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Business BRQ Research Quarterly
REGULAR ARTICLE
Does gender diversity on corporate boards reduce information asymmetry in equity markets? 夽
David Abad
a, María Encarnación Lucas-Pérez
b, Antonio Minguez-Vera
b,∗, José Yagüe
baUniversityofAlicante,DepartmentofFinancialEconomicsandAccounting,FacultyofEconomicsandBusinessSciences, CarreteraSanVicente,SanVicentedelRaspeig,03690Alicante,Spain
bUniversityofMurcia,DepartmentofManagementandFinance,FacultyofEconomicsandBusiness,CampusUniversitariode Espinardo,30100Murcia,Spain
Received9February2016;accepted7April2017 Availableonline28April2017
JEL
CLASSIFICATION G10;
G30;
J16
KEYWORDS Corporateboard;
Femaledirectors;
Genderdiversity;
Information asymmetry;
Market microstructure
Abstract Weexaminetherelationbetweenthegender diversityonboardsofcorporations andthelevelsofinformationasymmetryinthestockmarket.Priorevidencesuggeststhatthe presenceofwomenondirectorboardsincreasesthequantityandqualityofpublicdisclosureby firms,andwethereforeexpectfirmswithhighergenderdiversityontheirboardstoshowlower levelsofinformationasymmetryinthemarket.UsingaSpanishsample,proxiesforinformation asymmetryestimatedfromhigh-frequencydataalongwithsystemGMMpanelmethodology,we findthatthegenderdiversityonboardsisnegativelyassociatedwiththelevelofinformation asymmetryinthestockmarket.Ourfindingssupportthechangesinthelawsthathavebeen introducedin severalcountriesto increase the proportionof femalecompanydirectors by providingevidencethatgenderdiverseboardshavebeneficialeffectsonstockmarkets.
©2017PublishedbyElsevierEspa˜na,S.L.U.onbehalfofACEDE.Thisisanopenaccessarticle undertheCCBY-NC-NDlicense(http://creativecommons.org/licenses/by-nc-nd/4.0/).
夽 Wethanktwoanonymousreviewersandtheeditor,ProfessorPabloArocena,fortheirusefulcommentsandsuggestions.Wealsoappre- ciatethecommentsmade bythe participantsatthe24thIAFFE Annual Conference.DavidAbadacknowledges financial supportfrom theMinisteriodeEconomíayCompetitividadthroughgrantsECO2013-4409-PandECO2014-58434-P.AntonioMinguez-VeraandJoséYagüe acknowledgefinancialsupportfromtheMinisteriodeEconomíayCompetitividadthroughgrantFEM2013-40578-P.EncarnaciónLucas-Pérez, AntonioMinguez-Vera,andJoséYagüeacknowledgefinancialsupportfromFundaciónCajaMurcia.
∗Correspondingauthor.
E-mailaddresses:[email protected](D.Abad),[email protected](M.E.Lucas-Pérez),[email protected](A.Minguez-Vera),[email protected] (J.Yagüe).
http://dx.doi.org/10.1016/j.brq.2017.04.001
2340-9436/©2017PublishedbyElsevierEspa˜na,S.L.U.onbehalfofACEDE.ThisisanopenaccessarticleundertheCCBY-NC-NDlicense (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Introduction
In thispaper we analysewhether gender diversityon the board of directors is related to the level of information asymmetryoflistedfirmsintheequitymarket.Therefore, thispaperlinkstwocrucialtopicsofcorporategovernance and market microstructure in the financial literature of recent decades. On the one hand, information asymme- try is akeypoint for financial markets anda cornerstone of modernfinance. Informational asymmetriesplay acru- cial role in company financing and investment decisions (MyersandMajluf,1984),therebyaffectingstock liquidity (Kyle, 1985), which in turn have an effect on asset pri- cing(AmihudandMendelson,1986)andthecostofcapital (Easley and O’Hara, 2004). On the other hand, in recent years,genderdiversityoncorporateboardshasbecomean important issue which hasattracted theattention of pol- icymakers,shareholders, andacademics(DezsoandRoss, 2012). As a result, a great number of studies have ana- lysedthe impactof femalepresence oncorporate boards ondifferentaspectsofmanagementsuchasdecision-making (e.g.NielsenandHuse,2010),risk-taking(e.g.Faccioetal., 2016), managing (e.g. Loden, 1985), general firm perfor- mance(e.g.Hareletal.,2003),valueofthefirm(e.g.Carter etal.,2003),transparencyanddisclosure(e.g.Adamsand Ferreira,2009).Nevertheless,littledirectevidenceexists on the relationships between gender diverse boards and informationasymmetryacrossmarketparticipants.
Thepreviousliteraturefindsthatgenderdiverseboards increase the quantity and quality of public disclosure by firms. Adams and Ferreira’s (2009) findings suggest that womenaremorelikelytojoincommitteesthathavemon- itoringfunctions, suchasaudit,andcorporategovernance committees,whicharedirectlyinvolvedinincreasingtrans- parency.Similarly,femaleparticipationonboardspromotes moreeffectiveboardcommunicationtoinvestors(Joy,2008) andincreasesthediffusionandthequalityofvalue-relevant firm-specific information (Nalikka, 2009; Srinidhi et al., 2011).Inaddition,empiricalevidencehasshownanegative relationbetweendisclosurequalityandinformationasym- metry(e.g.BrownandHillegeist,2007;Heflinetal.,2005).
Therefore,ifgender diversityleads toan improvementin theinformationdisclosureofcompaniesandgreatertrans- parencyanddisclosurereducesinformationriskformarket participants,wewouldexpectanegativelinkbetweenthe gender diversityonboardsand theaveragelevel ofinfor- mationasymmetryinthemarket.
We examine the impact of board gender diversity on information asymmetry using a data panel of 531 firm- yearobservationsofcompanieslistedontheSpanishStock Exchangeintheperiod2004---2009.Toestimatethepercep- tioninthefinancialmarkets oftheadverse selection that existsbetweeninformedanduninformedtraders,wecom- putevariousmarketmicrostructureproxiesforinformation asymmetryusinghighfrequencydata:therelativespread, intradaypriceimpact,andtheprobabilityofinformedtrad- ing(PIN).Weusethesystemgeneralizedmethodofmoment (SystemGMM)anddynamicpaneltechniquetocontrolthe endogenityandheterogeneityeffects.Bycontrollingforcor- porategovernance,companycharacteristicsandthefirm’s information environment, we find a negative relationship
between gender diversity and the degree of information asymmetryinthemarket.
Thispapercontributestothepriorliteratureinseveral ways.First,itextendspreviousliteratureontheeconomic andmarketeffectsof boardgender diversitybyproviding newempiricalevidenceontheassociationbetweenfemale presence on corporate boards and the level of informa- tionasymmetry in themarket. We couldnot identifyany paperin the previous literature that specifically analyses this association. Only Gul et al. (2011, 2013) investigate theeffects of the presence of women ondirector boards onthefirm’sinformationenvironment(byusingasproxies theidiosyncraticvolatility andanalyst earnings forecasts, respectively).Although they donot explicitly analysethe association between gender diversity on boards and the informationasymmetry amongtraders, they provide find- ings that may be considered contradictory regarding this relationshipasseen inthenextsection.Consequently,we considerthatitisstillanopenempiricalquestion.
