Women on boards and firm
internationalization:
The moderation effect of gender parity:
evidence from The Netherlands, Brazil, and Japan
By Pim Withaar S2674777 – 190232094
2 December 2019
University of Groningen — Newcastle University Business School Faculty of Economics and Business
Double Degree Master in International Business and Management Advanced Marketing
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Abstract
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Acknowledgements
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Table of content
Abstract... 2 Acknowledgements ... 3 1. Introduction... 5 2. Literature review ... 8 Theoretical framework ... 8Board gender diversity ...13
Firm internationalization ...16
Board gender diversity and firm internationalization ...18
Moderator effect of gender parity ...22
3. Methodology ...24 Research paradigm ...24 Sample selection ...25 Independent variable ...26 Dependent variable ...27 Moderator...28 Control variables ...29 Analysis...30 Ethics ...33 4. Results ...34 Basic assumptions ...34 Descriptive statistics ...36 Test results ...39 5. Discussion ...42 6. Conclusion ...46
Theoretical and managerial implications ...46
Limitations and suggestions for future research ...47
Bibliography ...50
Appendix ...57
Appendix A. Table 1: List of firms included in sample ...57
Appendix B. Table 1: Durbin-Watson test ...59
Appendix B. Table 2: Shapiro-Wilk test for homoscedasticity of residuals ...59
Appendix B. Figure 1: Histogram and P-P plot of normal distribution of residuals ...60
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1. Introduction
In corporate governance research, the composition of the board of directors has long been an important issue (Kirsch, 2018). The board of directors is tasked with guiding and authorizing the firm’s strategic decisions, including mergers and acquisitions, whether to internationalize or not, alliances, hiring and or firing executives, and capital structures. These strategies, in turn, impact the firm’s overall performance (Terjesen, Couto, & Francisco, 2015) Board diversity represents opportunities and challenges for board practice and research, as a diverse board may have benefits in that board diversity lead to more unique perspectives (Adams, de Haan, Terjesen, & van Ees, 2015) and costs, such as higher decision making costs in boards and the likelihood of conflicts (Adams et al., 2015). Related to board diversity is the inclusion of women in the board of directors. Although the presence of female directors varies by country, industry, and firm, the share is on the rise (Terjesen et al., 2015). However, out of the 2,451 MSCI ASWI Index companies, women held 17.3% of directorships in 2017 (Women on corporate boards: Quick take, 2018), meaning that women are still under represented in that area.
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The upper echelons theory emphasizes the importance of characteristics, values and personalities of powerful actors in a firm (Hambrick & Mason, 1984). Board members are one of the most powerful actors in a company and responsible for the decisions made by a company. Thus, in this research, any change in gender board composition is expected to impact firm internationalization, since the composition of characteristics and values in the board of directors changes as well.
The resource dependence theory examines how board capital leads to the provision of resources to the firm and scholars investigate the relationship between a board as provider of legitimacy, advice and counsel and links to other organizations or opportunities (Hillman & Dalziel, 2003). Thus, any alteration in the composition of the boards is predicted to effect firm internationalization, since the resources available through the board will change too. Focus of research has been on traditional boards, which are mainly male dominated, it is interesting to see whether this prediction also holds with more female directors.
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My thesis will make the several important contributions. First, it becomes evident that it is important to include a contextual factor when investigating the relationship between women on boards and firm internationalization (Post & Byron, 2015). The most appropriate way to analyze this relationship with a contextual factor is through a cross-country study as it offers the possibility to generalize results, which is not always possible with single country studies (Bullough, Moore, & Kalafatoglu, 2017). In studying the effect of board gender diversity on firm internationalizing in multiple countries, this research may provide more clarity in previous mixed findings between research to board gender diversity and firm strategic decision making, as it includes a moderation variable that has not been used on this relationship before.
Furthermore, this research adds to board gender diversity research by investigating its influence on internationalization. I answer the call from Adams et al. (2015) to further investigate board gender diversity – firm outcome relationships and multi-country studies to supplement the mainly one-nation studies. My thesis will enrich the field of cross-country research by comparing three different countries, as very little multicultural work on gender and global strategic management has been done upon today (Bullough et al., 2017). For this study, I will compare the largest publicly traded firms in the Netherlands, Japan, and Brazil. Since these countries show great differences on the World Economic Forum gender parity index (GPI), which measures the gap between men and women on access to basic human rights, this provides a perfect sample to study the impact of national context on the board gender diversity – firm internationalization relationship.
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dependence theory, this study aims to theoretically explain the question why more board gender diversity is associated with internationalization. Should my study link data on what decisions boards with different gender compositions make on internationalization, I can also demonstrate how women directors contribute to a firm's internationalization.
Therefore, this thesis will try to answer the following research question: What is
the effect of female board representation on firm internationalization and how does gender parity influence this relationship?
The remainder of this thesis is structured as followed: first, a theory section including a literature review, several hypotheses and a conceptual model will be presented. Second, I will introduce a section outlining the methodology, including the research paradigm, sample, data and measures, and the statistical tests to be used. Third, the results will be put forward and interpreted. Fourth, concluding remarks, including limitations of the study and suggestions for future research will be given.
2. Literature review
This section explains the most important concepts within the literature that are relevant for this thesis and are the theoretical basis for this study. First, a clarification of the theoretical framework of this study is presented. Since board gender diversity is used to measure female board representation, after that, literature on board gender diversity and literature on internationalization is analyzed. This is followed by the development of two hypotheses. Lastly, the conceptual model is explained.
