CORPORATE BOARD DIVERSITY AND FIRM FINANCIAL PERFORMANCE

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CORPORATE BOARD DIVERSITY AND FIRM

FINANCIAL PERFORMANCE

Name Seb Fazli

Student number s1988026

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Abstract

My study examines the relation between the female and minority representation on S&P 500 firms’ corporate boards and firm financial performance between 2009 and 2015. I do not find significant relationship between the female, minority, minority female, Asian, Black / African-American female, Hispanic / Latin American board representation and financial firm performance measured by the return-on-assets and market-to-book-value ratios of the sample firms. However, I run additional tests and find statistically significant and economically meaningful negative relation between the proportion of minority board members and riskiness measured by the debt-to-capital ratio. This association is not robust as I find no significant relation between the proportion of minority board members and riskiness measured by the debt-to-equity ratio.

G34, J15, J16 1. Introduction

Demographic composition of US corporate boards is changing. In the past, white males dominated corporate board rooms by an overwhelming majority (Hillman et al, 2002). However, according to recent developments females and minorities are at an increasing rate appointed to corporate boards. Spencer Stuart, an executive search consulting firm,

reported that in 2017, for the first time in history, the percentage of the newly appointed female and minority male directors to S&P 500 boards exceeded the percentage of the newly appointed white male directors (Stuart, 2017, pp. 3, 12). The report states that the combination of the newly appointed minority male and female board members of 55% in 2017 constitutes to an increase of 18 percentage points from 2016 (Stuart, 2017, p. 12). A 2017 governance survey under 65 S&P 500 companies illustrates that the most wished backgrounds for new directors are female (75%) and minority (69%) (Stuart, 2017, p. 13). If we believe that these data are representative for all S&P 500 firms, one could argue that minority women are, especially, in high demand for new corporate board appointments. The trend of a changing demographic composition of corporate boards is observed not only in the US but also globally. A few catalysts for this trend are regulations and guidelines. For instance, Norway is the first country to introduce a hard-law 40% quota for female board members, affecting by this regulation around 500 listed companies. According to Ahern and Dittmar (2012), the percentage of female corporate directors increased dramatically since the quota introduction. In 2003, when the Norwegian parliament passed the gender quota, 9% of directors of listed Norwegian companies were females. By 2007, this number

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France, Germany Iceland, Italy, Luxembourg, the Netherlands, Spain, Sweden, the UK (and the USA) followed Norway by introducing either hard-law gender quotas higher than the actual percentage of females on corporate boards or gender equality corporate governance provisions (Ahern and Dittmar, 2012). In addition, on 20 November 2013, the European Parliament voted in favour of the directive COM (2012) 614 concerning the issue of increasing the gender equality of public company boards.

It becomes increasingly important to understand the link between the demographic composition of corporate boards and financial performance, as the demographic

composition of corporate boards changes in the US and globally. Many academics attempted to determine this relation empirically by delivering divergent results. Empirical studies show that there is a positive, negative or no relation between minority or female directors on corporate board and firm performance (see, Section 2). For the US in particular, the question arises whether firms pursuing a greater presence of minorities and women on corporate boards (as surveys from the first paragraph show) because of potentially great contribution of individuals with this background to firm performance or because of tokenism due to high pressure from stakeholders on public firms to increase the corporate board diversity. My study examines the relation between the female and minority representation on S&P 500 firms’ corporate boards and firm financial performance between 2009 and 2015. I do not find any significant relationship between the female, minority, minority female, Asian, African-American female, Hispanic / Latin American board representations and the financial firm performance measured by return-on-assets and market-to-book-value ratios of the sample firms. However, I run additional tests and find statistically significant and

economically meaningful negative relation between the proportion of minority board members and riskiness measured by the debt-to-capital ratio. This association is not robust as I find no significant relation between the proportion of minority board members and riskiness measured by the debt-to-equity ratio.

As said before, there is an extensive literature on the relation between minority and female corporate board representation and firm performance. My study contributes to the existing literature by providing new insights on this topic. In particular, my contribution consists of study on the relation between the minority female representation on S&P 500 corporate boards and financial firm performance. To my knowledge, there are no published studies on this last topic.

