Master thesis
The influence of corporate board diversity on the
company performance, moderated by the degree of
masculinity
David Ac (s3300455)
Supervisor: Viacheslav Iurkov, MSc
Co- Assessor: Dr. Rian Drogendijk
Abstract
Acknowledgements
Table of Contents
Abstract ... 2 Acknowledgements ... 3 1. Introduction ... 5 2. Literature review... 8 2.1. Board of directors ... 8 2.2. Board Diversity ... 9 2.2.1. Gender ...11 2.2.2. Age ...13 2.3. Degree of masculinity...16 2.4. Conceptual model ...18 3. Methodology ...19 3.1. Research Strategy ...193.2. Data and Sample ...19
3.3. Variables ...21 3.3.1. Dependent variable ...21 3.3.2. Independent variables...21 3.3.3. Moderating variable ...22 3.3.4. Control variables ...22 4. Empirical Results ...24
4.1. Descriptive statistics and correlations ...24
4.1.1. Female board representation ...24
4.1.2. Age diversity on board ...25
4.1.3. Descriptive statistics of all variables ...27
4.1.4. Correlation and significance test ...28
4.2. OLS regression analysis ...28
5. Discussion ...32
6. Limitations and suggestions for future research ...34
1. Introduction
Scholars from the field of company management emphasize the relationship between the board of directors and company results (Demb and Neubauer, 1992; Kiel and Nicholson, 2005; Sonnenfeld, 2002; Westphal and Bednar, 2005) and stress that the companies’ overall performance in the future will highly depend on the board’s effectiveness (Bird et al., 2014). Furthermore, the majority of corporate governance literature suggests that company performance and ability to accomplish its objectives is related to the effectiveness of board (Aguilera, 2005; Nicholson and Kiel, 2004). The definition of an effective board and activities contributing to its effectiveness is subject of study for many scholars in the field of corporate governance (Conger et al., 2001; De la Rosa, 2006).
The main duties of boards are managing and supervising the strategic direction and performance of a company (Carroll and Buchholtz 2011). They are responsible for the communicating and satisfying the share- and stakeholders (Australian Institute of Company Directors, 2011). Specifically, four main objectives of a board are defined in this regard, namely: monitoring and controlling managers, providing information and counsel to managers, monitoring compliance with applicable laws and regulations, and linking the corporation to the external environment (Mallin 2004; Monks and Minow 2004).
The debates about the board composition point toward the conclusion that a diverse board can deliver the best results with regards to the satisfaction of the stakeholders (Carroll and Buchholtz 2011). Argünden (2010) states that “a well-performing board needs diversity of knowledge, skills, and perspectives”. He explains, however, that diversity itself does not automatically result in higher performance. It is the set of skills and experiences of different team members that can make the company successful in the long-term.
The aim of this study is to close the research gap on two fronts. First, the effects of Hofstede’s dimension “masculinity” on the relation between board composition and company performance has been overseen by the scholars so far, and there is no evidence about possible effects of this dimension on the aforementioned relationship at all. The degree of masculinity affects how and if are positive characteristics of minority groups within the company and its board present, accepted and facilitated. Masculinity also shapes the quality of cooperation and willingness to engage in it (Hofstede Insights, 2018). Thus, masculinity can have an extensive impact on the strength and directions of the bond between board diversity and company performance. Second, even though the topic diversity has been already tackled by many scholars in numerous studies, which will be discussed in the literature review, the studies were conducted in the limited number of geographical and industrial contexts, e.g. for companies from Australia and Japan (Bonn et al., 2004) or for non-financial companies (Andres et al., 2005). There is a lack of evidence from financial industry, especially from the banking sector.
In the context of this attempt to close these two research gaps, focus lies on the banking sector of the Visegrad Region (Czech Republic, Hungary, Poland and Slovakia) and Scandinavian countries (Denmark, Norway, Sweden). Both regions are highly underrepresented in the international business research, particularly Visegrad region, which transformed after tens of years from a centrally planned economy into a market economy (Szent-Iványi, 2017, p. 22) and corporate governance can carry lots of unique traits resulting from prior communism regime. Another critical difference is the level of masculinity. Since countries from V4 are highly masculine and in Scandinavian countries low level of masculinity has been recorded, needed variation for this research is secured.
Consequently, following central research question is defined:
“How does board diversity influence the financial performance of banks and how does the degree of masculinity affect this relationship? A comparative analysis of banks in Visegrad Region and Scandinavian Countries.”
2. Literature review
This section provides an extensive literature review on the board of directors, its definition, responsibilities and role within the company hierarchy. Further, board diversity effects on numerous company processes and results are discussed, particularly focusing on gender and age diversity, followed by theoretical principles of the degree of masculinity. Finally, a theoretical framework is introduced, upon which the hypotheses are developed.
2.1. Board of directors
The area of responsibility of a board of directors significantly differs from the one of top management teams or executives. The members of the board do not participate in a daily business routine because their primary task is to shape the company strategy, introduce new strategic changes and goals, and consequently, implement them within a company.