Theoretical framework
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Upper echelons theory: In the upper echelons theory it is argued that the
powerful members, such as board members, decide on and are responsible for the strategic decisions and ultimately firm outcomes (Hambrick & Mason, 1984). Further, a firm vision or strategy reflects the values and cognitive bases of powerful members in the organizations (Hambrick & Mason, 1984). Because board member cognitions, values, and perceptions are difficult to measure, upper echelon characteristics such as age, functional background, and educational experiences are used as observable proxies for the psychological constructs that shape the board’s interpretation of different situations (Carpenter, Geletkanycz, & Sanders, 2004). Thus, the strategic choices that the powerful actors in a firm make originate from their own characteristics, which determine their interpretation of strategic situations and in turn their response to those situations (Hambrick & Mason, 1984).
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Another factor that relates to the board’s strategic decisions and firm outcomes is the difference between men and women in their level of risk-taking. Few studies have been performed on board gender diversity and risk-taking. The consensus is that women are generally more risk-averse than their male counterpart (Barber & Odean, 2001) Yet, when applying this to a board setting the results remain more inconclusive. Lenard, Yu, York, and Wu (2014) investigated the effect of gender diversity on the variability of stock market return and found that a higher presence of female directors lowers the firm risk, which implies that they are more risk averse. Moreover, in their study on gender diversity in top management teams and firm taking risk, Baixauli-Soler, Belda-Ruiz, and Sanchez-Marin (2015) concluded that firms with female representation exhibit more conservative behavior compared to non-gender diverse firms.
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Resource dependence theory: The second key theory that explains board
gender diversity and its effect on strategic decision-making is resource dependence theory. In their study, Pfeffer and Salancik (1978) argue that a firm is an open system which depends on events in the external environment. Resource dependence theory recognizes that external factors influence the decisions made by firms, and although constraint by their context, managers can reduce environmental uncertainty and dependence (Hillman, Withers, & Collins, 2009). Pfeffer and Salancik (1978) claim that the necessity of acquiring resources from the environment as such is not a problem for the organization. The problem is uncertainty in the environment where the resources come from, for example emerging competition, which may limit the access to resources. Pfeffer (1972) suggests that boards enable firms to minimize this uncertainty or gain those resources.
Boards of directors are a primary linkage mechanism for connecting a firm with sources of external dependency. Implicitly, this resource dependence theory assumes that firms that are better able to deal with environmental uncertainty also perform better (Dalton, Daily, Ellstrand, & Johnson, 1998). By selecting a director with valuable skills, influence, or connections to external sources of dependency, the firm can reduce dependency and gain valuable resources (Hillman, Shropshire, & Cannella Jr., 2007, p:942). The needs for specific types of directors thus changes as soon as the environmental dependencies and the needed resources change (Hillman, Cannella Jr., & Paetzold, 2000).
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support specialists, and community influentials, based on the benefits that they provide. They further explore how specific types of directors may be more/less valuable as environments change. Hillman and Dalziel (2003) categorized the sources of these benefits as directors’ human capital (e.g. expertise, skills, knowledge, and reputation) and relational capital (e.g. resources available through a network of relationships).
First, regarding advice and counsel, Hillman, Shropshire, and Cannella Jr. (2007) note that directors’ tasks are nonroutine and involve “big picture” issues rather than day-to-day operational issues. In their study on the board of director’s external network ties to determine a board's ability to contribute to the strategic decision-making process, Carpenter and Westphal (2001) have confirmed that directors do provide valuable advice and counsel to the firms they serve. Second, the information channel resources from board of directors are helpful in acquiring resources from important external sources of dependency as valuable information is disseminated between firms through boards (Hillman, Shropshire, & Cannella Jr., 2007). Third, directors lend legitimacy to organizations which is important in that legitimacy and conformity are considered key components of organizational survival (Hillman, Shropshire, & Cannella Jr., 2007). Directors of large corporations are highly visible to stakeholders, public sentiment calls for organizations to reflect the population served, and thus directors with a certain status can legitimize firms (Hillman, Cannella Jr., & Harris, 2002).
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Board gender diversity
In corporate governance literature, research to board gender diversity has been becoming more prominent in recent years (Erhardt, Werbel, & Shrader, 2003; Pletzer, Nikolova, Kedzior, & Voelpel, 2015). Diversity generally measures the amount of differences in a group in relation to the traditional members (Herring, 2009). Because traditional board members are male dominated, board gender diversity would mean that more females are included in boards in order to increase the board diversity (Herring, 2009). Literature on board gender diversity has mainly focused on the influence it has on firm performance (Campbell & Mínguez-Vera, 2008; Dwyer, Richard, & Chadwick, 2003; Erhardt et al., 2003). The number of female board members has been growing recently, so research often investigates the influence of this development on an organization’s responses and outcomes (Triana, Miller, & Trzebiatowski, 2013). However, the results of these studies are mixed, some show the positive relationships, others negative or no relationship at all (Dwyer et al., 2003; Post & Byron, 2015; Triana et al., 2013).
Several theories underline a stronger presence of women on boards for two types of benefits: ethical and economic (Isidro & Sobral, 2015). The first stems from the idea of equality for individuals in societies, thus a group being under-represented on a corporate board gives rise to ethical issues (Singh, Vinnicombe, & Johnson, 2001). The latter, on which the focus of this thesis is, investigates the business case, and deals with the value women can create, as they can provide new insights and resources that are relevant to the firm (Isidro & Sobral, 2015).