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selection process and Section 4 outlines research design. Subsequently, Section 5 presents the study results. Finally, Section 6 concludes, along with study limitations.

2. Background, existing literature and hypotheses development

Corporate boards are responsible for corporate governance of firms. Board members supervise the firm management on behalf of shareholders. In other words, the corporate board acts as the agent of business owners.

The late Nobel laureate Milton Friedman argued in his newspaper article that the social responsibility of business is to increase its profits (New York Times, Sep. 13 1970). If we take this argument literally, businesses owners (or board members acting on behalf of business owners) should appoint female and minority representatives on their corporate boards only if this contributes positively to firm financial performance.

There are few theoretical explanations how female or minority corporate board

representation could influence financial performance. Firstly, if firms with female and / or minority directors utilize human capital resources better (Shrader et al, 1997) because they have a greater pool to choose from, this improves firm financial performance. Put

differently, gender and minority discrimination could lead to financial underperformance because of the underutilization of human capital by firms. Secondly, firms could use female or minority directors as tokens to improve financial performance indirectly through

monetizing an improved perceived image that stakeholders have of the firm. This is

consistent with the corporate social responsibility view of Milton Friedman (New York Times, Sep. 13 1970).

Using directors as tokens could also have a net overall decrease in firm financial performance. If the financial loss due to a suboptimal corporate board composition by having underperforming token directors (or having token directors negatively influencing the performance of other directors) is higher than the monetary value of an improved corporate image, the firm financial performance weakens.

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H0: Firms with a higher proportion of female directors on corporate board perform financially

greater than firms with a lower proportion of female directors.

H1: Firms with a higher proportion of minority directors on corporate board perform

financially greater than firms with a lower proportion of minority directors.

H2: Firms with a higher proportion of minority female directors on corporate board perform

financially greater than firms with a lower proportion of minority female directors. H3A: Firms with a higher proportion of Asian female directors on corporate board perform

financially greater than firms with a lower proportion of Asian female directors.

H3B: Firms with a higher proportion of Black / African-American female directors on corporate

board perform financially greater than firms with a lower proportion of Black / African-American female directors.

H3C: Firms with a higher proportion of Hispanic / Latin American female directors on

corporate board perform financially greater than firms with a lower proportion of Hispanic / Latin American female directors.

Empirical studies on the topic of diversity and firm financial performance is extensive. Campbell et al (2007) show a positive relationship between the board gender diversity and the firm value. The authors analyse gender diversity of 68 Spanish listed firms and their firm value (proxied by the Tobin’s Q) for the period between 1995 and 2000.

Adams and Ferreira (2009) find a negative impact of the board gender diversity on firm financial performance of firms with strong governance and a positive impact for firms with weak corporate governance (proxied by the ability to withstand takeovers). The study illustrates the relationship between the gender diversity of S&P 1,500 firms and the return on assets and the market-to-book value for the period between 1996 and 2003.

Carter et al (2010) find no significant relationship between the board gender and minority diversity and firm financial performance. The authors analyse the board gender and minority diversity of S&P 500 and the firms’ Tobin’s Q and return on assets between 1998 and 2002. Homroy and Green (2018) identify a robust positive relation between gender diversity and firm financial performance. The study illustrates a positive relationship between the proportion of females on corporate board of EuroTop 100 firms and the firms’ return on assets and market-to-book ratio between 2004 and 2015.

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3. Data

3.1. Data collection and adjustment

Initially, I assemble a sample from director- and firm-level data of the S&P 500 firms

collected by BoardEx and available on Wharton Research Data Services (WRDS). This dataset contains i) director details, such as name, gender, ethnicity and independence, ii)