Monitoring function belongs to the core responsibilities of a corporate board. According to the agency theory, principals use the boards as information systems for verifying agent conduct (Eisenhardt, 1989). Cognitive abilities increase the information systems that board members embody for principals, and since values and experiences influence the cognitive abilities, they can have a significant role in this process. (Carpenter and Westphal, 2001; Hillman and Dalziel, 2003).
Usually, when talking about diversity, people associate it with gender, age, race or maybe an educational background, but diversity comprises a lot more aspects, with which a single person can contribute to the company performance. For example, Booth and Deli (1999) researched commercial bankers having board seats in companies outside of the banking sector. The results showed that companies with a commercial banker on their board demonstrated lower total debts, which was explained by bankers’ expertise and contacts to the bank debt market. Next, outside directors who were actively involved in the politics or have a legal background are present more often on the boards of companies that either do business with government or their business is the subject of government regulation (Agrawal and Knoeber, 2001).
2.2. Board Diversity
The relationship between the diversity of corporate boards and financial performance of the firm enjoys relatively significant interest as a research field. However, Cartel et al. (2010) point out that there is only a small number of actual empirical research of the influence of board diversity on company performance, which is disproportional to the extensity of the theoretical debates on this topic.
Many scholars state that the board characteristics have always influence on company strategic direction in terms of diversification, acquisition, R&D spending, CEO dismissal and more (O'Reilly et al.,1988; Haunschild, 1993; Golden and Zajac, 2001; Shen and Cannella, 2002; Deutsch, 2005; Shimizu, 2007). Over the last years, the expectations from the board have changed. Currently, the more proactive behavior is desired and stressed. Because of this, some scholars started to use the term “Supra Top Management Teams” as a reference to the board (Finkelstein et al., 2009).
The research in the field of how board diversity influences strategic decision-making process and company performance was significantly enriched by Hambrick and Mason (1984) and their upper echelon theory. The upper echelon theory suggests that diversity within the Top Management Teams (TMTs) in terms of age, gender, tenure, educational experience and (or) perceptions of top managers, contributes to the decision-making process positively, and thus enhances company performance.
time. Therefore, effects of the diversity occur in different phases of the process (Harrison and Klein, 2007). Hence, it is essential to think of the time, context and potential moderator of the TMT diversity-decision-making process, when analyzing the company performance.
Economic arguments for diverse groups are also used to build the case for higher diversity across the boards. Reduced performance, as a consequence of homogeneous boards, is according to literature attributable to foregone talent. Regularly taking away the opportunity to fill the positions that are associated with a seat on the board from a part of the population that fulfil the professional requirements leads to less efficient board composition (Burke, 1997; Cassell, 2000; Carver, 2002).
Furthermore, higher board diversity enables the company to comprehend its stakeholders better. Moreover, customers’ behavior is affected as well, as they tend to feel more comfortable and confident about the company when there is someone whom they can identify with (usually related to gender and ethnicity) (Bilimoria and Wheeler 2000). This phenomenon affects positively also the employees’ motivation, which achieves higher level if someone like them has a seat on the board (Powell 1999).
Evidence of the economic benefits associated with board diversity is also reflected in higher shareholder activism and corporate governance in this matter, which suggests that companies are convinced that board diversity can eventually bring specific and countable economic benefits. However, board diversity is not only influenced by corporate governance, but also by many other factors, such as company size, profitability and the size of the board as well. The size of the board was also used to explain the increasing number of women on the boards. Conyon and Mallin (1997) say that the rising share of female directors is mainly due to additions to the board and was not caused by changing the composition of the board.
2014). Since the number of women filling top management and board positions has gradually increased over the past years, this area attracts many scholars, who analyzed the influence of gender on the strategic decision-making process and company performance (Parola et al., 2015). The area of board age diversity, contrary to gender diversity, has not been widely researched yet and represent only marginal part of the international business and corporate governance literature. Besides of investigating its effect on company performance with the sole purpose of sketching some managerial implications, the knowledge of possible relations in this regard is getting more critical. It is due to the fact that the population (especially in Europe) is rapidly ageing and since its crucial determinant is longer life, scholars consider this development as confirmed and unavoidable (Lee, 1994). As the population ages, not only have to governments consider adapting their pension and social systems, but also the labor markets undergo structural changes, and the companies will have to willingly search and employ an optimal mix of younger and older people and eventually board members (Börsch-Supan, 2002; Cutler, 1990).
Both research areas have been delivering ambiguous results, which is the reason why this study aims to examine the influence of the gender and age diversity on company performance in order to contribute to the growing and currently significant body of research. The primary results of prior studies are presented in the next subsections.
2.2.1. Gender
After reviewing existing studies on the effect of board gender diversity, three main streams of opinions could be identified. More than one scholar represents each of them and differ in conclusion on the existence and/or direction of the impact of gender diversity on board.