Second,wearealsothefirsttoexaminetherelationship betweengenderdiverseboardsandinformationasymmetry inthemarket byusingmicrostructure proxies for adverse selectionriskandconductinganassociationstudy.Previous papershaveanalysedtherelationshipbetweenthequality ofcorporategovernanceandtheinformationenvironmentof firmsinthestockmarketarounddifferentcorporateevents (e.g.Caietal.,2006; Kanagaretnam etal.,2007).Unlike thesestudies,weexaminehowgenderdiversityonboards is relatedto the average level of informationasymmetry overayear, whichavoidstheweaknessesof theshort-run eventstudymethodology(i.e.difficultyinclearlydetermin- ingthecorrecteventdateandmeasuringtheunanticipated componentofanannouncement).
Finally,thispaperprovidesevidencefromSpain,oneof thepioneercountriesindevelopinglaws toencouragethe presenceof women on boardsof directors. Following the exampleofNorwegianlegislation,whichrequiredthat40%
of board seats be taken by female directors by the end of 2008, the Spanish Gender Equality Act (Ley de Igual- dad)encouragedcompaniestoincreasetheshareoffemale directors to 40% by 2015. Companies that achieved this targetwere to begiven priority in the allocation of gov- ernmentcontractsbuttherewouldbenoformalsanctions.
In a similar way, other European countries (e.g. France, Italy,theNetherlands,Belgium)haverequired listedcom- paniestoreachminimumquotasforfemalerepresentation onboardsofdirectors.These legislativeadvances,topre- ventdiscrimination (Mateos deCabo et al., 2011) and to promotediversityinmanagementpositions,mayhaveapos- itiveinfluenceonthemanagementofthefirm.Inthisway CNMV(ComisiónNacionaldelMercadodeValores)describes theinclusion of women on theboard of directors as‘‘an efficiencyobjective’’,representing‘‘economicallyrational conduct’’,andnotonlysocialjusticeandethics.Therefore, genderdiversity onboards hasbecome akeypolicy focus inmany countries aswell ashavinggenerated an intense debateonitseffectsoncorporategovernanceandcompany performanceinacademicandprofessionalliterature.
In thiscontext,it is importantto considerthecharac- teristicsofcorporategovernance.InSpain,theseparation between owners and managers is much less clear than in the US or UK. Directors are, in many cases, direct
representativesofthecontrollingshareholdersofthecom- pany, and may even act as senior managers (La Porta et al., 1999). Thus, this governance context presents a principal---principalconflict,where thedominantsharehol- ders, although having both the incentive and power to monitor, may also connive with senior managers (Young etal.,2008).Thissituationmaygiverisetoalackofinde- pendenceandsupervisoryeffectivenessoftheboard.Board gender diversitymay bea useful mechanism for compen- sating the lack of effective governance in Spanish listed companies.Ourfindingssupportthosechangesinthelegal frameworkthathavebeenintroducedwiththeintentionof increasingtheproportionofwomenonboardsofcompanies inseveralcountries,includingSpain,aswellasotherleg- islativesteps for gender equality. Consequently,sinceour paperprovidesevidenceof benefitsofgenderdiversityon boardsforequitymarketparticipants,itmaybeofinterest toinvestors,managers,regulatorsandstandardsetters.
The paper is organized asfollows. The second section revises the related literature and develops the testable hypothesis.Thethirdsectiondescribestheresearchdesign, withthemeasures,model,andsampleemployed.Thefourth sectionpresentstheempiricalresultsandthefinalsection concludes.
Related literature and hypothesis development
While board diversity may generally be defined as the variety inherent in a board’s composition (Milliken and Martins,1996),genderdiversitymaybeconsideredasbeing among the issues that has generated more debate with regardtoitsinfluenceonboardroomdynamicsandoncom- panyperformance.In additiontothemanager’s operating andinvestment decisions,the compositionof acorporate board influencesthe quantity and qualityof theinforma- tiondisclosedbythefirm,whichmayaffecttheinformation asymmetryfacedbyinvestors.Althoughthemajorityofpre- vious literature on gender diversity on corporate boards is mainly descriptive, withno explicit theoretical models (Terjesenetal.,2009),theeffectofgenderdiversityonthe manager’sreportingdecisionsandafirm’sinformationenvi- ronmentcanbejustifiedbyseveraltheoreticalapproaches fromvariousacademicfields.1Wewillfocusontheagency theory,aswellasontheoreticalargumentsprovidedbyeco- nomicsociologyandpsychology.2
1Forinstance,tojustifytherelationshipbetweengenderdiversity andfinancialreportingquality,Guletal.(2013)focusonorganiza- tional,economicpsychology,and agencytheoreticalapproaches.
Pucheta-Martínezetal.(2016)turntoagency,stewardship,stake- holder and signalling theories to frame the impact of gender diversityonauditcommitteesonfinancialinformationquality.
2Thereadermusttakeinaccountthat,asisusualinthegender diversityliterature,weuseboardgenderdiversityandthepres- enceofwomenonboardsassimilarconcepts.Wethinkthisisa validassumptiongiventhecurrentsituationofgenderdiscrimina- tionwithincorporateboards,whicharemainlycomposedofmales.
Thisclarificationisimportantsinceoneboardwith100%ofwomen wouldnotpresentgenderdiversity.Wearegratefultoananonymous reviewerforpointingthisout.
The agencytheory suggests thatcorporate governance mechanisms facilitate the reduction of asymmetric infor- mation betweeninsiderand outsiderinvestors, aswellas amongmarketparticipants(Chungetal.,2010).Fromthis perspective, theboard of directorsis theprincipalmech- anism of internal control for promoting and protecting theinterestsofshareholders(JensenandMeckling,1976).
Diversity can provide the directors board with members who bring to it diverse experiences, skills and abilities, which islikelytopositivelyaffect theeffectiveness ofits critical function of management control and supervision (HillmanandDalziel,2003;Bearetal.,2010),favouringthe reduction of agency conflicts (Adams and Ferreira, 2009;
Terjesen et al., 2009). In this regard, female directors provide greater insight and closer monitoring, are more activeoncorporateboards,aswellasbeingmoreinclined to ask questions that would not be asked by maledirec- tors. Consequently, the presence of women on corporate boardenhancesitsindependenceandimprovesitsefficiency (e.g.Carteretal.,2003;AdamsandFerreira,2009;Tejersen etal.,2016).Inturn,tofulfiltheirfiduciarydutiestotheir shareholders,independentboardstakeactionstopromote corporatetransparencyandtocurbmanagers fromadopt- ingopportunistic/self-servingbehaviours,suchasearnings management, thereby improving the quality of financial reporting (e.g. Fama and Jensen, 1983; Ajinkya et al., 2005;Armstrongetal.,2010).Therefore,iffemaledirectors improve management control and enhance the indepen- dence of corporate boards, the presence of women on boardsmayimprovethetransparencyanddisclosurequality ofthefirm.
