The moderating role of board gender diversity on the relationship between firm opacity and stock returns

In this study, we examine the impact of board gender diversity on the association between firm opacity and stock price crash. We utilize the negative shock of the 2007–2008 financial crisis to capital markets to examine whether firms with gender-diverse boards witnessed lower stock price crashes due to their lower opacity ex ante. Using a sample of S&P 1500 firms spanning the period 2005–2008, we employ a difference-in-differences research design and find that firms with high opacity ex ante witness more negative returns ex post. We also find that gender-diverse firms ex ante witness less negative returns ex post. Finally, our analysis reveals the moderating role that board gender diversity plays in the association between firm opacity and stock returns around the financial crisis. We subject our results to a range of robustness checks, including instrumental variable regressions, matched-sample analyses, and a set of falsification and placebo tests. Overall, we provide evidence that board gender diversity is associated with increased transparency in financial reporting, which pays off in times of crisis.     

The effect of board gender diversity on cross-listing

This paper examines whether board gender diversity affects the decision to cross-list firms. The study is based on an extensive sample of 131,022 company-year observations consisting of 15,751 unique companies across 66 industries in 83 countries with different levels of institutional development from 1999 to 2018. Analysis reveals that cross-listing is not rare phenomena, but rather a very attractive strategy that is widely used by corporations seeking financial internationalization. The findings show that greater gender diversity on the board reduces the probability of cross-listing, and are robust to a battery of endogeneity tests including IV of gender grammatical marking, propensity score matching and reverse causality. In addition, we find that stronger institutional context will offset part of the negative effect that having women on the board has on cross-listing.     

The effectiveness of chief financial officer board membership in improving corporate investment efficiency

The key roles of the Chief Financial Officer (CFO) in firm operating performance, corporate strategic choices, and corporate governance have been increasingly emphasized in recent decades. In this study, we empirically investigate the relation between CFO board membership and corporate investment efficiency to determine whether CFO presence on the board reduces firms’ propensity to over- or underinvest. We find that CFO board membership is significantly associated with a decreased level of corporate over- and underinvestment. Further, the positive effects of CFO board membership on corporate investment efficiency are greater for firms with greater information asymmetries. Last but not least, we find that the improved investment efficiency experienced by firms with CFOs on their boards has a positive effect on the firms’ future performance. Overall, we find that CFO board membership is associated with improved investment efficiency and firms’ future profitability. By documenting the real business impact of CFO board membership on investment efficiency and firms’ future performance, we add bricks to the literature on board composition and how it influences firms’ strategic choices and performance. Our findings suggest that having CFOs on boards could benefit firms’ investment practices, which directly relate to corporate strategic performance.

     

Political connections,financial constraints,and corporate investment

This study investigates whether firms politically connected to the ruling party can mitigate financial constraints and increase their investments. Data on Taiwan-listed companies from 1991 to 2010 are used to answer the preceding issue. Results indicate that firms connected to the ruling party that transitioned into power can mitigate financial constraints, but results do not hold for firms connected to the opposition party that transitioned out of power. Firms connected to both parties have similar results with those connected to the ruling party, but the diminishing effect is weaker than those connected to the ruling party. Results further indicate that financially constrained firms can increase their investment when they have political connections to the ruling party. Finally, firms with strong connections can reduce financial constraints more effectively.     

International corporate investment and the relationships between financial constraint measures

This paper uses international panel data to examine the interrelationships among some commonly used measures of financial constraint. The analysis reveals the following insights: (1) firms with stronger financial positions are more investment-cash flow sensitive than firms with weaker financial positions even after controlling for size and dividend payout and (2) higher payout firms are more investment-cash flow sensitive than lower payout firms even after controlling for size and financial strength. Evidence regarding the impact of firm size that is documented originally becomes much weaker once financial health and dividend payout behavior are controlled for. Finally, additional analysis reveals that many of these results may be driven by the fact that firms possessing high cash flow volatility display lower investment-cash flow sensitivities.     

Employee ownership, board representation, and corporate financial policies

French law mandates that employees of publicly listed companies can elect two types of directors to represent employees. Privatized companies must reserve board seats for directors elected by employees by right of employment, while employee-shareholders can elect a director whenever they hold at least 3% of outstanding shares. Using a comprehensive sample of firms in the Société des Bourses Françaises (SBF) 120 Index from 1998 to 2008, we examine the impact of employee-directors on corporate valuation, payout policy, and internal board organization and performance. We find that directors elected by employee shareholders increase firm valuation and profitability, but do not significantly impact corporate payout policy. Directors elected by employees by right significantly reduce payout ratios, but do not impact firm value or profitability. Employee representation on corporate boards thus appears to be at least value-neutral, and perhaps value-enhancing in the case of directors elected by employee shareholders.     