corresponding firm details, such as Committee on Uniform Security Identification Procedures (CUSIP) code, ticker, being constituent of an S&P index (i.e. the S&P 500 index), and iii) the observation year, for the period 2008-2014. Subsequently, I manually add director- and corresponding firm-level data of firms which are not continually constituent of the S&P 500 index in the years 2008-2014 to mitigate the survivorship bias. After this, I manually adjust the director ethnical denomination. At the first stage, I divide the ethnicities in 5 ethnical groups from Asian, African-American, Black / African-American, Caucasian, Hispanic, Hispanic / Latin American, Indian, Middle-Eastern and Native American to Asian, Black / African-American, Caucasian, Hispanic / Latin American and Native American. The ethnicities African-American and Black / African-American, and Hispanic and Hispanic / Latin American are used interchangeably in the collected sample. Therefore, I adjust the former ethnicities to the latter ones. Moreover, I use the US Census data collection information as justification to add the Indian ethnicity to the Asian group and to add the Middle-Eastern ethnicity to the Caucasian group in order to decrease the number of ethnicities. At the following stage, I manually correct for the ethnical changes overtime of the same directors by using publicly available data. After that, I manually collect ethnical background data of directors with an unknown or incorrectly recorded (such as Lord, Sir or Academic) background by using publicly available data. Finally, I manually adjust the collected director-level data for gender changes overtime. My final director-level sample consists of 39,066 directorships in 604 firms. After completing collection of my director-level data, I calculate the firm board size, presence and proportion of female, minority, minority female, Asian female, Black / African-American female and Hispanic / Latin African-American female directors on the board.

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addition, I transform the four-digit SIC codes into two-digit codes by using the first two digits of the SIC code. The final sample of the matched BoardEX and Datastream samples consists of 3,415 firm-year observations and 551 firms. The reason of the sample reduction is the absence of some firm financial data in the Datastream sample and the exclusion of firms with only one firm-year observation. The descriptive data of my final unbalanced sample are presented in Table 1.

Table 1

Descriptive statistics of the unbalanced panel

Variable N Mean Std. Dev. Min Max

Firm characteristics

Return on assets (ROA) 3.415 6.804 7.378 -88.08 48.55

Market-to-book-value (MTBV) 3.415 3.407 29.997 -767.04 911.2 Annual stock price volatility (t-1) 3.415 0.265 0.085 0.104 0.576 Ln sales (in thousands) (t-1) 3.415 15.942 1.216 12.382 20.001 Capital-expenditures-to-sales ratio 3.415 0.103 0.206 0.000 3.451 Debt-to-capital ratio (DC ratio) 3.415 0.423 0.333 0.000 7.877 Debt-to-equity ratio (DE ratio) 3.415 1.135 12.914 -255.23 347.092

Board characteristics

Board size (t-1) 3.415 10.660 2.235 5 34

Firm has female directors (t-1) 3.415 0.914 0.281 0 1

Proportion of female directors on board

(t-1) 3.415 0.166 0.090 0 0.600

Firm has minority directors (t-1) 3.415 0.755 0.430 0 1

Proportion of minority directors on board

(t-1) 3.415 0.123 0.098 0 0.455

Firm has minority female directors (t-1) 3.415 0.286 0.452 0 1 Proportion of minority female directors on

board (t-1) 3.415 0.029 0.049 0 0.273

Firm has Asian female directors (t-1) 3.415 0.059 0.236 0 1 Proportion of Asian female directors on

board (t-1) 3.415 0.005 0.023 0 0.200

Firm has Black / African-American female

directors (t-1) 3.415 0.196 0.397 0 1

Proportion of Black / African-American

female directors on board (t-1) 3.415 0.019 0.039 0 0.222

Firm has Hispanic / Latin American female

directors (t-1) 3.415 0.054 0.227 0 1

Proportion of Hispanic / Latin American

female directors on board (t-1) 3.415 0.005 0.021 0 0.167

Proportion of independent directors on

board (t-1) 3.415 0.818 0.102 0.333 1

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3.2. Comparison of subsamples

In this section, I compare different subsamples of my initial sample for differences in board and firm characteristics.

I make t-tests similar to Adams and Ferreira (2009) and Green and Homroy (2018) to find variables related to firm board composition in order to control for these variables in my regressions presented in Section 4.

Following Green and Homroy (2018), I winsorize my sample at 1% level. Winsorizing allows to limit the influence of outliers on the sample mean, while not precluding the observation altogether as trimming does (Watson, 1990).