Theimprovementinthefirm’spublicdisclosureinduced bythepresenceofwomenonboardsmaynotcomeonlyfrom better monitoring. According to theories from economic sociologyandpsychology,giventhewell-knowndifferences inbehaviouralcharacteristicsbetweenmalesandfemales, thepresenceofwomencouldaffectthenatureanddynam- ics of board deliberations (Gul et al., 2011), which may havepositiveeffectsontheinformationenvironmentofthe firm.Forinstance,incomparisontomalemembers,women directors tend to have better interpersonal skills, show greatertrustworthiness,theircommunicationstyleismore participative and process-oriented, which may improve decision-making processes by creating an atmosphere of greater communicationofinformationandbyencouraging theboard toconsiderdifferentperspectivesandtoincor- poratemorevariedopinionsintoadiscussion(e.g.Jelinek andAdler,1988;EaglyandJohnson,1990;DailyandDalton, 2003;MacLeodHeminway,2007).Besides,womenaremore likely to contribute with fresher perspectives for solving complicatedissues,whichmayreduceinformationalbiases instrategyformulation(Francoeur etal.,2008).Addition- ally,thepresenceoffemaleonboardsalsomayfavourthe establishmentofagoodcommunicationandtheformationof betterlinksbetweenthefirmanddifferentgroupsofexter- nal stakeholders(Hillmanetal.,2007).Therefore,gender diversitymight implybetterinformedandmore extensive discussionswithintheboard,greaterinformationexchange both within the board and between board members and otherstakeholders.Thismayresultinaricherinformation environment, in which the benefits of producing private information are lower, and, therefore, in a reduction of
informationasymmetry(Guletal.,2011;Pucheta-Martínez etal.,2016).
Similarly, itisalsowellestablishedthatwomenexhibit lessoverconfidence(Lundebergetal.,1994),applyhigher ethicalstandardsintheirdecisionmaking(e.g.Ambroseand Schminke,1999;PanandSparks,2012),aremoreconserva- tive and more risk-adverse than men (e.g. Byrnes et al., 1999;PowellandAnsic,1997).Allthesecharacteristicslead womendirectorstorequiremoreandbetterfinancialrepor- ting,greaterauditeffort,andmoreover,inordertoreduce litigation risk andpotential reputationloss, they areless likelytomanipulatereportedearningsandotherdisclosures (e.g.Guletal.,2011;Srinidhietal.,2011).3Thus,thefirm’s commitmenttogenderdiversitymaybealsoperceivedasa signalofthequalityoffirms’governancepracticesandcor- poratedisclosure(Brammeret al.,2009),and womenare morelikelytobeinvolvedinenhancingfinancialreporting qualityin orderto maintainthe firm’sreputation. There- fore, the greater conservatism, risk aversion, and higher sensitivitytoethicalissuesonthepartoffemaledirectors ormanagerscouldleadtoareducedlikelihoodofengage- mentinearningsmanagementforopportunisticmotivesand therebyhigherqualityfinancialreporting,reducinginforma- tionasymmetryamonginvestorsinthemarket(Guletal., 2011).
Nevertheless, therearealsoargumentstosupportthat greatergender diversitymayhavenegativeeffectsonthe managementofthefirmand,consequently,maynotimprove itsinformationenvironment.Someresearchindicates that greater gender diversityamongboard membersgenerates more opinionsand critical questionsor couldlead to the formationofbarrierswithinthegroupaswellaspotential discrimination(Alexanderetal.,1995;Blau,1977),increas- ing the likelihood of conflict (Richard et al., 2004), and reducing cohesion, satisfaction andcommitment (Jackson et al., 2003; Pfeffer, 1983). Consequently, gender diver- sityonboardsmayresultinlowereffective monitoringor management(LauandMurnighan,1998;Carteretal.,2003).
In addition, some research provides evidence of female directorsbeingmore likelytobeconsidered astokens on boards (Zelechowski and Bilimoria, 2004), with a signifi- cant numberof female directorsdesignated withthe aim ofmatchingthedemographiccharacteristicsoftheemploy- ees or meeting social or legal expectations (Farrell and Hersch, 2005). A direct consequence of this tokenism is that women directors merely play a simple institutional role with an irrelevant influence on boards (Zelechowski andBilimoria,2004).Therefore,acceptingthisperspective, femalepresenceonboardswouldnotguaranteemoreeffi- cientmonitoringand,consequently,agenderdiverseboard may not significantly affect a firm’s financial information qualityandtransparency.
Prior empiricalresearch mostly shows that the quality ofcorporategovernanceandfemalepresenceontheboard haveapositiveinfluenceontheinformationenvironmentof thefirm.Thus,arelativelylargenumberofempiricalstud- iesprovideevidencethatgreaterboard independenceand
3Priorworksfindthatlowerearningsqualityincreaseslitigation risks,andearningsmanagementareassociatedwithreputationloss (Huntonetal.,2006;KaplanandRavenscroft,2004).
better corporate governance increase corporate trans- parency, the quality of information released by manage- ment, andthe analysts’ forecasts accuracy (e.g. Eng and Mak, 2003; Ajinkya et al., 2005; Karamanou and Vafeas, 2005;BeekesandBrown,2006;Byardetal.,2006).Similarly, empirical evidence shows that gender diversity enhances boththeindependenceandefficiencyofboardsofdirectors (e.g.AdamsandFerreira,2009;Tejersenetal.,2016).
Focusingonthestrandof literaturethat addressesthe relationshipbetweenboardgenderdiversityandthequan- tityand qualityof corporatedisclosure, empiricalstudies findthatfemaleparticipationonboardsisassociatedwith moreeffectivecommunicationtoinvestors(Joy,2008)and that firms with female Chief Financial Officers are asso- ciatedwithhigher voluntarydisclosures in annual reports (Nalikka, 2009).Regarding the financial reporting quality, Krishnan and Parsons (2008) find that gender diversity in senior managementis positively relatedtoearnings qual- ity,andSrinidhi etal.(2011)showthat firmswithfemale directors,especiallyintheauditcommittee,exhibitbetter reportingdisciplineandhigherearningsquality.Inthesame line,astreamof empiricalpapers (e.g.GulzarandWang, 2011;QiandTian,2012)provideevidenceconsistent with the argument that gender diverse boards increase finan- cialreportingqualitybecausetheyarenegativelyassociated withearningsmanagement.InaSpanishsample, Pucheta- Martínezetal.(2016)showthatahigherpresenceoffemale directorsandindependentfemaledirectorsonauditcom- mittees, combined with a woman being the chairperson ofthesecommittees,enhancesfinancialreportingquality.
In contrastto the majority of empirical evidence, only a reducednumberofstudiesdonotfindanysignificantasso- ciationbetweenthefemalepresenceinexecutivepositions oroncompanycommitteesandearningsquality(Sunetal., 2011;Yeetal.,2010).
Thetheory ofinformationeconomicspositsthathigher and better information disclosure from the firm reduces information asymmetries arising either between the firm and its shareholders or among traders in the stock mar- ket. Higher disclosure quality should reduce information asymmetry by reducing incentives to search for private informationand/orbyloweringtheamountofprivateinfor- mationrelativetopubliclyavailableinformation(Diamond andVerrecchia,1991; EasleyandO’Hara, 2004).Informa- tion asymmetries generate costs by introducing adverse selection into transactions between buyers and sellers.