Financial flexibility,corporate investment and performance: evidence from financial crises

This study examines the impact of financial flexibility on the investment and performance of East Asian firms over the period 1994–2009. We employ a sample of 1,068 firms and place particular emphasis on the periods of the Asian crisis (1997–1998) and the recent credit crisis (2007–2009). The results show that firms can attain financial flexibility, primarily through conservative leverage policies and less commonly by holding large cash balances. Financial flexibility appears to be an important determinant of investment and performance, mainly during the Asian 1997–1998 crisis. In particular, firms that are financially flexible prior to this crisis (1) have a greater ability to take investment opportunities, (2) rely much less on the availability of internal funds to invest, and (3) perform better than less flexible firms during the crisis. Our analysis covering the credit crisis period of 2007–2009 suggests that some of the advantages of flexible firms towards investing persist but are significantly less pronounced over that period. We also find that the value of financial flexibility is region/country specific, which may be explained by the fact that different regions/countries often adopt different macroeconomic policies and operate in diverse economic/legal environments.     

The effect of financial reporting quality on corporate investment efficiency: Evidence from the Tunisian stock market

Positive Accounting Theory (Watts and Zimmerman, 1978) stipulates that financial reporting has two dimensions: market signaling and monitoring managerial behaviors. Through these signaling and stewardship means, a better financial reporting quality would have significant economic consequences in terms of efficient resources allocation, which results in improving firms’ investment decision. In this paper, we examine the impact of financial reporting quality on corporate investment efficiency. Our sample is based on 25 Tunisian listed companies for the period 1997–2013. The findings confirm that some characteristics of the financial information, namely, reliability and smoothness, appear to increase the investment inefficiency, while others, i.e., conservatism and relevance, seem have no significant effect on investment decisions. We attribute such results mainly to the contextual specificities of the Tunisian environment, such as, the institutional bodies and settings, the cultural values and some characteristics of the corporate governance system.     

The effect of financial constraints,investment policy,product market competition and corporate governance on the value of cash holdings

This study empirically investigates the value shareholders place on excess cash holdings and how shareholders’ valuation of cash holdings is associated with financial constraints, firm growth, cash‐flow uncertainty and product market competition for Australian firms from 1990 to 2007. Our results indicate that the marginal value of cash holdings to shareholders declines with larger cash holdings and higher leverage. However, firms that are more financially constrained, that have higher growth rates and that face greater uncertainty exhibit a higher marginal value of cash holdings. These findings are consistent with the explanation that excess cash holdings are not necessarily detrimental to firm value. Firms with costly external financing and that also save more cash for current operating and future investing needs find that the market values these cash hoarding policies favourably. Finally, there is limited evidence of an association between various corporate governance measures and the value of cash holdings for a shorter sample period.     

The cross-sectional effect of inflation on corporate investment and employment

This paper examines the cross-sectional effect of inflation on the investment and employment decisions. The paper shows that more heavily capitalized firms tend to have a greater reduction in the capital-labor ratio during an inflationary period. The paper also shows that firms with a higher cost of debt to wage ratios and a larger amount of depreciation shelter tend to use more labor in the inflationary period. Empirical results are generally consistent with these arguments. The authors wish to thank John Anderson, Jim Hodder, two anonymous referees and Cheng F. Lee, the Editor for their helpful comments. All remaining errors are ours.     

Excess cash holdings and investment: the moderating roles of financial constraints and managerial entrenchment

Our study investigates the relationship between excess cash holdings and investment behaviour under two dimensions of financial constraints and managerial entrenchment, based upon a sample of Taiwanese firms operating in an environment characterized by poor legal protection for investors, with data covering the years 2000–2006. We find that excess cash is significantly correlated with capital expenditure, particularly for firms financially constrained and with severe managerial entrenchment. However, the evidence shows that excess cash is insensitive to R&D expenditure under these two dimensions.     

Female CFOs,leverage and the moderating role of board diversity and CEO power

This paper investigates the extent to which female Chief Financial Officers (CFOs) affect corporate leverage. We examine female CFOs in UK firms and find that they significantly reduce the leverage of the firm; however, a female CFO's ability to influence corporate leverage is moderated by the senior decision-making environment in the firm. In particular, female CFOs are more effective in reducing leverage in firms with boards that are diverse with respect to gender, nationality and age, and in firms where the Chief Executive Officer (CEO) is not overly powerful. In addition, we find that externally appointed female CFOs reduce leverage more, in line with them having less allegiances to other top managers and greater scope to deviate from existing policies. Our work contributes to the literature by examining the conditions under which gender-specific risk-taking preferences lead to observable effects on corporate outcomes.     

Rising board gender diversity and incentives of female directors

As board gender diversity rises, it is important to understand the motivations of female independent directors. Focusing on the primary profession of female directors, we distinguish between promotion incentives of those who are senior executives of other firms (CorpFemales) and service/fee incentives of non-executive directors (OtherFemales). We find that OtherFemales hold more directorships and are more likely to miss board meetings. CorpFemales are more likely to serve on audit committees, which likely improves the reporting quality. CorpFemales, as opposed to OtherFemales exhibit higher M&A announcement returns and pay lower takeover premiums, especially when the choice of payment for acquisitions is equity.     