Table 2

Comparison of firms with and without female directors

Firm-years with no female directors mean Firm-years with a minimum of one female director mean p-value Observations 295 3,120 ROA (t+1) 7.411 6.810 0.126 MTBV (t+1) 3.465 3.212 0.339

Annual stock price volatility 0.322 0.260 0.000

Ln sales (in thousands) 14.986 16.030 0.000

Board size 8.397 10.848 0.000

Proportion of independent directors on board

0.766 0.823 0.000

Note: For definitions, see Appendix

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Table 3

Comparison of firms with and without minority directors

Firms with no minority directors mean Firms with a minimum of one minority director mean p-value Observations 835 2.580 ROA (t+1) 7.384 6.693 0.007 MTBV (t+1) 3.394 3.182 0.221

Board size 9.220 11.094 0.000

0.779 0.831 0.000

Table 3 illustrates differences between firm-years with no minority directors to firm-years with a minimum of one minority director. 75.55% of my observations include firm-years with at least one minority director. Observations of firm-years with minority directors tend to have a higher return on assets in the subsequent year, a less volatile stock price, higher sales, larger boards and a higher proportion of independent directors. The subsamples are not statistically different in terms of the market-to-book-value in the subsequent year.

Table 4

Comparison of firms with and without minority female directors

Firms with no minority female directors mean Firms with a minimum of one minority female director mean p-value Observations 2,440 975 ROA (t+1) 6.921 6.715 0.398 MTBV (t+1) 3.216 3.279 0.701

Board size 10.355 11.339 0.000

0.813 0.832 0.000

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Table 5

Comparison of firms with and without Asian female directors

Firms with no Asian female directors mean Firms with a minimum of one Asian female director mean p-value Observations 3,212 203 ROA (t+1) 6.775 8.242 0.002 MTBV (t+1) 3.187 3.976 0.012

Board size 10.577 11.567 0.000

0.817 0.837 0.005

Table 5 shows differences between firm-years with no Asian female directors to firm-years with a minimum of one Asian female director. 5.94% of my observations include firm-years with at least one Asian female director. The subsamples have different parameters for all tested board and firm financial performance characteristics except to the annual stock price volatility.

Table 6

Comparison of firms with and without Black / African-American female directors

Firms with no Black / African-American female directors mean Firms with a minimum of one Black / African-American female director mean p-value Observations 2.744 671 ROA (t+1) 6.947 6.517 0.1214 MTBV (t+1) 3.244 3.193 0.7838

Board size 10.461 11.352 0.0000

0.814 0.839 0.0000

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tend to have a less volatile stock price, higher sales, larger boards and a higher proportion of independent directors. The subsamples are not statistically different in terms of the return on assets and the market-to-book-value in the subsequent year.

Table 7

Comparison of firms with and without Hispanic / Latin American female directors

Firms with no Hispanic / Latin American female directors mean Firms with a minimum of one Hispanic / Latin American female director mean p-value Observations 3,229 186 ROA (t+1) 6.509 5.136 0.190 MTBV (t+1) 3.228 3.330 0.757

Board size 10.586 11.511 0.000

0.819 0.811 0.299

Table 7 shows differences between firm-years with no Hispanic / Latin American female directors to firm-years with a minimum of one Hispanic / Latin American female director. 19.65% of my observations include firm-years with at least one Hispanic / Latin American female director. Observations of firm-years with Hispanic / Latin American female directors tend to have less volatile stock prices, higher sales and larger boards. The subsamples are not statistically different in terms of the return on assets, the market-to-book-value in the subsequent year and the proportion of independent directors on board.

To summarize, my t-tests show that the board composition is associated with the firm’s annual stock price volatility, sales, board size and the proportion of independent directors on its board. I use these variables as controls in my regressions presented in Section 4.