Therefore, lower levels of information asymmetry bene- fitinvestorsbecausetheyleadtomoreprecisevaluations, reducingtheriskofadverseselectionforthelessinformed investorsand,thus,increasingmarketliquidity(e.g.Glosten and Milgrom, 1985). Extensive empirical research on the association between the quality of public disclosure and information asymmetry supports these theoretical pre- dictions (e.g. Brown and Hillegeist, 2007; Heflin et al., 2005).
Hence,asarguedabove,priorresearchfindsthat(i)the qualityofcorporategovernancemayhaveaninfluence on thequantity andqualityofinformationdisclosed,and (ii) a higher level of firm disclosure may itself reduce infor- mationasymmetry between participants in stock markets (Kanagaretnam et al., 2007: 501). Based on these find- ings,itwouldbeexpectedthatfirmswithbettercorporate
governancewereassociatedwithlowerinformationasym- metry. The extensive stream of empirical studies that examinethislinkreportsconsistentresultswiththishypoth- esis.Forinstance,Chenetal.(2007)findthatpoorcorporate governanceleadstohigherlevelsofinformationasymmetry andtostockliquiditydeteriorations.Cormieretal.(2010) provide evidence that some characteristics of monitoring processes(suchasthenumberofdirectorsontheboard,or thenumberofpeopleontheauditcommittee)canreduce information asymmetry. In their study on corporate gov- ernance characteristics affecting the market reaction to firm-specificnews,Caietal.(2006)providestrongsupport fortheproportionoffoundingfamilydirectorsontheboard beingpositivelyrelatedtothelevelofinformationasymme- tryinthemarket.Kanagaretnam etal.(2007),whenthey examinetheeffectofboardindependence,boardstructure andboard activityonmarketliquidity(bid-askspreadand depth), conclude that good corporate governance dimin- ishestheinformationasymmetryaroundquarterlyearnings announcements. Finally, Goh et al. (2016) also conclude thatgreaterboardindependenceleadstolowerinformation asymmetryamonginvestors.
Thereareveryfewempiricalstudiesthathaveanalysed thespecificassociationbetweengenderdiverseboardsand thefirminformationenvironmentand,inouropinion,those thathave,donotprovidedconclusiveevidence.Guletal.
(2011),fromasampleofUSlistedcompanies,findthatgen- derdiversityexhibitsasignificantpositiveassociationwith idiosyncraticvolatility.Theseauthorsclaimthisfindingsug- geststhatgenderdiversityincreasestheprivateinformation collectedbytraders.Wethinkthatthisresultcouldbeinter- pretedasanincreaseinadverseselectionriskinthemarket.
However, the findings in Gul et al. (2013) are consistent withthe notionthatgender-diverseboards areassociated withhighercorporatedisclosureandabetterfirminforma- tionenvironment,becausetheyshowthatfirmswithfemale directorsarerelatedwithhigher(lower)accuracy (disper- sionofrange)ofanalystearningsforecasts.Byimplementing aneventstudy,Caietal.(2006)analysehowmultiplecorpo- rategovernancecharacteristicsaffectthemarketreaction to company-specific news. With regard to the effects of board gender diversity, their results are not conclusive anddepend ontheinformationasymmetrymeasure used.
Whilst the results are not significant for PIN measure- ment, adverse selection cost regressions provide support forthe presenceoffemaledirectorsreducing information asymmetry in the market around news announcements.
Finally,Upadhyay and Zeng(2014) findgender andethnic diversityonboardsisnegativelyassociatedwithcorporate opacity.
Tosummarize,themajorityof priorresearchfindsthat thepresenceoffemaledirectorsonboardsimprovesmoni- toringprocessesandcorporategovernance,providesasignal of better governancepractices and has a positive impact onboth thequantity andqualityof corporateinformation disclosure.Furthermore,informationeconomicsliterature reportsthathigherandbetterinformationdisclosurefrom thefirmreducesinformationasymmetriesbetweentraders inthestockmarket.Consequently,ourhypothesisisstated asfollows:Genderdiversityonboardsisnegativelyrelated totheaveragelevelofinformationasymmetryintheequity market.
Research design and sample
ProxiesforinformationasymmetryAs the degree of information asymmetry is not directly observable,marketmicrostructureliteraturehasproposed differentmeasuresandmodelstocapturetheperceptionin the financial markets of the adverse selection that exists between informed and uninformed traders. The first and effortless proxy forasymmetric informationisthe bid-ask spread,awidelyusedmeasureoftradingcosts(liquidity).
Bid-askspreadincorporatesacomponentrelatedtoliquid- ityproviders’protectionofbeingadverseselected.Glosten andMilgrom(1985)showtheoreticallythatmerelythepres- enceoftraderswithdifferentlevelsofinformationisenough toexplaintheexistenceofthebid-askspread.Therelative quotedspread(RQS)isdefinedasfollows:
RQSt= at−bt
Qt , (1)
whereatandbtcorrespondtotheaskandthebidquotesin t,respectively.Qt=(at+bt)/2 isthequotedmidpointint, commonlyusedasaproxyfortheefficientprice.
Sincethebid-ask spreadis anoisy proxy for asymmet- ricinformation,duetothefactthatitcommonlyincludes other components that are not related with information (inventorycosts,orderprocessingcost);wealsousemore directmeasuresofinformationasymmetry.HuangandStoll (1996)introducetherealizedspreadandthepriceimpact byconsideringthequoteadjustmentthattakesplacesome timeafteratradetoextractthepresenceofnewinforma- tion.Priceimpact(PI)isoursecondapproachtoasymmetric informationdefinedasfollows:
PIt+=(Qt+−Qt)Xt, (2)
where Qtis thequotemidpointdefinedpreviously, Xt is a tradeindicatorvariabletakingthevalue−1ifthetradein tisinitiatedinthesellsideand1ifitisinitiatedinthebuy side.Finally,istheperiodoftimeforpricestofullyreflect theinformationcontentintradet.Inpracticeandfollowing HuangandStoll(1996)weused30min.
Finally, we also compute the probability of informed trading (PIN), a measure based on the notion that order imbalances between buysandsells signal thepresence of adverse selection risk. The PINis the unconditionalprob- ability that a randomly selected trade originates froman informedtrader.TheoriginalPINmodelwasintroducedby Easley etal. (1996).This measure is not directly observ- able but a function of the theoretical parameters of a microstructuremodelthathavetobeestimatedbynumer- icalmaximizationofalikelihoodfunction.Theonlyinputs necessary toestimate the model arethe number of buy- and sell-initiated trades for each stock and each trading day.Oncetheparametersofinterestareestimated,PINis calculatedas:
PIN= ˛
˛+εb+εs, (3)
where ˛is theprobabilityof an informationeventoccurs betweentradingdays,is thearrivalrateofordersfrom theinformedtraders,andεb andεsarethearrivalratesof buy andsell orders fromuniformed traders, respectively.
Thus,thePINisthe ratioof ordersfrominformedtraders to the total number of orders. Forreasons of space, the descriptionofthemodelandtheestimationprocessofthis well-knownmethodologyarepresentedinAppendix.
Measuresofgenderdiversity
Severalmeasuresofgenderdiversityhavebeenemployed.