Some of the scholars argue that there is no relation between the gender board diversity and company performance (Carter et al., 2010; Rose, 2007; Shrader, Blackburn, and Iles, 1997). This opinion is shared by Mohan and Chen (2004) as well, who did not find any evidence of the influence of TMT diversity on performance in their research.
Tobin’s Q (Adams and Ferreira, 2009; Dixon-Fowler et al., 2013). What is more, other scholars added that companies having women on the board suffer from lower accounting returns (Darmadi, 2011; Minguez-Vera and Martin, 2011) and decrease in value for shareholders. (Bøhren and Strøm, 2010).
Finally, the majority of the scholars advocates the opinion that presence of female directors on the board does have a positive influence on the company performance (Dezsö and Ross,2012; Krishnan and Park, 2005; Welbourne et al.,2007). Due to ambiguous outcomes of the prior studies, however, it may be difficult to take a clear stand on this matter. Therefore, there have been efforts to identify specific advantages and disadvantages of gender diversity within a TMT. Multiple specific advantages have been detected. Women possess strongly different cognitive abilities. This is based on unique experiences and knowledge compared to men, and thus, they increase the knowledge base and information resources (Kauer et al., 2007), better evaluation of strategic decisions (Hambrick and Mason, 1984), enhanced ability to scan the environment (Keck, 1997) or decline in groupthink (Bantel and Jackson, 1989). Negative outcomes of diversity are reflected through reduced communication (Smith et al., 1994) and consensus (Knight et al., 1999), slower decision making (Hambrick et al., 1996) and increased interpersonal conflicts (Pelled et al., 1999).
members can benefit the company with profound understanding of consumer behavior as already illustrated in the previous section (Bilimoria and Wheeler, 2000; Campbell and Minguez-Vera, 2008). Also, analysis of the non-work related interests showed that women have dominated in this sphere as well and take part more often in philanthropy activities and community service (Groysberg and Bell, 2013). Gender-diverse boards carry another essential quality that has been emphasized in the literature multiple times, namely heterogeneity. Loyd et al. (2013) conclude that heterogeneous group bring better results, as they tend to discuss various sort of information on a deeper level, especially when it regards different points of view on specific matters. Thus, boards with female directors are expected to assess and work with information at their disposal more thoroughly.
Additionaly, Tullet (1995) demonstrates in his study that female leaders show more signs of innovative behavior. Other scholars also support the argument that female leaders possess certain attributes, which their male counterparts do not. Female leaders were found to be more proactive (Bass and Avolio, 1994), more cautious, risk adverse (Huang and Kisgen, 2013; Thiruvadi and Huang, 2011) and finally, more transformational as well (Eagly et al., 2003). Consequently, in line with the upper echelon theory, females present in the TMT will contribute to the decision-making process with the qualities mentioned above. One of the recent papers on this topic by Post and Byron (2015) based on the analysis of prior 100 studies confirms that women representation on the boards enhances the company financial performance.
To conclude, a clear majority of scholars confirm that the composition of the board impacts on the board performance, and thus the overall company results, which also goes in line with the most recent studies. It is believed that gender diversity of the board is indeed positively connected to company performance.
Hence, I postulate the following hypothesis:
Hypothesis 1: Gender diversity on the board is positively related to the company performance. 2.2.2. Age
overrated, as even the employers do not take the age diversity as a relevant business strategy that could increase the outcomes into account (Roundtree, 2011). In line with that statement, specifically the board age diversity was not found related to earnings per share (Jhunjhunwala and Mishra, 2012), return on assets (Bonn et al., 2004) and return on equity (Bonn, 2004).
One of the negative aspects of gender diversity is the social issue of discrimination, resulting from a fact that executives tend to make groups based on age and compete among each other (Kunze al., 2013). In addition, they can subconsciously choose members of their age group to cooperate with, and this behavior may, consequently, offset any possible benefits of collaboration between employees from different age groups. Closely connected to this issue is also the reported lack of consensus on matters regarding company’s strategic orientation in age-diverse teams. It is true that different backgrounds should increase the knowledge pool as well as provide more perspectives on the issue, but it can lead to lower efficiency of decision-making process, which is closely related to company performance (Knight et al., 1999). Also, Hafsi and Turget (2013) found out that board age diversity is negatively associated with corporate social performance.
Finally, many scholars have concluded that facilitating age diversity within a firm is a valid way how to enhance the company performance. Teams consisting of members from various age groups can contribute to the successful and more efficient accomplishment of mutually pursued goals with different kind of skills and insights, which can lead to a higher performance compared to homogenous groups (Ilmakunnas and Ilmakunnas, 2011). In the context of understanding the customers, the evidence here is similar to the evidence discussed in “Gender” section above- higher age diversity deepens the understanding of customers’/clients’ needs, and the company is more capable and flexible in meeting the expectations of its clients (Richard, 2000).
Li et al. (2011) highlight another positive effect of age diversity. They claim that combination of younger and older employees creates specific values for the company that cannot be created any other way, and is also hard to reproduce. This can increase company’s competitiveness.