4. Research design

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Green and Homroy (2018) use in their study variables lagged by one period to predict financial firm performance. I use a similar approach to examine the board composition and financial performance and the exact same model as in that study:

yit = βFit-1 + γZit−1 + fi + ht + εit, where

yit indicates the financial performance of the observed firm-year,

Fit-1 represents the proportion of females (minorities, female minorities, Asian females, Black

/ African-American females or Hispanic / Latin American females) on the corporate board lagged by one period,

β represents the coefficient of the relation between firm financial performance and the proportion of female (minority, female minority, Asian female, Black / African-American female or Hispanic / Latin American female) directors lagged by one period,

Zit−1 represents control variables lagged by one period,

γ represents the coefficient of the relation between firm financial performance and control variables lagged by one period,

fi represents firm fixed effects, and

ht represents year fixed effects.

The firm and year fixed effects controls control for variation in time and firms and to mitigate concerns about residuals correlating cross time and firms. This reduces the risk of omitted variable bias.

5. Results

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Table 8

Female representation on corporate board and financial firm performance

Independent variable Dependent variable

Return on assets Market-to-book-value

OLS FE OLS FE

Proportion of female directors on board (t-1) -0.680 (-0.44) -0.227 (-0.09) 4.591 (1.29) 13.929 (1.14) Board size (t-1) -0.515*** -0.088 -0.043 0.590 (-8.82) (-0.80) (-0.24) (0.74) Proportion of independent directors on board (t-1) -9.09*** (-7.94 ) -2.037 (-0.86) -5.981 (-0.94) -20.778 (-1.26) Ln Sales (t-1) 0.004 -1.293 0.267 - 0.037 (0.968) (-1.67) (0.60) (-0.02) Annual stock price volatility (t-1) -19.573***

16.868***

-10.027 16.675 (-10.24) ( 2.68) (-1.73) ( 1.11)

Constant 26.574*** 24.987 7.186 6.415

(12.66) (1.82) (0.93) (0.16)

Year dummies Yes Yes Yes Yes

Industry dummies Yes No Yes No

Observations 3,415 3,415 3,415 3,415

R2 0.068 0.003 0.002 0.000

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Table 9

Minority representation on corporate board and financial firm performance

OLS FE OLS FE

Proportion of minority directors on board (t-1) 5.370*** (3.75) -0.904 (-0.32) 0.925 (0.23) 8.499 (0.52) Board size (t-1) -0.540*** -0.088 -0.031 0.559 (-9.03) (-0.79) (-0.18) (0.72) Proportion of independent directors on board (t-1) -9.886*** (-8.39) -2.031 (-0.86) -5.556 (-0.90) -20.053 (-1.23) Ln Sales (t-1) -0.094 -1.279 0.303 -0.212 (-0.84) (-1.66) ( 0.67) (-0.09) Annual stock price volatility (t-1) -19.175*** 16.900** -10.472 15.957 (-10.32) (2.70) (-1.78) (1.09)

Constant 28.230*** 24.812 6.849 10.150

(12.79) (1.83) (0.91) (0.24)

Observations 3,415 3,415 3,415 3,415

R2 0.073 0.003 0.002 0.000

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Table 10

Minority female representation on corporate board and financial firm performance

OLS FE OLS FE

Proportion of minority female directors on board (t-1)

5.358** 10.012 21.866 80.251 (2.26) (1.56) (1.35) (1.43)

Board size (t-1) -0.526*** -0.089 -0.060 0.553

(-8.90) (-0.81) (-0.34) (0.72) Proportion of independent directors

on board (t-1)

-9.334*** -2.180 -6.083 -20.886 (-8.08) (-0.93) (-0.94) (-1.27)

Ln Sales (t-1) -.018 -1.338 0.258 -0.450

(-0.17) (-1.75) (0.59) (-0.18) Annual stock price volatility (t-1)

-19.448***

16.579** -10.319 13.806 (-10.36 ) (2.65) (-1.75) (0.95)

Constant 26.983*** 25.603 7.882 14.143

(12.80) (1.91) ( 1.01) (0.33)

Observations 3,415 3,415 3,415 3,415

R2 0.069 0.003 0.002 0.000

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Table 11

Asian female, Black / African-American female and Hispanic / Latin American female representations on corporate board and financial firm performance

OLS FE OLS FE

Proportion of Asian female directors on board (t-1)

26.725*** 28.106 8.605 193.263 (4.21) (1.61) (0.85) (1.29) Proportion of Black /

African-American female directors on board (t-1)