First,thepercentageofwomenontheboard ofdirectors, PWOMEN,iscalculatedasthenumberofwomenboardmem- bersdividedbythetotalnumberofdirectors.Thishasbeen traditionally usedto quantify the presence of women on boardsofdirectors.However,itisnotalways atruemea- sure ofdiversity,asthe boardof directorscomposedonly of women---the maximum valueof thevariable--- willbe signallingacompletelyhomogeneousboard.Thus,wecalcu- latetwoadditionalmeasurestoindicatewhethertheboards are diverse in terms of gender or not (Martín Ugedo and Minguez Vera, 2014). These two measures are composite measuresthatcombinetwomeasuresofdiversity(Stirling, 1998):ameasureof‘variety’,whichisdefinedtomeasure whether boards include representatives of both genders, and a measureof ‘balance’, which is definedto measure howequallymenandwomenarerepresentedontheboard.
The firstmeasure of thistype isthe Blau diversityindex, BLAU,calculatedas:
BLAU=1−
n
i=1
Pi2, (4)
wherePireferstothepercentageoffemaleboardmembers.
Thevaluesfluctuatebetween0and0.5,atwhichthereisthe samepercentage ofmaleandfemaleboard members and thusthediversityismaximized(Blau,1977).Theothermea- sure is the Shannon diversity index,SHANNON, computed as:
SHANNON=−
n
i=1
PilnPi, (5)
wherePiiscalculatedonthesamebasisastheBlauindex.In thisproxy,thevaluesrangefrom0to0.69,thelatterfigure correspondingtothegreatest possibledegree of diversity (Shannon,1948).The Shannonindexproducesresults that aresimilartothoseoftheBlauindex,buttheyarealways largerthanthelatter.TheShannonindexismoresensitive tosmallchangesinthegenderdiversityofboardsbecause it is a logarithmic measure. Diversity indexes reach their maximumvaluewhenthenumberofwomenontheboardof directorsis thesameasthenumberofmen.However,the presenceofwomenontheboardofdirectorsisusuallylow anditisdifficulttofindboardswithamajorityofwomen.For thisreason,diversityindexesarenotalternativemeasures ofdiversitybutcomplementarymeasures.Weincludethem toaddrobustnesstoourresults.
Controlvariables
Several studies have found that corporate governance mechanisms reduce the asymmetric information and this effectivenesscandependontheircharacteristics.Forexam- ple, Caiet al. (2006) arguethat the number of directors can influence disclosure activities. Kanagaretnam et al.
(2007) find that board independence reduces asymmetric informationduringanequityofferingandaroundquarterly earningsannouncements.Furthermore,insiderownershipis animportantcharacteristicfortheeffectivenessofaboard, butitsinfluenceis notclear apriori.Hence, Morcketal.
(1988)suggestthatatlowlevelsofinsiderownership,there is more encouragement to carry out effective monitoring (convergencehypothesis).However,oncetheygaincontrol- lingauthorityinthefirm,directorscanentrenchthemselves (entrenchment hypothesis). The existence of this nonlin- earrelationshiphasbeenconfirmedinseveralstudies(e.g.
AndersonandReeb, 2003).The empiricalevidenceonthe link between institutional equity ownership and informa- tionasymmetryhasbeenmixed(Jenningsetal.,2002;Jiang andKim,2005).Ontheonehand,institutionalshareholders canimprovecorporategovernancebyexertinggreatercon- trol,whichleadstoareductioninthedegreeofinformation asymmetry(BhojrajandSengupta,2003;HealyandPalepu, 2001).Ontheotherhand,Pound(1988)statesthatinstitu- tionalinvestorswhoseinvestmentsarediversified,mayhave fewincentivestoexercisemonitoring.Healsoarguesthat managersordirectorsmighteitherformanalliancewiththe institutionalinvestorsorexertsome kindofimplicit influ- enceover them, so that insider interestscould still take priorityovertheshareholders’interest.Accordingly,there is some evidence of certain institutional trade based on privateinformationwhichmayincrease informationasym- metryamonginvestors(Brown etal.,2004). Finally,Kang etal.(2006)examinetheimportanceoftheformofexec- utivecompensation in mitigatingasymmetric information.
Theyfindthatcompensationpackagesthatrewardmanage- rialperformancereduce asymmetricinformation, because executivesareencouragedtorevealthelevelofeffortthey expendinordertoqualifyforperformancepayments.
Following these arguments,we includeseveral control variablesrelatingtothecorporategovernancemechanisms.
The board size, NDIR, measured by natural logarithm of thenumberofdirectorsontheboard. Theboardindepen- dence, PEX, is calculated as the percentage of external directors.Director ownership, DIROWN,is the natural log of the percentage of shares owned by directors. To cap- turethenon-linearrelationshipbetweendirectorownership andthepresenceofasymmetricinformation(convergence andentrenchmenthypotheses)we alsoincludethesquare of DIROWN, DIROWN2. We also consider the institutional ownership, INS, defined as the natural log of percentage ofsharesowned bythe institutionalshareholders. Finally, tocontrolforcompensationpackages,weincludetheper- centageofvariablepaytototalpayreceivedbytheboard members,PVPAY.
Similarly, SIZE, TURNOVER, and VOLAT have been also includedascontrolvariablesbecausemicrostructurelitera- tureshows thatlarge, frequently tradedand less volatile firms are more liquid and suffer lower adverse selection problems (e.g. Easley et al., 1996). SIZE is the firm size measuredasthenatural logarithmofthemarketvalue of equityattheendoftheyear.TURNOVERisthenaturallog- arithmof trading volume(measured as the average daily volumeinEuros)scaledbythemarketvalueofafirm’sequity tofacilitate cross-sectional comparison.VOLAT is a proxy forstockreturnvolatilitycalculatedasthestandarddevia- tionofdailyreturns.Finally,sincedisclosureliteraturealso
predicts that the information environment of a firm is affected by the activities of producing and disseminating informationperformed by the number of following finan- cialanalysts,we controlbythenaturallogofthenumber following a firm, NANA. The great majority of empiri- cal studies on this topic report that analyst coverage is negatively related to informationasymmetry (e.g. Easley et al., 1998; Roulstone, 2003). This inverse relation sup- portstheargumentthatmoreanalystsfollowing increases publiclyavailableinformationonthefirm,whichresultsin areductionintheriskofinformation-basedtradingandan improvementinstockliquidity.
Modelspecificationandestimationprocedure To examine the association between gender diversity on boardsanddifferentproxiesforinformationasymmetry,we usethefollowingregressionmodel:
InfAsymit= ˇ0+ˇ1Gender Diversityit+ˇ2NDIRit
+ˇ3itPEX+ˇ4DIROWNit+ˇ5DIROWN2it
+ˇ6INSit+ˇ7PVPAYit+ˇ8SIZEit
+ˇ9TURNOVERit+ˇ10VOLATit+ˇ11NANAit
+ t+i+εit,
(6)
where InfAsym is one of the different proxies analysed for information asymmetry (RQS, PI and PIN) and Gen- derDiversity corresponds to the different proxies for genderdiversityonboards(PWOMEN,BLAU,andSHANNON).
Accordingtoourhypothesis,weexpectˇ1<0.Therestofthe independentvariablesofthemodelaredefinedintheprior subsection. t,i,andεitrepresentthetemporaleffects, individualeffectsandtherandomdisturbance,respectively.