It has been established that cognitive abilities, e.g. learning ability, reasoning and memory decline with age (Botwinick, 1977; Burke and Light, 1981), which can influence the working performance of older directors. What is more, older directors may start to ignore or differently evaluate opportunities that are associated with higher level of risk, due to their financial and career security (Carlson and Karlsson, 1970; Vroom and Pahl, 1971), while younger executives are more likely to choose more risky and innovative growth strategies.
When looking at the educational background and experience as the determinants of performance, we can observe the high contrast between younger and older company employees. It is true that older executives possess superior experiences due to a longer career path. Also, more senior employees are characterized by better knowledge and a higher sense of responsibility and commitment (Beaver and Hutchings, 2005). On the other hand, since the younger executives finished their education more recently, they are expected to have better technical knowledge (Bantel and Jackson, 1989) and are also characterized by better utilizing creative ideas and opportunities (Guthrie and Olian, 1991; Campbell, 1987).
Last but not least, the influence of age diversity was further observed for non-profit organizations, which received higher donations, when having high board age diversity (Siciliano 1996). Similarly, Mahadeo et al. (2012) recorded higher ROA of for-profit organizations. Moreover, companies with high board age diversity show more considerable market value than their book value (Bonn et al. 2004). Finally, Bere (1991) also suggests that an equal number of younger and older board members was observed as a useful strategy for enhancing organizational performance.
To conclude, even though this body of research provides us with different conclusions (Ali et al., 2014), the firm evidence on positive effects of age diversity leads to a conclusion that boards with higher age diversity are indeed more effective and better the company performance. In line with the above-mentioned theory, the second hypothesis is:
2.3. Degree of masculinity
Hofstede (1980) characterized culture as “the collective programming of the human mind that distinguishes the members of one human group from those of another. Culture in this sense is a system of collectively held values.” In his research, he established four cultural dimensions, based on which culture of different countries can be defined, namely; Power Distance, Uncertainty Avoidance, Individualism and Masculinity. His framework was then complemented by a new dimension that was introduced in the paper by the Chinese Culture Connection (1987) project called The Long-Term Orientation. Most recently, Hofstede et al. (2010) acknowledged a sixth dimension, more specifically “indulgence versus restraint”, initially uncovered by Minkov (2007).
After the introduction of the original four dimensions, many scholars have been attracted to investigate the effects of these dimensions on various factors of corporate governance and company performance indicators. The rising interest was partially caused by the culturalist perspective that suggested that cultural differences among countries are the determinants of socio-economic developments (Beugelsdijk and Maseland, 2011; Huntington, 1996). However, scholars focused mainly on effects of power distance, uncertainty dimension and individualism on various economic and financial indicators (e.g. Hayton et al., 2002). The role of masculinity has been standing in the background of international business literature, and its influence should be analyzed more closely, due to its undoubtedly significant role in the business environment, particularly in the context of decision-making process, motivation and teamwork. Moreover, the degree of masculinity affects the extent to which positive characteristics of marginal groups are accepted and facilitated within a company, as will be further explained later in this subsection.
The arguments in the previous section represent a body of literature stating that gender and age diverse boards are positively related to the company performance. However, the
assumption that the force of these relations is constant in different contexts (social, cultural, political etc.) is not correct (Johnson et al., 2013; Pye & Pettigrew, 2005).
Board diversity influences performance differently across countries. Legal, social and cultural environment influence, however, to which extent differs this relationship across the countries (Kang et al., 2007). In Scandinavian countries, for instance, where more women are present on boards, and the culture is extremely low masculine, was found a curvilinear relationship between board gender diversity and performance (Deloitte, 2011; Hofstede, 2001). Furthermore, according to the Hofstede Insight, a leading organization in organizational culture and cultural management, V4 countries demonstrate a high degree of masculinity. In the literature overview presented in the Board diversity subsection was established that women on board bring specific skills. Women enrich company’s resource base or enhance company’s capabilities in identifying customers’ needs. Besides of that they can better evaluate strategic decisions and analyze the environment. Moreover, their presence on board prevent groupthink and foster innovative approaches. All in all, these skills were confirmed to influence the company performance positively. Nevertheless, these skills resulting from feminine attributes may be suppressed by masculine behavior in the culture that forbids expressive behavior (culture with a high degree of masculinity) (Sheridan and Milgate, 2005). Also, when women enter masculine boardroom, the usual behavioral response is adaption rather than challenging conventional male norms, such as competence or performance (Kakabadse, et al., 2015). To conclude, there is a broad consensus that gender diverse boards are consistent with the efforts to increase company overall performance. Feminine traits may deliver positive results in terms of company performance. However, in the masculine culture, they may lose their influence or even not appear at all.
Hypothesis 3: Degree of masculinity weakens the positive relationship between gender board diversity and company performance.