2.565 1.712 28.563 43.367 (0.99) (0.41) (1.05) (0.93) Proportion of Hispanic / Latin

American female directors on board (t-1) -8.884 6.394 14.062 -3.776 (-1.78) (0.38) (0.68) (-0.22) Board size (t-1) -0.529*** -0.091 -0.061 0.543 (-9.02) (-0.83) (-0.34) (0.73 ) Proportion of independent directors on board (t-1) -9.504*** -2.304 -6.177 -20.652 (-8.25) (-0.97) (-0.92) (-1.25) Ln Sales (t-1) -0.001 -1.337 0.255 -0.526 (-0.01) (-1.77) (0.58) (-0.22) Annual stock price volatility (t-1) -19.587*** 16.349** -10.343 12.393 (-10.46) (2.62) (-1.76) (0.88)

Constant 26.960*** 25.883* 8.035 0.356

(12.83) (1.96) (1.02) (0.38)

Observations 3,415 3,415 3,415 3,415

R2 0.075 0.001 0.003 0.000

As I find no significant association between the board diversity and firm financial performance, I estimate whether the board diversity affects other firm characteristics than financial performance. Taking inspiration from Green and Homroy (2018), I estimate whether there is a relation between the board diversity and the firm’s planning horizon and whether there is a relation between the board diversity and the firm’s riskiness.

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Table 12

Minority, minority female, Asian female representations on corporate board and capital-expenditures-to-sales ratio

Capital-expenditures-to-sales ratio Proportion of minority directors on

board (t-1)

0.052

(1.43) Proportion of minority female

directors on board (t-1) _(1.43)0.065

Proportion of Asian female directors

on board (t-1) _(0.63)0.137

Board size (t-1) _0.000 _0.000 _0.000

(0.19) (0.19) (0.19) Proportion of independent directors

on board (t-1) 0.083* _(2.21) 0.083* _(2.21) 0.083* _(2.23)

Ln Sales (t-1) _-0.082* _-0.082* _-0.082*

(-2.19) (-2.19) (-2.19) Annual stock price volatility (t-1) _-0.210 _-0.210 _-0.211 (-1.71) (-1.71) (-1.72)

Constant _1.385** _1.381** _1.381**

(2.25) (2.25) (2.25)

Year dummies Yes Yes Yes

Observations 3,415 3,415 3,415

R2 0.064 0.067 0.068

Note 1: For definitions, see Appendix

Note 2: I perform firm-year fixed effected regressions

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Table 13

Minority, minority female, Asian female representations on corporate board and debt-to-capital ratio

Debt-to-capital ratio Proportion of minority directors on

board (t-1)

-0.201***

(-2.67) Proportion of minority female

directors on board (t-1)

-0.134 (-0.77) Proportion of Asian female directors

on board (t-1)

0.102 (0.25)

Board size (t-1) 0.003 0.003 0.003

on board (t-1)

-0.040 -0.043 -0.045 (-0.79) (-0.84) (-0.87)

Ln Sales (t-1) -0.002 -0.004 -0.005

(-0.07) (-0.17) (-0.20) Annual stock price volatility (t-1) -0.390 -0.391 -0.397 (-1.57) (-1.56) (-1.57)

Constant 0.528 0.550 0.561

(1.34) (1.39) (1.41)

R2 0.002 0.006 0.010

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Table 14

Minority, minority female, Asian female representations on corporate board and debt-to-equity ratio

Debt-to-equity ratio Proportion of minority directors on

board (t-1)

6.854

(1.22) Proportion of minority female

directors on board (t-1)

17.740 (0.87) Proportion of Asian female directors

on board (t-1)

48.983 (0.83)

Board size (t-1) 0.473 0.474 0.471

on board (t-1)

-8.738 -8.807 -8.881 (-1.22) (-1.21) (-1.22)

Ln Sales (t-1) -0.244 -0.224 -0.216

(-0.20) (-0.18) (-0.17) Annual stock price volatility (t-1) -1.028 -1.369 -1.703 (-0.12) (-0.16) (-0.21)