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evidence that female directors enhance board of director’s effectiveness and as a result that firms with more female directors have higher performance by market and accounting measures. Moreover, Julizaerma and Sori (2012) concluded that in Malaysian public listed companies there is a positive association between female board representation and return on assets. Further, Post and Byron’s (2015) 140 studies comprising meta-analysis figured that board gender diversity was positively associated with firm financial performance. However, Isidro and Sobral (2015) did not find evidence that a higher female representation on the board directly affects firm’s value. Yet, they did find that women on boards are positively related with financial performance and with ethical and social compliance, which in turn are positively related with firm value (Isidro & Sobral, 2015). This fact emphasizes the ambiguity in research to board gender diversity and firm performance.
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To make things even more unclear, Carter, D'Souza, Simkins, and Simpson (2010) concluded that there is no relationship between gender diversity and financial performance for their sample of major US corporations. On top of that, Chapple and Humphrey (2014) compared performance of portfolios of firms with gender diverse boards to those without. They also did not find evidence of an association between diversity and performance. This shows the complexity of analyzing the effect of board gender diversity on firm outcomes.
Academic literature has also extensively discussed the influence of board gender diversity on the decision-making process. On the one hand, academic literature suggests that gender diversity in boards has a positive influence on board decision-making processes. In their work on firms operating in complex environments, Francoeur, Labelle, and Sinclair-Desgagné (2008) showed that the advantages related to the knowledge, perspective, creativity, and judgement presented by boards with more gender diversity were superior to those with lower levels in order to enhance the quality of decision making. Besides, Chen, Crossland, and Huang (2016) argue that having higher female board representation could lead to more comprehensive discussions in the boardroom because of the different experiences women have had compared to men before they enter a board position.
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on the firm’s threat level and power dynamics within the board. When firm performance is low and women directors are powerful, one will see the most negative effects. However, when the firm is performing well and women directors are powerful, one will see the most positive effects will occur (Triana et al., 2013). Thus, this stream of research remains ambiguous about the exact influence of board gender diversity as well.
Firm internationalization
Internationalization is defined as the process in which firms gradually expand their involvement internationally (Johanson & Vahlne, 1977). Firms will evaluate the internationalization possibilities and depending on whether they think it could be the right decision the firm will select a foreign market. Firms consider the internationalization of business activities to be a complex strategic decision (Tihany, Ellstrand, Daily, & Dalton, 2000). For example, there are several ways to enter a foreign market or to increase the share in the foreign market: one can export, choose licensing and franchising, partner up through a joint-venture, take over a firm via mergers and acquisitions or invest in a green field (Welch & Welch, 1996). The complexity associated with internationalization decisions may be due, in part, to the increased opportunities and threats that firms encounter in international markets (Tihany et al., 2000). Although internationalization provides benefits, it is not without risks, as international exposure increases the level of uncertainty firms face in their domestic markets (Tihany et al., 2000). This is reflected by literature, where findings on the specific direction of firm internationalization and firm performance have been mixed (e.g. Riahi-Belkaoui, 1998; Ruigrok & Wagner, 2003).
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in Singapore, Pangarkar (2008) figured that that degree of internationalization positively impacts performance. Bausch and Krist (2007) found empirical support for a significant positive internationalization-firm performance relationship in their meta-analysis comprising 36 studies.
However, not all results are positive. Geringer, Tallman, and Olsen (2000) showed that international diversification has negative profitability consequences for Japanese multinational firms. Moreover, U.S. firms with international operations in developing countries have inferior performance than firms without international operations (Collins, 1990). More recent studies found even more complex results. Ruigrok and Wagner (2003) showed that the influence of firm internationalization on firm performance follows a standard-U form, with high performance at low internationalization, low performance at medium level internationalization and high performance again at high internationalization scores. Whereas Chao and Kumar (2010) found an inverted U-shaped curve, and Lu and Beamish, 2004 concluded that the relationship between internationalization and firm performance is nonlinear, with the slope negative at low levels of internationalization, positive at medium levels of internationalization, and negative at high levels of internationalization.
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Some more recent studies have focused on the characteristics of top management teams (e.g. Berger et al., 2014; Ramón-Llorens, Garciá-Meca, & Duréndez, 2017). These studies seem to agree that through their decisions, the characteristics of the decision-making bodies may have an effect on organizational success. This thesis aims to extend our understanding of the factors that influence firm internationalization by focusing on the role of board of directors in expanding international involvement. Specifically, I examine the composition of the board of directors to consider whether gender diversity is related to internationalization.
Board gender diversity and firm internationalization
When looking at internationalization, the role of board gender diversity has rarely been the topic of interest. Board diversity could help to better understand the complex different foreign markets, signal stakeholders that the firm is making serious efforts to understand the new market, assure investors that the firm is considering candidates from all resource pools, reduce the uncertainty that foreign markets bring about, and improve the decision making capability of the board through access to a greater and wider set of information and (Rivas, 2012). Traditionally, resource dependence theory stressed directors’ characteristics such as networks and contacts to important customers, suppliers and financial institutions (Pfeffer and Salancik, 1978). However, the internationalization processes deal with global markets where diversity is a reality most of the time and new resources need to be secured (Rivas, 2012). This leads to a demand for directors who have the knowledge and contacts of foreign markets and are able to link their firm to the different contexts in which it operates (Ruigrok, Peck, & Tacheva, 2007).
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Although top management teams and boards are different from each other I hypothesize a similar effects for my independent variable on firm internationalization as would be the case with top management teams gender diversity influence on firm internationalization, as beyond the top management team, it is the board of directors and the owners who also influence organizational decisions to diversify internationally (Hitt, Tihanyi, Miller, & Connelly, 2006).
