of a firm influences the relationship between the diversity of a board and the financial performance of a firm. Therefore, we need to compare the different variables with each other for each company. This thesis assumes that the reputation of the firm is affected positively by the diversity of the board. Also, the reputation of the firm is expected to have a positive effect on the financial performance of the firm. Thirdly, the thesis expects the diversity of the board to positively influence the financial performance. To test these relations, the data generated for each company will be compared to each other for each variable. This analysis is done by taking three different steps. These steps are based on the approach by Baron and Kenny (1981) for testing mediation. Even though this thesis does not include a regression analysis, it still analysis the different relations based on the three first layers of their approach.
Step 1: Test path c.