Constant 6.773 6.914 7.268

(0.35) (0.35) (0.36)

R2 0.000 0.000 0.000

Note 2: I perform firm-year fixed effected regressions

6. Final remarks

My study examines the relation between the female and minority representation on S&P 500 firms’ corporate boards and firm financial performance between 2009 and 2015. I do not find any significant relationship between the female, minority, minority female, Asian, African-American female, Hispanic / Latin American board representation and financial firm performance measured by return-on-assets and market-to-book-value ratios of the sample firms. However, I run additional tests and find statistically significant and economically meaningful negative relation between the proportion of minority board members and riskiness measured by the debt-to-capital ratio. This association is not robust as I find no significant relation between the proportion of minority board members and riskiness measured by the debt-to-equity ratio.

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Appendix. Description of data used in the paper

Data type Description Source

Director characteristics

Female director Director with female gender BoardEx / WRDS

Minority director Director with non-Caucasian ethnical background

BoardEx / WRDS Asian director Director with Asian ethnical background BoardEx / WRDS Black / African-American director Director with Black / African-American

ethnical background

BoardEx / WRDS Hispanic / Latin American director Director with Hispanic / Latin American

ethnical background

BoardEx / WRDS Independent director Director classified as independent BoardEx / WRDS

Board characteristics

Board size Number of directors on the board Author’s calculation by

using BoardEx / WRDS as source

Proportion of female directors on board

Number of female directors on board divided by board size

Author’s calculation Proportion of minority directors on

board

Number of minority directors on board divided by board size

Author’s calculation Proportion of minority female

directors on board

Number of minority female directors on board divided by board size

Author’s calculation Proportion of Asian female directors

on board

Number of Asian female directors on board divided by board size

Author’s calculation Proportion of Black /

African-American female directors on board

Number of Black / African-American female directors on board divided by board size

Author’s calculation

Proportion of Hispanic / Latin American female directors on board

Number of Hispanic / Latin American female directors on board divided by board size

Number of independent directors on board divided by board size

Firm characteristics

Return on assets (ROA) Net income divided by the book value of total assets and multiplied by 100

Datastream / Worldscope Market-to-book-value (MTBV) Market value of common equity divided

by its book value

Datastream / Worldscope Annual stock price volatility Annual standard deviation of the stock

price

Datastream / Worldscope

Sales Annual net sales (in thousands USD) Datastream / Worldscope

Ln Sales Natural logarithm of sales Author’s calculation

Capital expenditures (CapEx) Annual expenditure on fixed assets Datastream / Worldscope Capital-expenditures-to-sales ratio Capital expenditures divided by sales Author’s calculation Debt-to-capital ratio (DC ratio) The book value of total debt divided by

the book value of total assets

Datastream / Worldscope Debt-to-equity ratio (DE ratio) The book value of total debt divided by

the book value of common equity

Datastream / Worldscope Industry group Four-digit Standard Industrial

Classification code

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References Papers

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Ahern, K. R., & Dittmar, A. K. (2012). The changing of the boards: The impact on firm valuation of mandated female board representation. The Quarterly Journal of Economics, 127(1), 137-197.

Campbell, K., & Mínguez-Vera, A. (2008). Gender diversity in the boardroom and firm financial performance. Journal of business ethics, 83(3), 435-451.

Carter, D. A., D'Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5), 396-414.

Green, C. P., & Homroy, S. (2018). Female directors, board committees and firm performance. European Economic Review, 102, 19-38

Hillman, A. J., Cannella Jr, A. A., & Harris, I. C. (2002). Women and racial minorities in the boardroom: How do directors differ?. Journal of management, 28(6), 747-763.

Shrader, C. B., Blackburn, V. B., & Iles, P. (1997). Women in management and firm financial performance: An exploratory study. Journal of managerial issues, 355-372.

Watson, C. J. (1990). Multivariate distributional properties, outliers, and transformation of financial ratios. Accounting Review, 682-695.

Reports

Stuart, S. (2017). Spencer Stuart U.S. Board Index. Available at: https://www.spencerstuart.com/research-and-insight/ssbi-2017 Newspapers