Established is that board of director’s personal characteristics determine strategic decisions (Hambrick & Mason, 1984). Compared to a domestic approach, an internationalization formulation and implementation processes require a higher degree of risk-taking propensity from a board (Rivas, 2012). Therefore, having several members that are more prone to risk taking at the board level will probably benefit an internationalization process (Rivas, 2012). As previously discussed, on the board level, women tend to be more risk-loving than their male counterpart (Adams & Funk, 2012; Berger et al., 2014). As a result, including more women on a firm’s board of directors may lead to a more international strategy.
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Bowen, 2013) can change the boardroom dynamics in such a way that a more international agenda will be pursued.
Board room dynamics might also be changed due to the preference of female directors to have participative and team-oriented work relations (Paris et al., 2009). While in a situation with male directors, decision making power is centralized (Paris et al., 2009), in a situation that also has female directors, decision making might become more decentralized and other opinions might be taken into consideration (Paris et al., 2009). On top of that, Antonakis et al. (2003) emphasized that women value individual consideration of cases more than men, implying that decision making in board rooms with more gender diversity will be done more thoroughly as all cases receive more attention. When we combine this more participative work relation in board rooms with for example female director’s risk-loving attitude or curiosity to other cultures, board room discussions might also center around whether to internationalize (Javidan & Bowen, 2013).
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significant positive results. In this indirect case, adding female directors might lead to more firm internationalization.
The logic behind the resource dependence role of directors implies that variety on a board widens the expertise present as well as the number of linkages to critical external contingencies facing the firm (Hillman et al., 2002). Female directors generally have more diverse networks (Terjesen et al., 2015). Compared to men, women tend to have broader support networks, beyond their immediate peers, superiors, subordinates, or functional areas (Ibarra, 1993). Further, Ibarra (1997) found that women’s networks are more heterogenous. A broader range of network ties may enrich the supply of ideas, unique approaches, and knowledge available to a firm (Harrison & Klein, 2007). As such, directors with a more heterogeneous network may be more aware of international issues and may be more inclined to look at international opportunities in a favorable way (Barroso et al., 2011).
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Based on the abovementioned arguments derived from upper echelons theory and resource dependency theory I therefore hypothesize:
H1: More board gender diversity leads to greater firm internationalization.
Moderator effect of gender parity
Gender parity is defined as the equality of men and women in a country in terms of access to economic participation and opportunity, educational attainment, health and survival, and political empowerment (Zahidi, Geiger, & Crotti, 2018). This equality influences the status of women in a particular country (Post & Byron, 2015).
Due to the fast-changing pace of international markets the complexity for firms increases and an accumulated knowledge energy and new ideas could help thrive in these new environments (Rivas, 2012). Gender diversity might change the board room dynamics by bringing different perspectives and resources to the board (Terjesen et al., 2015). However, in boardrooms, the greater relative power some directors have, gives their voices more weight and may bias the decisions and actions of the entire board (Byron & Post, 2016).
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In countries with higher gender parity, the legitimacy of women might be more accepted, as the participation of women is more normalized (Byron & Post, 2016). I argue that women’s representation on boards and firm internationalization is more positive in countries where gender parity is higher, because, in those contexts, women directors are more likely to possess the structural, prestige, expert, and ownership power that will provide them with voice in the boardroom (Byron & Post, 2016, p. 439). This leads to the following hypothesis:
H2: The relationship between women on boards and firm internationalization is moderated by gender parity. Specifically, the relationship between women on boards and firm internationalization is more positive in countries with greater gender parity.
Conceptual model
Figure 2.1 illustrates the conceptual model developed for this thesis. First, I hypothesize a positive board gender diversity – firm internationalization relationship. These can be considered the independent variable and dependent variable. Second, I argue that the gender parity within a country strengthens the effects of board gender diversity on firm internationalization. So, the second hypothesis predicts a positive effect of the moderator on the board gender diversity – firm internationalization relationship.
Figure 2.1: Conceptual model illustrating relationship between independent variable, dependent variable, and moderator variable
Board gender diversity Firm internationalization
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3. Methodology
In this section the methodology used in this research is outlined. First, the research paradigm will be presented. Second, the ethical issues that have to be considered are described. Third, the selection process of the sample used is described. Fourth, a description of the independent variable, dependent variable and the moderator is given. Fifth, control variables are discussed. Sixth, the basic assumptions for the study are presented. Seventh, the data analysis process is explained in detail.
Research paradigm
For the study a positivist research philosophy will be pursued. An objective and neutral perspective will be applied to the relationship discovered. Positivist methods focus on measuring a rather limited set of objective variables and then comparing them across numerous organizations. The approach is to see how much of the dependent variable can be explained by working with a few variables (Donaldson, 1997). The findings should hold across different industries and in different countries. The moderating effect of gender parity should be similar for packages that are constructed alike. It might be that research results contradict earlier predictions. The aim of the study is to understand the relationship rather than to design new constructs. As Donaldson (1997) argued that the positivist model is used to show whether the theory explains the relationship, this philosophy suffices.
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to understand if the effect of board gender diversity on firm internationalization is present rather than why this effect is present a quantitative data study is more appropriate than qualitative data (Gray & Densten, 1998). Therefore, quantitative data will be used to find patterns between women on boards, firm internationalization and the gender parity.
In case of quantitative analysis, scholars often use deductive route, using theory, to develop codes tot test, whereas qualitative content analysis may involve inductive development of new theory through analysis of collected data (Guar & Kumar, 2018). As I do not aim to develop a new theory from observations, an inductive approach is not applicable. In this study theory has been analyzed and from this, hypotheses have been derived. These hypotheses will now be tested in order to confirm or reject them. Hence, I follow a deductive approach.