Strong egos characterize masculine culture and the higher the status of an individual, the stronger are the feelings of pride and importance. In addition, values such as aggressiveness, competitiveness and materialism prevail. Therefore, people are encouraged to be ambitious and driven by their willingness for material success, regardless of gender, with the goal to achieve the desired status within the organization and society (Vitell et al., 1993).
by the older ones with higher perceived status, who can feel threatened by them and by the new strategies suggested by the younger members that can intimidate the financial and career stability of more senior board members. Strong assertiveness, competitiveness and higher perceived status in the company and society enable older board members to fight against this threat using their status and experience, ignoring company’s best interest as a highest priority. To conclude, the central issue in the context of masculine cultures is the low consensus-seeking, opposed by the feminine culture encouraging cooperation.
Hypothesis 4: Degree of masculinity weakens the positive relationship between age board diversity and company performance.
2.4. Conceptual model
For a better overview, following conceptual model is presented (see figure 1). The left box represents the independent variables-gender and age board diversity of the banks and its hypothesized positive relation to dependent variable- company performance. The degree of masculinity is the moderating variable, which is expected to have a negative direction towards the positive relation between independent and dependent variables.
(+)
(–)
Figure 1: Conceptual framework
3. Methodology
3.1. Research Strategy
In accordance with other studies conducted in the field of board composition and its influence on company performance, I will employ quantitative methods. Furthermore, quantitative approach is highly effective in the setting, where a considerable sample is to be analyzed, data analysis can be done with the help of quantitative methods and statistical techniques can be utilized(May, 2011). In compliance with the Research Onion, the concept created by Saunders et al. (2007), the philosophy of this research corresponds with positivism. The basic premise of positivism is that reality exists independently of the thing being studied. According to Newman (1998), this implies that the meaning of phenomena is consistent between subjects. Next, I decided to implement the deductive approach. In the context of a deductive approach, hypotheses have been built upon pre-existing theory in the section Literature review, and their validity will be later tested.
The research model consists of one independent variable (corporate board diversity), one dependent variable (company performance) and one moderator (degree of masculinity). The correlation between the variables will be analyzed using Data Analysis and Statistical Software Stata in order to receive descriptive statistics and conduct regression analysis.
3.2. Data and Sample
This paper relies on secondary data. Secondary data originate from findings of other researchers (Newman, 1998). Data is labelled as secondary as soon as the respective fact was processed by someone else. Typical examples of these are conclusions of research articles and analyses carried out on statistical surveys (Kothari, 2004). As a time framework within which the data are collected was chosen cross-sectional time horizon (Saunders et al., 2007). Flick (2011) describes cross-sectional time horizon as “one already established, whereby the data must be collected. This is dubbed the ‘snapshot’ time collection, where the data is collected at a certain point”. Using cross-sectional time horizon is the most suitable approach when analyzing a specific phenomenon or relation at a precise time.
in the same or very similar sort of services. Gathering of the data necessary for answering the hypotheses has proceeded as follows. As a first step, banks from V4 and Scandinavian countries needed to be identified. I used Orbis Bank Focus, which as the name suggests focuses solely on the banking sector, whereas basic Orbis database on all kind of industry sectors. Besides of searching for commercial banks from V4 and Scandinavian region only, another set of criteria had to be met in the research process. First, only active banks were considered in the analysis. This means that a specific bank had to be in business and operate for the whole 2016 at least. Second, information regarding the members of the board of directors had to be available and accessible.
obtained from the Hofstede Insights that measures all European countries on every one of Hofstede’s dimension.
After finalizing the process, 71 suitable banks were identified and used for the statistical analysis in section 4.
3.3. Variables
3.3.1. Dependent variable
Company performance, as a dependent variable of this research, was measured in the prevailed number of previous studies as a firm’s return on assets (ROA) (Lincoln et al., 1992; Shrader et al., 1997; Krivogorsky, 2006; Bachiller et al., 2014). ROA is defined as “an accounting measure that asses the efficiency of assets employed” (Bonn et al.,2004). For the purpose of this study, however, return on average assets (ROAA) was chosen as a suitable measurement of company performance. ROAA is an adjusted version of ROA. This decision was made in accordance with previous studies conducting research in field of banking sector’s efficiency and financial performance, examples being Kishore (2012) and his comparative analysis of banks in Australia, Fuji, USA and New Zealand, evaluation of the results of China banking reform (Hefferman and Fu, 2010) or analysis of Bangladeshi banking sector (Sufian and Habibullah, 2009). More interesting for this research is the fact that the European banking sector was also analyzed with ROAA as a variable for company performance, namely Lepetit et al. (2009) who underwent a research on bank risk and product diversification used ROAA too, performance of Greek banks from 1990 to 2002 (Kosmidou, 2008) or research on how bank’s specific characteristics and the overall banking environment affect the profitability of banks in the 15 EU countries over the period 1995-2001 (Pasiouras and Kosmidou, 2007) calculated the bank performance using ROAA ratio as well.
3.3.2. Independent variables
all board members divided by the board size (Carter et al., 2010). Lower average age means higher diversity because the board members are usually over 50 years old (Bonn et al., 2004).