Regardingtheestimationprocedure,aSystemGeneral- izedMethodMoments(GMM)techniqueisapplied(Blundell and Bond, 1998). This methodology makes it possible to controlfor individual heterogeneity aswell ascontrolling formacroeconomiceffects.Inaddition,accordingtoMartín UgedoandMinguezVera(2014:145),SystemGMMestima- tionovercomestheendogeneitybiasthat canoccurwhen the explanatory and explainedvariables arecombined in reciprocalexplanations.Inordertoremoveanypossiblebias arisingfromsimultaneousestimation,thismethodologyesti- mates a system of two simultaneous equations. The first equation uses variables in levels(first differences instru- ments) and the other uses variables in first differences (laggedwithrespecttoinstruments).Thismethodologyhas importantadvantages in comparisontoothers. Forexam- ple, OLS (Ordinary Least Squares) methodology does not solvetheheterogeneitybias(allthevariablesareincluded asexogenous). The estimation of fixed effects solves the problemofheterogeneitybias,butnottheproblemofendo- geneity.2SLS (TwoStage Least Squares) estimationsolves theproblemofendogeneitybias,butisnotappropriatefor usinginsampleswherethereisalowvalueofT(numberof years)asisthecaseinthiswork(ArellanoandBond,1991).
TheSystemGMMmethodologyhasbeencommonlyusedto controlendogeneityproblems(e.g.Becketal.,2000;López- Gutiérrez et al., 2015; Uotila et al., 2009) and seems to besuperiortotheotheroptiontocontroltheendogeneity
usingpaneldata:DiffGMM.Finally,accordingtoHeidetal.
(2012),SystemGMMismoreadequatewhendatashowhigh persistenceasitisinourcase.
Sampleanddata
Our sample is composed of companies whose stocks are traded on the electronic trading platform of the Spanish Stock Exchange, knownasthe SIBE.The SIBE isan order- drivenmarketwhere liquidityisprovidedby alimitorder book.Traderscansubmitthreebasictypesoforders:limit orders,marketorders,andmarket-to-limitorders.Whenthe marketisopenincontinuoussession,atradeoccurswhen- ever an incoming orderhits thequotes on theother side oftheorderbook.Non-executedordersremainintheorder bookusingaprice-timepriorityrule.Unexecutedorderscan bealteredorcancelledatanytime.
TradeandquotedataforthisstudycomefromSMdata filesprovidedbySociedaddeBolsas,S.A.SMfilescomprise detailed time-stamped information about the first level of the limitorderbook for each stock listed onthe SIBE.
A newrecord is generated in the database wheneverany trade, order submission and cancellation affect the first level of the book. The classification of trades as buyer or seller-initiated is straightforward given that any trade consumes liquidity at one of the two sides of the book.
Governance reports of listed firmswere obtainedthrough theComisiónNacionaldelMercadodeValores(CNMV),the Spanish SecuritiesandExchange Commission. Institutional ownershipandanalysts’datawerecollectedfromThomson ReutersEikonDatastream.
Our main sample contains 531 company-year observa- tionsof non-financialcompanieslisted ontheSIBEfor the period2004---2009.Table1presentssummarydistributional characteristicsofselectedvariables.Themean(median)of relative bid-ask spread (RQS) is 0.65% (0.39%). The aver- age(median)ofpriceimpactmeasure(PI)is0.42%(0.30%).
As expected,PIshows lowervaluesthanRQS sincePIis a lessnoisymeasureofinformationasymmetrythanRQS.The mean (median) of PIN is 18.30% (17.51%). These PIN val- uesareconsistentwiththosereportedinpriorstudiesthat usethisinformationasymmetryproxy(BrownandHillegeist, 2007; Caietal.,2006).These figuresshowthatthereare cleardifferencesin thedegreeofasymmetricinformation amongSpanishnon-financialfirms.
Regardingthedegreeofgenderdiversitymeasures,the percentageofwomenonboardsisverylowwithanaverage of5.1%.Thisvalueisfarfromthe40%calledforbytheSpan- ishEqualityAct,althoughtherearecompaniesthatexceed thisrecommendedpercentageasthemaximumvalueinour sampleis 44%.ThemeanoftheBlauandShannonindexes is0.05and0.08,andrangesbetween0and0.49and0.69, respectively.Therefore,wehavearichdatasetthatincludes firmscharacterizedbyalargedegreeofvariationinthegen- derdiversityoftheirboards.Also,thecontrolvariablesshow asignificantlevelofdispersionintheirvaluesreflectingthe heterogeneityofourcompany-yearsample.
Results
As a preliminary and intuitive analysis to investigate the relationshipbetweengender diversityoncorporateboards
Table1 Descriptivestatistics.
Mean Standarddeviation Min Perc5 Median Perc95 Max
RQS 0.0065 0.0071 0.0006 0.0010 0.0039 0.0219 0.0467
PI 0.0042 0.0036 0.0004 0.0009 0.0030 0.0118 0.0229
PIN 0.1830 0.0573 0.0776 0.1099 0.1751 0.2866 0.4313
PWOMEN 0.0509 0.0793 0.0000 0.0000 0.0000 0.2222 0.4444
BLAU 0.0840 0.1216 0.0000 0.0000 0.0000 0.3457 0.4938
SHANNON 0.1419 0.1944 0.0000 0.0000 0.0000 0.5297 0.6869
NDIR 2.3961 0.3217 1.3862 1.7917 2.3798 2.9444 3.1780
PEX 0.7834 0.1304 0.3000 0.5556 0.8000 0.9524 1.0000
DIROWN 0.1232 0.1813 0.0000 0.0000 0.0069 0.5006 0.6750
INS −2.5341 1.2111 −9.2103 −4.8929 −2.2396 −1.1056 −0.7217
PVPAY 0.2583 0.2625 0.0000 0.0000 0.2102 0.7665 1.0000
SIZE 13.9011 1.7336 9.2854 11.0704 13.8858 16.7583 18.4796
TURNOVER −6.1485 1.1959 −10.1845 −8.2224 −6.0868 −3.9930 −2.8215
VOLAT 0.0190 0.0103 0.0028 0.0081 0.0162 0.0381 0.0883
NANA 1.8818 1.0337 0.000 0.000 2.0794 3.2958 3.7135
Note:RQSistherelativequotedspread(askpriceminusbidprice,dividedbythequotemidpoint).PIisthepriceimpactmeasure proposedbyHuangandStoll(1996).PINistheprobabilityofinformedtradingbasedontheEasleyetal.(1996)model.PWOMENisthe percentageofwomenontheboardofdirectors.BLAUistheBlaudiversityindex.SHANNONistheShannondiversityindex.NDIRisthe naturallogarithmofthenumberofdirectorsontheboard.PEXisthepercentageofexternaldirectorsontheboard.DIROWNisthe naturallogofthepercentageofdirectors’ownership.INSisthenaturallogarithmofthepercentageofsharesownedbyinstitutional shareholders.PVPAYisthepercentageofdirectors’variablepay.SIZEisthemarketvalueoffirm’ssharesattheendoftheyear(in millionsofeuros).TURNOVERisthenaturallogarithmoftheaveragedailytradingvolumeineurosscaledbythemarketvalueofthe firm’sshares.VOLATisthestandarddeviationofdailyreturns.NANAisthenaturallogarithmofthenumberofanalystsfollowingafirm.
and the information environment of companies, we con- ductaunivariateanalysistoexaminewhethermeanvalues of our information asymmetry proxies are lower in firms with women on their boards in comparison to firms with no women at all. Table 2 presents mean values for each informationasymmetryproxyinbothgroups,aswellasthe valuesoft-testandMann---Whitneytest.Asexpected,RQS, PI,andPINmeasuresaresignificantlylowerforfirmswith femaledirectors ontheir boardscompared tothosefirms withnone.Consistentwithourexpectation,theseprelimi- naryresultssuggestthatfirmswithfemaledirectorsontheir boardsexhibitlowerlevelsofinformationasymmetryamong marketparticipants.