It is difficult and not always possible to test for generalizability with single country studies, while cross-cultural studies can offer this benefit (Bullough et al., 2017). When exploring a relationship in multiple countries, the results of the study can be extended to situations beyond the study. Cross-cultural results often can be interpreted in different settings around the world and provide solid groundwork for future research questions (Bullough et al., 2017). Therefore, this study will follow a cross-cultural setting with firms from The Netherlands, Japan, and Brazil.
Sample selection
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which is Yemen, however, data on firms in this country is not as complete as the data from the three countries in my sample, which is why I selected these countries instead. The companies are selected from the largest stock exchange indices within the corresponding county.
In the Netherlands I selected 42 out of 50 companies that trade on the AEX and AMX stock exchange, since 8 companies did not present data on directors. In Japan, I picked the 30 firms that trade on the TOPIX Core 30, and in Brazil, the Bovespa index was used to select 52 out of 60 firms, because 8 companies did not provide data on the directors. Firms in the sample had to be the ultimate owner of the company group and state-owned enterprises were removed from the sample. This led to a sample of 100 firms the names of these firms can be found in Appendix A, Table 1. Data on directors is retrieved using the WRDS BoardEx database. When companies in the sample had missing information on the board of directors and/or the directors’ gender, the company website and annual reports were investigated to retrieve the information. Board composition data was based on the annual reports on year 2018. The Orbis database was used to gain information about the included firms from the year 2018.
Independent variable
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2003). As in this study, I predict that gender diversity will influence strategic decision making due to different experiences and perspectives, it is increasing heterogeneity of the board. Therefore, in this study I follow the work from (Campbell & Mínguez-Vera, 2008) and will use the Blau index.
The Blau index is denoted as: 1 − ∑ 𝑃𝑖𝑘 2 𝑖=
Where:
pi = the proportion of group members in category i, k = the number of categories.
There are two categories in this study, the proportion of female directors and the proportion of male board members. For board gender diversity, the Blau index can range from 0, when there is only one gender in a board, to 0.5 when there is an equal number of male and female directors.
Dependent variable
Financial measures are most commonly used to measure firm
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dimensions. Yet, Lee and Park (2006) found that the different measures were highly correlated with each other, which indicates that the variables were measuring the same thing. Further, financial measures have the problem of a failure to reflect the breadth of internationalization (Hitt, Bierman, Uhlenbruck, & Shimizu, 2005) .
Since in this analysis, I argue that internationalization is the process in which firms expand their involvement abroad, I am more interested in the actual presence of firms abroad, thus I want to know about the breadth of internationalization. That is why, in this study, firm internationalization is measured as the number of foreign countries the firm operates in (Hitt et al., 2005). There are several ways to measure the degree of internationalization. According to Inkpen (2000), a foreign subsidiary, in contrast to exporting and licensing, indicates internalization of essential capabilities and resources to operate in this foreign market. Therefore, I follow the work from Hitt et al. (2005) and I measure firm internationalization as number of countries the company has foreign subsidiaries in. Subsidiaries of which the firm controls over 50% of the shares are included in the sample. The data is retrieved for year 2018 via the Orbis database.
Moderator
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Control variables
Following prior literature (Ramón-Llorens et al., 2017) I control for a number of factors that can potentially affect firm internationalization and to make sure that the relation between my variables are valid.
Board size. In gender diversity studies, board size is a commonly used control
variable (Campbell & Mínguez-Vera, 2008). Some studies have suggested that larger boards contain more knowledge and will therefore internationalize more (cf. Shukeri, Shin, & Shaari, 2012). However, other studies found evidence which support the argument that problems of poor communication and decision-making undermine the effectiveness of large boards (Guest, 2009). Overall, most research indicates a negative board size – firm performance and board size – strategic decision making (Goodstein, Gautam & Boeker, 1994; Guest, 2009). Since I deal with board of directors, board size is included as a control variable. Board size is measured as the total number of directors in the board.
Firm size. Research suggest that firm size has an effect on firm
internationalization. Firms that possess larger stocks or resources are able to operate at higher levels of internationalization (Bausch & Krist, 2007). Thus, larger firms are more likely to diversify internationally, which may influence the board gender diversity - firm internationalization relationship (Dass, 2000). Larger firms, however, might also be more resistant to fundamental strategic change (Tihany et al., 2000). For these reasons firm size is included as a control variable in this study. Following Lee and Park (2006), firm size is measured as natural log of total assets of each company and will be mentioned as Log_TA in the data analysis.
Firm age. Academic literature is ambiguous about the effect of firm age.
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2007). Entering foreign markets involves higher risk and uncertainties, Organizational and resource arrangements that facilitate a willingness to take risks and remain proactive and innovative are key success factors under these conditions (Bausch & Krist, 2007). However, with firm age also comes more knowledge, which Johanson and Vahlne (1977) emphasize as being crucial for firm internationalization. Hence, firm age seems to influence firm decision making. Therefore, firm age will be included in the study as a control variable. Here, firm age (AGE) is calculated by subtracting the year of incorporation of each firm from the sample year.
Industry. To control for the effect of industry dynamics on the firm
internationalization decision-making process, industry dummies were used. As Ramón-Llorens et al. (2017) also state that it appears there are industry differences and internationalization. In this study the Standard Industrial Classification (SIC) codes are used to create six industry dummies, which are displayed in Table 3.1.
Table 3.1: Industry categories based on SIC codes
SIC 01-19 Agriculture, fishing, forestry, mining and construction
SIC 20-39 Manufacturing
SIC 40-49 Transportation and utilities
SIC 50-59 Wholesale trade and retail trade
SIC 60-69 Finance, insurance, real estate
SIC 70-89 Services
Analysis
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analysis based on the ordinary least square (OLS) method was applied. Moreover, since this thesis inhibits a moderation effect, the independent variable and the moderator were mean centered. Before conducting the main regression analysis, the preliminary assumptions for linear regression were tested to ensure an adequate interpretation of the regression results.