Corporate culture and board gender diversity: Evidence from textual analysis

Exploiting a distinctive measure of corporate culture based on advanced machine learning, we investigate the effect of board gender diversity on corporate culture. Our results demonstrate that greater board gender diversity considerably strengthens positive corporate culture. The findings support the notion that board gender diversity enhances board oversight and helps solve agency problems, resulting in managers being compelled to take measures that benefit shareholders and consequently, building a strong company culture. Further analysis validates the results, including propensity score matching (PSM), entropy balancing, an instrumental-variable analysis, Lewbel's (2012) heteroscedastic identification, and Oster's (2019) testing for coefficient stability. Our study is the first to link board gender diversity to corporate culture, using cutting-edge information obtained from sophisticated machine learning.     

Ethnic board diversity,earnings quality and institutional investors: evidence from Malaysian corporate boards

Motivated by calls to examine the issue of board diversity in emerging economies, this study explores the association between ethnic board diversity and earnings quality; and the moderating effect of institutional investors’ ownership. In a sample of Malaysian firms, we find that boards with higher ethnic diversity are associated with higher earnings quality. Consequently, our findings suggest that institutional investors prefer boards to be ethnically diverse. Consistent with geographical proximity theory, this effect is primarily driven by domestic institutional investors. Finally, we find that political connection attenuates the association between ethnic board diversity and higher earnings quality.     

Additions to corporate boards: the effect of gender

During the decade of the 1990s the number of women serving on corporate boards increased substantially. Over this decade, we show that the likelihood of a firm adding a woman to its board in a given year is negatively affected by the number of woman already on the board. The probability of adding a woman is materially increased when a female director departs the board. Adding a director, therefore, is clearly not gender neutral. Although we find that women tend to serve on better performing firms, we also document insignificant abnormal returns on the announcement of a woman added to the board. Rather than the demand for women directors being performance based, our results suggest corporations responding to either internal or external calls for diversity.     

Board generational cohorts,gender diversity and corporate environmental and social disclosures: Evidence from China

We examine the association between board generational cohorts and corporate environmental and social disclosure. We find that older board members have a positive association with corporate environmental and social disclosures. In contrast, the moderately younger and youngest board members limit corporate environmental and social disclosures. Our results are robust to potential endogeneity with the use of alternative model specifications, with the youngest board members accounting for a lower level of corporate environmental and social disclosures. Furthermore, we find that the presence of gender diversity on the board moderates the relationship between board generational cohorts and corporate environmental and social disclosures and reporting incentives are important to oldest and youngest board members in their push for environmental and social disclosures. Finally, additional analysis indicates that firms with governmental shareholding are associated with a higher level of corporate environmental and social disclosures as compared to firms without governmental shareholding when board members are moderately young.     

The relationship between corporate social responsibility,financial misstatements and SEC enforcement actions

This study explores the relationship between corporate social responsibility (CSR), financial misstatements and SEC enforcement actions. We find that firms with higher CSR are less likely to receive SEC enforcement actions for financial misstatements. Drawing on insights from stakeholder theory and the reputational literature, we identify two channels underpinning this relationship: (i) firms with higher CSR are less likely to engage in financial misstatements and (ii) the reputational effect of CSR reduces the likelihood of SEC enforcement actions. We find empirical evidence consistent with both channels.     

The effects of board gender diversity on a firm's risk strategies

We study whether board gender diversity (BGD) affects corporate risk strategies. Specifically, we investigate the association between BGD and firms’ reputation risk and financial risk. Using S&P data from 1997 to 2013, we find that BGD is negatively associated with tax avoidance, suggesting firms with gender‐diverse boards are more cautious about potential reputation risks associated with aggressive tax strategies. However, we find that BGD is positively associated with firms’ financial risk. The combined findings illustrate that BGD aligns a firm's risk exposure closer to risk‐neutral shareholders’ preferences by reducing reputation risk exposure while enabling necessary financial risk exposure.     

The effect of market competition on corporate cash holdings: An analysis of corporate innovation and financial constraint

This study investigates the impact of market competition on corporate cash holdings. Specifically, we focus on the corporate innovation and financial constraint channels. Based on a sample of the Chinese stock market from 1998 to 2019, our empirical results show that cash holdings are negatively impacted by market competition, corporate innovation partially mediates this effect, and financial constraint exhibits full mediation. Moreover, the mediating effect of corporate innovation is moderated by financial constraints. Furthermore, the impact of market competition reveals an increasing trend as cash holdings increase with quantile regression. In addition, this impact is mitigated for state-owned enterprises, and firms with larger total assets are impacted to a lesser degree.