However,this preliminaryanalysis does notcontrol for the effects of company characteristics and other factors affecting adverse selection measures. Thus, according to Eq.(3),weseparatelyregresseachinformationasymmetry proxy(RQS, PI,andPIN)onthethreemeasuresof gender diversity(PWOMEN,BLAU, andSHANNON), controlling for relevantfirmcharacteristicsandotherfactorstoisolatethe effectofgenderdiversityoninformationasymmetry.
Table 3 presents Eq. (3) estimation results using RQS asthe dependent variable. In Model1, the proportion of womenonboards,PWOMEN,hasanegativeandsignificant effectontherelativespread.InModels2and3,weemploy theBlau index,BLAU, and the Shannon Index,SHANNON,
Table2 Meandifferencesininformationasymmetrybetweenfirmswithno-presenceandpresenceofwomenoncorporate boards.
No-presenceoffemales Presenceoffemales t zM---W
RQS
0.0071 0.0057
2.24** 2.01**
(0.0773) 0.0060
327 204
PI
0.0044 0.0039
1.56* 1.55*
(0.0038) (0.0032)
327 204
PIN
0.1867 0.1770
1.88** 2.06**
(0.0570) (0.0573)
321 195
Note:VariabledefinitionsareinTable1.Foreachmeasureandeachgroup,mean,standarddeviation(inparentheses),andnumberof observations.Thet-testandMann---Whitney(z-statistics)testareusedtotestthenullhypothesisofnosignificantdifferencesineach informationasymmetryproxybetweentwogroups.
* Significanceat0.1levelbasedonone-tailedtests.
** Significanceat0.05levelbasedonone-tailedtests.
Table3 SystemGMMpaneldataregressionsrelatingtothe influenceofthefemaleboardmembersratioanddiversity indexesonrelativebid-askspread(RQS).
Variable Model1 Model2 Model3
PWOMEN −0.0016**
(−2.60)
BLAU −0.0011*
(−1.71)
SHANNON −0.0008***
(−2.71) NDIR −0.0047***
(−13.46) −0.0049***
(−11.95) −0.0042***
(−10.10)
PEX 0.0010
(1.32)
0.0005 (0.64)
−0.0002 (−0.21) DIROWN −0.0139***
(−7.05) −0.0135***
(−7.20) −0.0154***
(−8.47) DIROWN2 0.0140***
(5.55)
0.0129***
(5.11)
0.0149***
(6.24)
INS 0.0001***
(2.85)
0.0001**
(2.60)
0.0002***
(4.63) PVPAY −0.0027***
(−11.09) −0.0026***
(−10.48) −0.0021***
(−6.14) SIZE −0.0013***
(−13.10) −0.0013***
(−13.34) −0.0016***
(−10.84) TURNOVER −0.0023***
(−20.58) −0.0024***
(−20.37) −0.0024***
(−18.07) VOLAT 0.1285***
(20.67)
0.1351***
(27.26)
0.1189***
(17.43) NANA −0.0008***
(−6.79) −0.0007***
(−7.11) −0.0006***
(−4.94) Intercept 0.0220***
(14.73)
0.0219***
(20.22)
0.0248***
(14.84)
z1 0.000 0.000 0.000
z2 0.000 0.000 0.000
m2 −1.56 −1.49 −1.51
Sargan 73.90(214) 77.52(214) 68.75(214) Note:VariabledefinitionsareinTable1.z1andz2aretwoWald testsofthejointsignificanceofthereportedcoefficientsand thejointsignificanceofthetimedummyvariables,respectively (asymptoticallydistributedas2underthenullhypothesisofno relationship,probabilityisshown);m2isasecond-orderserial correlationtestusingresidualsinfirstdifferences,asymptoti- callydistributedasN(0,1)underthenullhypothesisofnoserial correlation;Sarganisatestoftheover-identifyingrestrictions, asymptoticallydistributed as2 underthe nullhypothesis of nocorrelation between theinstruments and theerror term, degreesoffreedominparentheses.Foreachcoefficientt-value isshowedinbrackets.
* Significanceat10%levelbasedontwo-tailedtests.
**Significanceat5%levelbasedontwo-tailedtests.
*** Significanceat1%levelbasedontwo-tailedtests.
respectively, to examine gender diversity on director boards.Asexpected,wefindthatthecoefficientsonboth indexesarenegativeandsignificant.Thesefindingssuggest thathighergenderdiversityonboardsreducestheadverse selectionrisk inthemarketandconsequentlyreducesthe costofliquidity.
Sincebid-askspreadcancapturebothinformationaland non-informational costs of liquidity, we re-estimate our
Table4 SystemGMMpaneldataregressionsrelatingtothe influenceofthefemaleboardmembersratioanddiversity indexesonpriceimpact(PI).
Variable Model1 Model2 Model3
PWOMEN −0.0019***
(−3.19)
BLAU −0.0012***
(−3.29)
SHANNON −0.0007***
(−3.64) NDIR −0.0016***
(−9.51) −0.0015***
(−7.94) −0.0014***
(−5.80)
PEX 0.0001
(0.23)
0.0000 (0.00)
0.0007 (1.28) DIROWN −0.0071***
(8.00)
−0.0074***
(−7.89) −0.0077***
(−9.88) DIROWN2 0.0081***
(6.16)
0.0084***
(6.28)
0.0084***
(7.64)
INS −0.0000
(−1.39) −0.0000
(−0.73) −0.0000 (−0.51) PVPAY −0.0016***
(−10.17) −0.0014***
(−11.53) −0.0013***
(−8.96) SIZE −0.0009***
(−18.19) −0.0010***
(−17.25) −0.0010***
(−21.75) TURNOVER −0.0007***
(−17.01) −0.0007***
(−14.52) −0.0008***
(−19.05) VOLAT 0.1163***
(24.96)
0.1124***
(19.22)
0.1181***
(30.97)
NANA −0.0001*
(-1.78)
−0.0000
(−0.86) −0.0001**
(−2.07) Intercept 0.0143***
(18.82)
0.0153***
(17.19)
0.0143***
(23.09)
z1 0.000 0.000 0.000
z2 0.000 0.000 0.000
m2 −1.31 −1.31 −1.19
Sargan 76.18(214) 74.44(214) 74.78(214) Note:VariabledefinitionsareinTable1.z1andz2aretwoWald testsofthejointsignificanceofthereportedcoefficientsand thejointsignificanceofthetimedummyvariables,respectively (asymptoticallydistributedas2underthenullhypothesisofno relationship,probabilityisshown);m2isasecond-orderserial correlationtestusingresidualsinfirstdifferences,asymptoti- callydistributedasN(0,1)underthenullhypothesisofnoserial correlation;Sarganisatestoftheover-identifyingrestrictions, asymptoticallydistributedas2underthenullhypothesisofno correlationbetweentheinstrumentsandtheerrorterm,degrees offreedominparentheses.Foreachcoefficientt-valueisshown inbrackets.