3.3.3. Moderating variable
Baron and Kenny (1986) define moderator as a quantitative or qualitative variable that has an impact on strength and/or direction of the relation between independent and dependent variable. In the context of this work, the effect of cultural differences, more specifically Hofstede’s cultural dimension masculinity, on the relation between board diversity and company performance was investigated. The values of masculinity were obtained from “Hofstede Insights”, organization measuring values of all the six Hofstede’s dimensions on the country level using a 1-100 scale, where 1 is the lowest degree the masculinity and 100 the highest. Even though there are already several different frameworks, e.g. GLOBE or World Value Surveys, Hofstede’s framework has still a central role in the research field of assessment of culture and cultural differences and their impact on international strategy (Kirkman et al., 2006). As a single alternative measurement of masculinity would be available one item from the World Value Survey database, which was confirmed to have a high correlation with Hofstede’s masculinity. The item examines respondents’ attitude towards the statement “a wife must always obey her husband”, which is practically in line with Hofstede’s definition. However, values for this item are available for 12 countries only (Beugelsdijk et al., 2015). Therefore, Hofstede’s definition and values appear to be the most suitable and reliable method to quantify the degree of masculinity.
3.3.4. Control variables
4. Empirical results
The goal of this research is to uncover the relation between gender plus age board diversity and company performance and the moderating effect of country masculinity. Thus, in the following section results of the analysis are presented, starting with descriptive statistics of the analyzed banks, continuing with Pearson correlation coefficients, which describes the relationship among all the variables. Finally, the outcomes of regression analysis are presented.
4.1. Descriptive statistics and correlations
4.1.1. Female board representation
The following paragraph, reviews the results from descriptive analysis of the collected data regarding the proportion of women present on the boards of directors. From the analyzed sample of a total number of 71 boards, men domination can be recognized at first sight. Out of the 515 boards seats, only 113 of them are filled by female directors, which is an equivalent to 22% of all board members. Also, there is a quite high difference in the proportion of female directors in Scandinavia and Visegrad region. In Scandinavian countries, every fourth director is a woman, while in V4 it is barely every tenth director.
Figure 3: Female representation on boards Figure 4: Absolute number of women on board
Even though figure 2 implies that on average 22% of the board members are women when looking at the figure 3 it can be said that the distribution of female directors is very disproportional. More than 20% of the analyzed bank boards are without a single female director present.
Figure 4 illustrates the specific absolute numbers of women directors. As mentioned above, the highest number of the investigated banks have pure male boards together with boards with just one woman. The highest amount of female board members (5) have three banks (two Norwegian and one Swedish).
4.1.2. Age diversity on board
With regards to the age diversity across the boards, the highest proportion of the sample represents boards with an average age of board members of around 53 years (see figure 5). As opposed to gender diversity, age diversity on the boards does not differ that significantly between V4 and Scandinavia. The average age of board members in V4 is 50 years, in Scandinavia 55 and the whole sample 53 years.
0 5 10 15 20 25 0 1 2 3 4 5
Figure 5: Average age of board members
The aforementioned results comply with the findings on the lowest and highest average age values (See figure 6). The lowest average board age has one Hungarian and one Czech bank with 42,6 and 42,7 years respectively. On the opposite side can be found two Danish (63 and 63,4 years) and one Norwegian bank with an average age of 63 years. Also, the highest number of analyzed banks has a board consisting of directors approximately 57 years old (see figure 6). Also, the vast majority of banks has an average age of their directors within the range of 45 to 55 years.
Figure 6: Age diversity distribution
4.1.3. Descriptive statistics of all variables
VARIABLE OBS. MEAN STD. DEV. MIN MAX
ROAA 71
1.158
1.062
-1.427
4.552
% of women on board 71.1845
.165
0.571
Avr. age of board members 7152.521
5.294
39 63.4 Masculinity 7131.479
29.750
5 100 Board size 717.028
3.084
1 16 Firm age 7150.915
47.197
1 192 No. of employees 711515.944
2728.075
8 11759 Total Asset 7118388.76
52210.4
144.947
289949.5Table 1: Descriptive analyses
4.1.4. Correlation and significance test
After conducting the descriptive analysis, Pearson correlation and significance test were run to see, if there is a correlation between the variables. Table 2 shows us the correlation matrix for all variables in the model. The coefficients range from -1 to 1, negative values implying the inverse relationship and higher absolute value indicate stronger correlation. In the next step, significance test revealed that only couple of examined relationships are significant (p < 0,05). The two central relationships of this study (gender and age board diversity and ROAA) deliver in both cases insignificant results (p-value is 0.5300 and 0.9428 respectively). However, there is a weak positive correlation between the independent variables (percentage of women representation and the average age of board members) with a significance level of 0,0089. Furthermore, masculinity shows weak negative correlation with both independent variables with p-values of 0,0004 and 0.0009 and dependent variable with p=0.0422. Next, the number of employees and total assets showed significant positive correlation, which means that with an increase of employees, total assets of the company should also rise. Finally, positive correlation between total assets and the average age of board members was observed with p=0.0467.