First, the rule of thumb for any regression analysis is the 20:1 rule which states that the ratio of the sample size to the number of parameters in a regression model should be at least 20 to 1 (Burkmeister & Aitken, 2012). Second, I check whether there is no multicollinearity. Multicollinearity discusses that there should not be a perfect linear relationship between two or more of the predictor variables. Measuring the multicollinearity in this model was done using the variance inflation factors (VIF). Third, the normality of residuals has to be tested, this is done using both statistical and optical methods. Statistically, the Shapiro-Wilk test is the most common way of testing for normality. This test measures a sample against a fictional sample with the same mean and standard deviations score that is normally distributed (Field, 2009). The null hypothesis is that the variables are normally distributed, and the alternative hypothesis is that the variables are non-normally distributed. Optically, the Kernel Density histogram and the P-P plot are used to determine normal distribution.
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more than three standard deviation from the mean (Garson, 2012). Sixth, the independence of the errors was tested via a Durbin-Watson test in order to show whether there is autocorrelation between the error terms. The accepted range of the statistics results should be between 1,5 and 2,5 (Field, 2009). The last assumptionto be evaluated was homoscedasticity of the residuals. In order to examine this condition, the standardized residuals and unstandardized residuals are evaluated. Both test results should be the same when homoscedasticity is present (Field, 2009). This is checked by looking at the Shapiro-Wilk test results for both residuals.
In the actual regression analysis, I first include the descriptive statistics to provide a basic understanding of the sample set included in this study (Bickel & Lehmann, 2012). Secondly, I describe the Pearson correlation coefficients, which measure the strength and direction of the linear relationship between two variables (Bolboaca & Jäntschi, 2006). There is considered to be a strong correlation if the coefficient is greater than 0,8 and a weak correlation if the correlation coefficient is less than 0,5 (Bolboaca & Jäntschi, 2006).
To test for the proportion of variation in the dependent variable which might be considered as being associated with the variation in the independent variable I tested two models: one that only included the control variables and a second model that also included the independent variable, the moderator, and the interaction term. The coefficient of determination (𝑅2) gives information about this proportion of variation
(Bolboaca & Jäntschi, 2006).
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regressions. The full model will be a hierarchical model, because the data is hierarchically structured, with first-level variables (control variables) nested in the second-level variable (independent), and so on (Raudenbush & Anthony, 2002). In model 1 I include the control variables. In model 2 I add the independent variable. Model 3 has the moderating variable included, and model 4 entails the full model, including the interaction effect of the independent variable and the moderator variable. Following work from other scholars, for example Pangarkar (2008) and Ruigrok and Wagner (2002), in the regression analysis, results are significant on the 0,10, 0,05, and 0,01 levels.
Ethics
Ethical tensions are part of the everyday practice of doing research (Guillemin & Gillam, 2004). Ethical issues are most common in qualitative studies but might also occur in quantitative studies (Guillemin & Gillam, 2004). Thus, it is important to be aware of any ethical issues that might arise in this study. To ensure that there are no ethical violations in my study, I checked for potential situations in which ethics need to be considered. For instance, when children are involved in a study, whether I am observing human subjects without their knowledge or when I collect sensitive data. As this was not the case, there do not seem to be any ethical tensions in my study.
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4. Results
In this section, the results of the proposed analysis are presented. First, the results of the assumption testing are described. Second, the descriptive statistics of the data sample are discussed. After that, the test results are reported and explained.
Basic assumptions
Sample size: Since I have two predictor variables (independent variable and
moderator), the minimum sample size should be 40. My sample consists of 100 observations, which is large enough.
Multicollinearity: As long as the VIF stays below 5 it is suggested that
multicollinearity is not a problem (Lee & Park, 2006). When checking for multicollinearity on the predictor variables most VIF values stayed around 1,0. In Table 4.1 the results of the test are displayed. These results show that there is no issue of multicollinearity in this study.
Table 4.1: Multicollinearity test of variables
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Normal distribution: The assumption underlying regression is that the residuals
are normally distributed. The results of the Shapiro-Wilk test are shown in Table 4.2.
Table 4.2: Shapiro-Wilk Test for normal distribution of dependent variable
These results show all significant results on the p<0.05 level. This would indicate that the variables in the study are all not normally distributed. According to Field (2009) this does not immediately say that the variables are not normally distributed and Field (2009) advises to check whether the variables follow normal distribution by looking at the P-P plot and the histogram of the residuals. In Appendix B, figure 1 the histogram and P-P plot are given. Results show that the variables seem to be normally distributed, so there will be no issues here.
Linearity: There should be a random pattern when nonlinearity is absent
(Garson, 2012). In Appendix B, figure 2 a scatterplot standardized residual can be found. This scatterplot shows a random pattern. Thus, I can conclude that there is a linear relationship in my study.
Outlier: There appeared to be one case of an outlier in my analysis, as the value
of the variable differed more than three standard deviation from the mean (Garson, 2012). To test whether I should omit this variable, I ran the tests with and without the outlier variable to see if the results change significantly (Garson, 2012). Since the results stayed similar, I retain the outlier in my study (Garson, 2012).
Independence of errors: The results of the Durbin-Watson test can be found in
Appendix B, table 1. The corresponding value of 1,922 indicate that the requirement of independence of errors was fulfilled (Field, 2009).
Statistic df Sig.
