Gender diversity in the boardroom

A board meeting

Gender diversity in the boardroom – does it make a difference?

Board diversity in general and gender diversity in particular on corporate boards is perceived to be both desirable and beneficial to firms. However, recent evidence suggests that short-run market reaction to the appointment of female CEOs and trades by female executives has been broadly negative.

The latest research by academics from the University of Exeter Business School analyses directors’ trades to determine the truth behind whether market reaction is really biased by gender and whether there is a difference in trading behaviour between male and female directors.

The team examined four aspects of directors’ trades: short run abnormal returns before the event of the trade; long run post-event returns; the propensity to trade; and short run post-event returns. These measures were considered by the authors to link directly to two sets of factors that determine the difference between male and female behaviour. First there are the dispositional factors, such as risk aversion, overconfidence and ethics, which could affect the willingness to trade on superior insider information. Secondly, there are situational factors such as social networks which affect a director’s ability to gain access to inside information and include the perceived credibility of the director’s trading signal.

Professor Ian Tonks explains “Directors’ trades form an interesting test of market reaction to gender differences. This analysis has previously been done using data relating to directors’ appointments which clearly occur far more infrequently. We believe our research, using a dataset of more than 374,000 entries relating to 4,412 different firms, can be seen as the definitive study on the subject.”

The findings are in conflict with many previous reviews of the issue as Gregory, Tharyan and Tonks find no consistent and significant gender differences in any of the four measures. The implication is that male and female directors are relatively similar in their willingness to trade, their access to information and the credibility of their trading signals. Finally, there is little difference between the stock market response to male versus female executives. This begs the question “Are women really different?”

Date: 26 July 2010

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