ROAA %wom Avr.Age Masc TotalAssets No.ofEmpl Firmage Boardsize
ROAA 1.0000 %wom 0.0758 1.0000 Avr.Age -0.0087 0.3082* 1.0000 Masc -0.2419* -0.4063* -0.3859* 1.0000 TotalAssets -0.1144 0.2307 0.2369* -0.1147 1.0000 No.ofEmpl -0.0120 0.0501 0.1666 0.2278 0.7135* 1.0000 FirmAge -0.0158 -0.0167 0.1654 -0.1575 0.1050 0.2015 1.0000 BoardSize 0.1274 0.1852 0.2048 -0.2252 0.1297 0.0141 0.0722 1.0000 * p<0.05 Table 2: Pearson correlation
4.2. OLS regression analysis
the possible influence of control variables on company performance. As it can be seen, none of the control variables reaches even remotely the significance level of 5%. Therefore, it can be concluded that the control variables do not affect the ROAA. R-squared, which is a measure of the strength of relation and disregard the individual effects of variables, is very low in model 1. Control variables explain only 4.84 % of the variance of company performance.
ROAA COEF. STD.
ERR.
T P> |T| [95% CONF. INTERVAL] TOTAL
ASSETS
-5.24e-06 3.55e-06 -1.48 0.144 -.0000123 1.84e-06
NO. OF EMPL. .0000689 .0000684 1.01 0.318 -.0000678 .0002055 FIRM AGE -.0008114 .002774 -0.29 0.771 -.0063499 .0047271 BOARD SIZE .0495118 .0376254 1.32 0.193 -.0256098 .1246334 _CONS .8396538 .3214798 2.61 0.011 .1977986 1.481509 Number of obs. 71 F(4, 71) 0.84 Prob > F 0.5050 R-squared 0.0484 Adj R-squared -0.0093 Root MSE 1.0676
Table 3: Regression analysis of Model 1
In the second model (see table 4) independent variables were put in. Neither of both independent variables shows statistically significant results. Furthermore, the coefficients of independent variables are below 0, which indicates a negative relationship. More precisely, if a number of women on board increases, ROAA will decrease, which does not comply with the expectations and hypothesis. On the other hand, a negative coefficient for average age suggests that younger board members should contribute to higher ROAA as expected. However, already mentioned low level of significance does not allow to draw any conclusions upon these findings. The significant variable with p=0,004 is masculinity. In this case, the direct effect of masculinity on ROAA was investigated, not the moderating influence on the relation between independent and dependent variables. Surprisingly, the results illustrate that masculinity has a weak negative impact on the company performance. Control variables total assets and number of employees also achieved a high level of significance and have a very weak relation to
Source SS df MS
ROAA. The second model has also included independent variables and has higher R-squared value, explaining almost 18% of the company performance variance, which is, despite its rather low value, a significant increase compared to the model 1. Therefore, independent variables help to predict company’s ROAA, but due to low significance levels, the hypotheses 1 and two cannot be confirmed. ROAA COEF. STD. ERR. T P> |T| [95% CONF. INTERVAL] %WOM -.0019614 .8394866 -0.00 0.998 -1.679541 1.675619 AVG.AGE -.03169 .0263941 -1.20 0.234 -.0844344 .0210544 MASC -.0163584 .0054374 -3.01 0.004 -.0207213 -.0054926 TOTAL ASSETS
-9.66e-06 3.71e-06 -2.60 0.012 -.0000171 -2.24e-06
NO. OF EMPL. .0001867 .0000751 2.48 0.016 .0000366 .0003368 FIRM AGE -.0026402 .0027502 -0.96 0.341 -.0081361 .0028557 BOARD SIZE .0369017 .0366687 1.01 0.318 -.0363748 .1101783 _CONS .9092804 .3181163 2.86 0.006 .2735757 1.496574 Number of obs. 71 F(7, 63) 1.95 Prob > F 0.0770 R-squared 0.1778 Adj R-squared 0.0864 Root MSE 1.0158 Source SS Df MS Model 14.0532415 7 2.00760593 Residual 65.0017682 63 1.0317741 Total 79.0550097 70 1.12935728
Table 4: Regression analysis of Model 2
ROAA COEF. STD. ERR. T P> |T| [95% CONF. INTERVAL] %WOM .1604537 1.227457 0.13 0.896 -2.293999 2.614906 MASC -.018622 .0064226 -2.90 0.005 -.0314649 -.0057792 C.%WOM #C.MASC -.0139253 .0421267 -0.33 0.742 -.0981628 .0703123 AVG.AGE -.0143184 .0412204 -0.35 0.730 -.0967437 .0681069 MASC 0 (omitted) C.AVGAGE# C.MASC -.0004953 .0008737 -0.57 0.573 -.0022423 .0012517 TOTAL ASSETS -.0000101 3.84e-06 -2.63 0.011 -.0000178 -2.41e-06 NO. OF EMPL. .0001908 .0000781 2.44 0.017 .0000347 .0003469 FIRM AGE -.002506 .0028327 -0.48 0.631 -.0081703 .0031583 BOARD SIZE .0399266 .0384172 1.04 0.303 -.0368934 .1167467 _CONS 1.412461 .3878166 3.64 0.001 .6369739 2.187948 Number of obs 71 F(7, 63) 1.53 Prob > F 0.1575 R-squared 0.1843 Adj R-squared 0.0639 Root MSE 1.0282
Table 5: Regression analysis of Model 3
Source SS Df MS
5. Discussion
The main objective of this study was to enrich the body of research concerning the effects gender and age board diversity on company performance. Building on the Upper echelon theory it was suggested that board composition has a substantial influence on the conduct and results of the company. It is argued that diverse groups can take advantage of deeper knowledge pool. In case of gender diversity, female directors were found to contribute to the board with a unique set of competences, such as another type of cognitive abilities or better assessment of strategic opportunities. Compared to men, women can read and comprehend the environment more precisely and prevent the groupthink from occurring as well.