* Significanceat10%levelbasedontwo-tailedtests.
** Significanceat5%levelbasedontwo-tailedtests.
*** Significanceat1%levelbasedontwo-tailedtests.
threemodelsusingmoreprecisemicrostructureproxiesfor informationasymmetry.Table4reportsmodelestimations usingPIasthedependentvariable.PIisameasureofadverse selectionriskperceivedbyliquidityprovidersbasedonprice adjustmentsobservedsubsequenttoamarkettransaction.
Consistentwithourprediction,wefindanegativeandsta- tisticallysignificant(atthe1%level)coefficientassociated toourgenderdiversitymeasureineachmodel.
Table5 SystemGMMpaneldataregressionsrelatingtothe influenceofthefemaleboardmembersratioanddiversity indexesonPIN.
Variable Model1 Model2 Model3
PWOMEN −0.0275**
(−2.29)
BLAU −0.018**
(−2.41)
SHANNON −0.0096***
(−3.05) NDIR −0.0163***
(−4.14) −0.0172***
(−4.36) −0.0177***
(−2.97)
PEX −0.0030
(−0.30) −0.0022 (−0.22)
0.0031 (0.19) DIROWN −0.0300**
(−2.19) −0.0299**
(−2.22) −0.0310**
(−2.12) DIROWN2 0.0436**
(2.26)
0.0441**
(2.31)
0.0363* (1.80)
INS 0.0034***
(4.98)
0.0036***
(5.29)
0.0035***
(5.40) PVPAY −0.0126***
(−2.82) −0.0123***
(−2.77) −0.0155***
(−3.21) SIZE −0.0132***
(−14.55) −0.0131***
(−14.75) −0.0117***
(−11.22) TURNOVER −0.0238***
(−36.24) −0.0238***
(−36.63) −0.0234***
(−28.20) VOLAT 0.1618*
(1.84)
0.1634* (1.86)
0.2177**
(2.42) NANA −0.0130***
(−10.78) −0.0130***
(−10.99) −0.0141***
(−11.19) Intercept 0.2902***
(15.99)
0.2921***
(16.15)
0.2748***
(14.50)
z1 0.000 0.000 0.000
z2 0.000 0.000 0.000
m2 1.00 1.01 1.07
Sargan 69.09(214) 68.68(214) 70.98(214) Note:VariabledefinitionsareinTable1.z1andz2aretwoWald testsofthejointsignificanceofthereportedcoefficientsand thejointsignificanceofthetimedummyvariables,respectively (asymptoticallydistributedas2underthenullhypothesisofno relationship,probabilityisshown);m2isasecond-orderserial correlationtestusingresidualsinfirstdifferences,asymptoti- callydistributedasN(0,1)underthenullhypothesisofnoserial correlation;Sarganisatestoftheover-identifyingrestrictions, asymptoticallydistributedas2underthenullhypothesisofno correlationbetweentheinstrumentsandtheerrorterm,degrees offreedominparentheses.Foreachcoefficientt-valueisshown inbrackets.
* Significanceat10%levelbasedontwo-tailedtests.
** Significanceat5%levelbasedontwo-tailedtests.
*** Significanceat1%levelbasedontwo-tailedtests.
TheresultsusingthePINasaproxyforinformationasym- metryareshownin Table5.Justastheresults previously reported,thecoefficientsonPWOMEN,BLAU,andSHANNON arealsonegativeandsignificant.Onceagain,theseresults implythathavingmorewomenintheboardroomresultsina reductionofinformedtradingrisk.Therefore,wefindcon- sistentresultsacrossallourinformationasymmetryproxies indicatingthatanincreaseingenderdiversityoncorporate
boardscan reduce differencesin the level of information heldbydifferentactorsinthemarket.
The coefficients of control variables included in all the regression models (Tables 3---5) generally present the expected signs according to the literature and, in the majorityof thecases, theyarealsosignificant. Acrossall specifications,thecoefficientsonNDIRarepositiveandsig- nificant at the 1% level. This indicates that largerboards reduceadverseselectionproblemsinlinewiththefindings of Cai et al. (2006). However, the percentage of non- executivedirectors,PEX,doesnotshowasignificanteffect onthedifferentdependentvariables.Similartothisfinding, Gul et al. (2011) document that the number of indepen- dent non-executive directors does not have a significant effectontheinformationcontentofstock prices.Wealso finda non-monotoniclinkbetween DIROWNandthe prox- iesforinformationasymmetry.Whendirectorownershipis low, a positive sign is found in accordance with conver- gencehypothesis.However,whenwedealwithhigherlevels of director ownership the results show a positive effect onadverseselectionmeasures(entrenchmenthypothesis).
ThesefindingsareconsistentwiththoseprovidedbyMorck etal.(1988).ThecoefficientsonINSarenotsignificantfor priceimpactregressionmodelsbutsignificantlypositivefor bid-askspreadandPIN.Theselatterfindingsareinlinewith thosefrompriorstudiessuchasBrownetal.(2004),which suggestthatinstitutionsareinformedinvestorswithaccess toprivateinformationaboutthefirm,soexacerbatinginfor- mation asymmetry among investors. The effect on PVPAY isnegativeandsignificant: ahigherproportionof variable paymenttodirectors reducestheasymmetric information (consistenttoKangetal.,2006).Finally,inallmodelestima- tionsandconsistentwiththeextensivepriorevidence,we findthatthestocksoflargerfirmswithhighertradingvol- umesandthosebeingfollowedbymoreanalystsshowless informationasymmetry, whereasfirms with more volatile stockreturnsareassociatedwithhigherlevelsofinforma- tionasymmetry.
Finally, as observed in all specifications reported in Tables3---5,thez1Waldtestindicatesthatthejointeffect oftheexplanatoryvariablesissignificant.Ontheotherhand thez2Waldtestindicatesthattheeffectofalltimedummies issignificant.Them2indicatordoesnotshowasecond-order serial relationship in the first-difference residuals, show- ingthat none of themodelsare misspecified.The Sargan test revealsthat there is norelationship between εit and theinstruments.Allthesetestsconfirmthevalidityofthe estimationmethodemployed.
Conclusions
This paper examines the relation between gender diver- sityontheboardofdirectorsandthelevelsofinformation asymmetryinequitymarkets.Basedonpriorevidencesug- gestingthatgenderdiverseboardsincreasethequantityand qualityof publicdisclosure byfirms andthat femalepar- ticipation promotes more effective board communication thatfacilitates the collectionof value-relevant company- specificinformationtoinvestors,wehypothesizeanegative linkbetweenboard genderdiversityandtheaveragelevel ofinformationasymmetryinthestockmarket.