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Homoscedasticity of residuals: Since there are no differences between the
unstandardized residuals and the standardized residuals (See Appendix B, table 2), I can conclude that there is homoscedasticity of residuals and this assumption for a logistic regression was also met.
Descriptive statistics
The 100 firms included in the sample show high heterogeneity in terms of firm internationalization, with a minimum of zero and a maximum of 88. With a mean of 24,06, firms operate generally in over 20 countries. On average, there are less women on boards then men. Since the Blau Index is centered, there can be negative values, which normally would not be possible. The composition of boards differs greatly, with values ranging from -0,20 to 0,29. The average board size in this sample is ten persons per board. On average, firms are 55 years old, however the youngest firm included in the sample is only 2 years old whereas the eldest firm is 298 years old (See table 4.3).
Table 4.3: Summary statistics describing dataset
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38 Table 4.4: Pearson correlation matrix
Variable No. of countries BlauIndex_Cen GPI_Cen BlauIndexGPI_Cen BoardSize Log_TA AGE SecDum1 SecDum2 SecDum3 SecDum4 SecDum5 SecDum6 Number of countries 1 BlauIndex_Cen 0,241* 1 GPI_Cen ,0,071 0,544** 1 BlauIndexGPI_Cen 0,294** 0,043 0,234* 1 BoardSize 0,150 -0,027 -0,244* 0,088 1 Log_TA 0,286** -0,161 -0,274** -0,082 0,287** 1 AGE 0,291** 0,336** 0,199* 0,335** 0,066 0,031 1 SecDum1 0,008 0,080 0,083 -0,058 -0,038 0,004 0,038 1 SecDum2 0,495** 0,059 0,016 0,107 0,012 0,174 0,190 -0,241* 1 SecDum3 -0,118 -0,160 -0,121 0,083 0,155 -0,100 -0,240* -0,122 -0,296** 1 SecDum4 -0,213* 0,083 -0,109 -0,184 -0,040 -0,165 0,087 -0,093 -0,226* -0,114 1 SecDum5 -0,256* -0,036 0,015 -0,058 0,076 -0,008 -0,070 -0,162 -0,395** -0,199* -0,152 1 SecDum6 -0,121 -0,017 0,102 0,031 -0,207* -0,012 -0,053 -0,116 -0,283** -0,143 -0,109 -0,190 1
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Test results
In table 4.5 the summary statistics of the regression models are provided, these tells how much of the variance of the outcome variable firm internationalization is caused by the model.
Table 4.5: Summary statistics of regression models
I tested two models, the first one only included the control variables and the second model also included the independent variable and the moderator variable. The first model explains 36,1% (𝑅2 = 0,361) of the variation in firm internationalization. The
second model indicates that after adding board gender diversity and gender parity, 42,9% (𝑅2 = 0,429) of variance is explained. Table 6 shows that both models
significantly change the variation in internationalization. Table 6 also shows that model 1 and 2 have both improved our ability to predict firm internationalization, since both F-values are well above 1 (model 1 F = 6,432; model 2 F = 6,012). After establishing this, I can now continue to the hypotheses testing. The results of performing the multiple regressions can be found in Table 4.6.
I tested four models, the first model includes only the control variables. Model 1 shows that the normal logarithm of total assets and firm age are positively related to the number of foreign countries of firm has subsidiaries in. Furthermore, the industry dummy of SIC codes SIC 1-19, SIC 40-49, SIC 50-59, SIC 60-69, and SIC 70-89 all indicate a significant negative relationship with firm internationalization when we compare it to the baseline category SIC 20-39. This dummy variable also showed a significant positive effect on firm internationalization.
R R Square Adjusted R Square F Significance
Model 1 0,601 0,361 0,305 6,432 0,000
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Hypothesis 1 predicts that board gender diversity is positively related to firm internationalization, measured via the total number of foreign countries a firm has subsidiaries in. Model 2 shows a significant positive effect of board gender diversity (b = 31,985, p<0,05), supporting Hypothesis 1 that board gender diversity has a positive effect on firm internationalization. Furthermore, the control variable total assets continues to have a positive significant effect. The effect of firm age is no longer significant. The industry dummy of SIC codes SIC 1-19, SIC 40-49, SIC 50-59, SIC 60-69, and SIC 70-89 have a negative significant effect on firm internationalization. All other control variables are not significant (See Table 4.6).
41 Table 4.6: Impact of board gender diversity on firm internationalization (H1) moderated by gender parity (H2)
N = 100 firm observations. Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.
Variables Model (1) Model (2) Model (3) Model (4)
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5. Discussion
This thesis investigates the relationship between board gender diversity and the number of countries a firm has subsidiaries in of the largest firms in the Netherlands, Brazil, and Japan that are listed on their national stock exchange. To be able to gain insight into the research question, a hierarchical regression based on the ordinary least square regression analysis was conducted. This chapter first elaborates on the results and answers to the hypotheses. After that the conclusion is presented, in which the managerial and theoretical implications are discussed. Finally, the most important limitations are addressed and recommendations for future research are presented.
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ambiguous about the relationship between board gender diversity and firm internationalization, however my results provide more clarity. There are several explanations that can be thought of.
First, there are arguments that stem from upper echelons theory that explain the positive relationship of board gender diversity and firm internationalization. In their study on gender global mindset differences, Javidan et al. (2016) concluded that women value global relationships more than men. This could suggest that women directors are more willing to commit themselves in other countries by opening foreign subsidiaries in multiple countries. This is further strengthened by their love for individual consideration of different cases. Women, compared to men, tend to more carefully consider all options on the table, in situations where a decision to open a subsidiary does not seem to be optimal, women are more likely to seriously evaluate the option and perhaps decide to enter the country anyway (Antonakis et al., 2003).