Similarly, findings from the studies about age diversity and its relation to company performance deliver contradictory results. The main body of the research consistently concludes that higher age diversity on the corporate board is advantageous for the company. The positive influence of age diversity is attributable to higher heterogeneity within a board. Due to higher heterogeneity, company goals can be achieved more efficiently, since each age group provides its own knowledge and experience, which is translated into higher performance. The diverse group also has ability to understand needs of its customers and simultaneously better predict their future expectations. Worth of mentioning are also skills that possess mainly younger managers and use them for the sake of the company, such as creativity, flexibility and openness to new ideas and innovations. Finally, they contribute to better learning abilities or reasoning and broader technological and academic knowledge compared to older directors.
results of the regression analysis have turned out to be insignificant. Therefore, the first couple of hypothesises had to be rejected. Possible explanations are discussed in the Limitation and suggestions for future research section.
Still, descriptive analysis brought some interesting results, particularly about board age diversity. The average age of directors in V4 countries was lower than the ones from Scandinavian banks. This might be ascribed to the history of V4 countries as the members of former the Soviet Union. Generation of today’s citizens of over 50 years old had restricted access to higher and foreign education. Since being one of the board members is a highly demanding position, having a higher education is basically a prerequisite for the position. Consequently, there is a limited pool of suitable candidates and the chance for younger managers to fill the position is, therefore, higher. Female representation is clearly different in the analyzed geographical blocs. While in V4, which is a region expressing strong masculine traits, the proportion of women on board stands on the 9% mark, Scandinavian countries with feminine culture have 25% of their bank board seats occupied by women. This can be explained by implementing policies facilitating gender diversification in Scandinavia, specifically in the case of Norway, where a quota for a minimum proportion of women on corporate boards was prescribed by law in 2004. At least 40% of the board seats of listed companies are supposed to be filled by women (GovernanceMetrics International, 2011).
Second main contribution of this study was the analysis of the function of Hofstede’s cultural dimension masculinity as a moderator of the relationship between board diversity and company performance. Despite the confirmed impact of masculine culture on the cooperation, motivation or competitiveness, the possible effects of masculinity on the relationship between board composition and company performance were not examined so far. This motivated me to conduct this research and make efforts to give answers about these effects. The outcomes of the analysis did not show similar to the first part of the significant analysis results. The author must admit that in order to uncover the relation of masculinity to board diversity and company performance, different research setting and sample might be appropriate. However, masculinity was found to have a weak negative effect on company performance.
are further discussed in the following section, as well as implications for future research.
6. Limitations and suggestions for future research
Like many other scientific papers, this one is limited by a number factors as well. First, the country-specific orientation of this research prevents from drawing any general conclusions that might be used for explanation of underlying relations for a broader geographical scope. Both V4 and Scandinavia represent unique cultural blocks with values and historical background that diverge from countries previously analyzed from the perspective of the Upper echelon theory. Second, focusing solely on the banking sector might also cause weaker predictability for other industries. Since financial sector has been traditionally seen as a “men game”, the representation of women is likely to be under average compared to other industries. Moreover, as discussed in the Literature review, masculine culture associated with the financial sector might suppress the typical female traits that are supposed to deepen the knowledge and conduct of the board and through that, subsequently, enhance the performance. This can also bias the expected influence of women.
Another considerable limitation is the sample. Due to insufficient access to information only almost a half of the active commercial banks in all seven countries could be used in the final dataset. Majority of the banks that disclose information necessary to run this kind of research originate in the Scandinavia, which might have also disrupted the final results. The last limitation concerns the model used in this study. OLS regression tests for simple linear relations, but there are also different kinds of relations, such as curvilinear etc.
as some significant results regarding the relation between the degree of masculinity and company performance have been recorded in this study. Furthermore, Norway as the only country has introduced a quota system to ensure minimal 40% female board representation. However, this limit is not respected, and it would be interesting to examine if it is due to lower a number of women capable and educated to be on board or why exactly the companies do not comply with this regulation.
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