Another explanation of the results can be found in the difference between men and women regarding risk-loving propensity. In this study, boards with greater gender diversity seem to internationalize more. Rivas (2012) and Tihany et al. (2000) established that internationalization involves more risk than staying domestic. This study contradicts work from Barber and Odean (2001) and Lenard et al. (2014) which argue that women are more risk-averse than men. On the contrary, this thesis is in line with findings from Adams and Funk (2012) who argue that female directors have a greater love for risk than men.
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composition of a board, more diverse human capital and relational capital will be acquired. Findings in this study can also be derived from the fact that female directors have diverse networks (Terjesen et al., 2015). Having a more diverse and broader network, female directors become more aware of other opportunities internationally and the supply of ideas, unique approaches, and knowledge available to a firm is increased (Barroso et al. (2011).
Moreover, Arfken et al. (2004) found that female directors understand different markets better than male directors (Arfken et al., 2004). The global markets are complex and have high levels of uncertainty, by increasing the variety of perspectives in the boardroom may help firm to understand these markets better (Lee & Park, 2006). Since all these findings in different studies lead to more and different board room dynamics, opportunities to reduce the firm’s dependency are increased.
Further, Barroso et al. (2011) found that higher education positively impacts firm internationalization and female board members tend to have higher levels of education (Hillman et al., 2002). Female directors tend to be younger (Adams & Funk, 2012) and firms with a lower average age of directors seems to internationalize more (Rivas, 2012). Although I did not study the effects of these different demographic characteristics between men and women, the characteristics could have played a role in determining the level of firm internationalization.
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The results in the analysis indicate that the gender parity index is not related to firm internationalization. However, when the interaction between board gender diversity and the gender parity index are regressed on firm internationalization, I discover the strongest positive relationship in the model. This finding supports hypothesis 2, which predicted that the relationship between board gender diversity and firm internationalization would be strengthened by a higher gender parity within a country. This result can also be derived from the resource dependence theory. Female directors in countries with greater gender parity can make greater contributions to and have more influence on boards because their contributions are more normalized and thus accepted (Post & Byron, 2015).
Moreover, the result might originate from the logic that in gender parity influences intra-board power distribution in a way that greater gender parity shifts the power away from male directors and distribute it more equally among the board (Byron & Post, 2016), and in turn affects the influence predicted by upper echelons theory, as this power distributions strengthens the voice of female board directors. This again will ensure that the different values, believes and cognitive bases that women possess will be taken into consideration. All this might result in decision making that favors firm internationalization.
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6. Conclusion
To answer the main research question: “What is the effect of female board
representation on firm internationalization and how does gender parity influence this relationship?” a hierarchical regression based on the ordinary least square regression
was conducted. By doing so, this study provides insight in the influence that a higher female board representation has on risky internationalization decisions made by the boards of large firms. The tests show that more gender diversity in boards lead to more firm internationalization and that this effect is strengthened by gender parity within a country.
Theoretical and managerial implications
This study provides several contributions to academic literature. First, this study presents insights in the board gender diversity – internationalization relationship, a research stream that has not received much attention in previous research (Kirsch, 2018). Second, this research proved that the theoretical frameworks of upper echelons theory and resource dependence theory are well suited to explain why board gender diversity is related to firm internationalization. Third, by including the national context via the gender parity index, the study contributes to board gender diversity research by showing under what conditions the positive effects of gender diversity thrive. It also confirms the meta-analysis findings of Post and Byron (2015) and Byron and Post (2016), allowing for more generalizability of the results. Lastly, my results provide a valuable addition to the international business strategy literature. By selecting a sample with firms from three different countries scholars are might be able to generalize my results for similar cultural settings elsewhere (Bullough et al., 2017).
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appointing female directors would improve firm internationalization. Second, the study provides some insights in how the board composition of countries’ largest firms affect decision making within these firms by showing that greater board gender diversity leads to more firm internationalization. Third, the gender parity index moderator effect amplifies the effect of board gender diversity on firm internationalization. Firms should within their firm advocate equal access to for example education or empowerment, to reap the benefits of gender diversity more.
Limitations and suggestions for future research
This thesis has several limitations which in turn provide suggestions and opportunities for future research. First, theoretical literature on the board gender diversity and firm internationalization is scarce. Indirect theoretical relationships had to be detected in order to build the hypotheses due to the lack of resources. Although it seems that the underlying theoretical framework indeed seem to explain the hypotheses, more research on this relationship is needed to make generalized conclusions. This in combination with the fact that in general, board gender diversity yields conflicting results by including work from other theories, such as agency theory or social identity theory could provide interesting areas for future research.
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Third, in this study I do not account for time and speed of the internationalization process. However, these factors could be critical for the success and growth of international operations (Chetty, Johanson, & Martín, 2014). I only included the year of incorporation as control variable, which indicates that I might not have measured internationalization in a complete way. An area for future research could analyze the effect of board gender diversity on the time and speed of internationalization.
Fourth, I argue that gender diversity influences firm internationalization because female directors have different demographic characteristics than male directors. However, in this study I do not actually test whether this is the case. Although there are some studies that indicate demographic differences between men and women on board level (e.g. Adams & Funk, 2012; Hillman et al., 2002) a comprehensive study focusing on demographic characteristics, such as level of education and age of directors could provide interesting insights in the debate on gender diversity influence on firm internationalization.
Fifth, the study does not take into account the possibility of reverse causality. It could also be that firms that operate more internationally appoint more female directors. This would then also change the composition of the board. To account for this, future research could undertake an analysis with panel data over several years, with the firm internationalization lagged in comparison to the gender board diversity.
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