The Impact of Gender and Age Diversity on Company Performance

Transcription

1 Dimitrie Cantemir Christian University Knowledge Horizons - Economics Volume 5, No. 4, pp P-ISSN: , E-ISSN: Pro Universitaria The Impact of Gender and Age Diversity on Company Performance Raluca-Georgiana MOSCU Faculty of Finance, Banking and Accountancy, "Dimitrie Cantemir" Christian University, Bucharest, moscu.raluca@yahoo.com Abstract The purpose of this study is to identify the relationship between corporate performance or dividend distribution policy and diversity of gender and age for the Management Teams and the Boards of Directors associated with the companies listed on the Bucharest Stock Exchange. We have also investigated the impact of firm size or of leverage on the relationship between firm performance and of the Management Board's characteristics related to diversity, mentioned above. We have identified certain conclusions: i) the existence of women in leadership - CEO or Chairman of the Board of Directors does not have a significant impact on firm performance, ii) there is a negative relationship between the age of Chairman of the Board, on the one hand and the performance of company on the other hand, or a positive one if dividend policy, iii) the percentage of women in the management or board is low and does not significantly influence the dependent variables. Key words: Corporate governance, gender diversity, age diversity, performance JEL Codes: L25 1. Introduction The characteristics of Management Board and of the management team were always a topic approached in corporate governance literature. No doubt the existence of women, ethnic groups, different social groups with different ages is an important case in the study regarding diversity in companies with effect on cooperation with other members and on results of company. One first research objective is to test the relationship between dummy variables showing the existence of a woman in the position of CEO or Chairman of the Board of Directors and corporate efficiency or dividend policy of the companies listed on the Bucharest Stock Exchange. Therefore, there will be links between the performance of listed companies and some main features related to the gender diversity in the management or the Board of Directors. Another objective is related to the analysis of the impact of age of CEO or of the Chairman on stock/financial/economic profitability and / or on the dividend policy. The paper is structured as follows: Section 2 presents some theoretical background; Section 3 describes the variables used and the work methodology, while Section 4 contains the results of empirical tests. The last part is devoted to conclusions. 2. Literature review and research hypothesis Diversity of Management Board can be defined and measured as about the size of the Board, such as gender, age, nationality, experience and organizational affiliation of Board members or management team (Campbell and Minguez-Vera, 2007). Milliken and Martins, 1996, Petersen, 2000, Timmerman, 2000 state that diversity is commonly described by two general directions, on the one hand it refers to a demographic diversity - observable, such as gender and age, and on the other hand to a cognitive diversity - diversity which is unnoticeable and it is represented by education and values. Diversity of gender The diversity predominantly studied in articles which form the literature is the gender diversity. Agrawal and Knoeber (2001) argue that female members with leadership positions in the management board can provide benefits and resources through mere presence in the company. Nielsen and Huse (2010) demonstrate that existence of women in management positions positively influence the control within companies and therefore the financial performance. The explanation of the positive effect of female directors existence on the effectiveness of the management board of conflicts is in the low level of conflicts for these companies. This result supports the theory Helgesen (1990) stating that women are more interested in cooperation and

2 collaboration than their male counterparts who put great emphasis on hierarchy. Women feel a strong need to reach a consensus to resolve agent conflicts as best as possible. Another reason for which the gender diversity positively influences the work within company and thus performance and dividend policy appears detached from the social psychology's theory, according to which women is more understanding regarding shareholders customer behavior, customer needs, of shareholders and opportunities to meet these needs (Brennan & McCafferty, 1997). Hypothesis 1: The position of General Manager (CEO) or Chairman of the Board of Directors by a woman positively influences performance/dividend policy of listed companies. To increase the percentage of women in management positions and implicit in gender diversity in management positions, in several countries around the world, particularly in Europe, there have been introduced mandatory percentage of female directors (Vermeeren, 2012). The authors also suggested that gender diversity increases the Board efficiency and even calls for more women to be included in the management team or in the Board of Directors. Bilimoria (2000) notes that despite the number of female members of the Council is slightly increasing; there are few companies that recruit women into leadership positions. Hillman et al. (2002) states that one of the most important trends in the composition of the Board of the Directors of United States in the last twenty years is the shift from the Board of Directors made up of males, to Council with female members. Daily et al (1999) has observed for U.S. firms that at least one board member is female. Hypothesis 2: the existence of women within the team of managers/board of Directors positively affects performance/dividend policy of listed companies. Diversity of age Although most studies related to diversity are based on the correlation between gender diversity and corporate performance, another feature of demographic diversity, for which several authors (Waelchli and Zeller, 2012; Rhodes, Randoy et al, 2006) have shown interest in the past decade is the age of the general manager or of the Chairman of the Board of Directors. Randoy et al, 2006 has identified a negative relationship between corporate performance and the age of management or of the people from the Board of Directors, such as the CEO or the Chairman gets older, the company's performance decreases. To the same conclusion was reached by Waelchi and Zeller in Diversity of years (age) is necessary because by age cohort, as member of company's management you can sustain, support the interests or even attract a certain category of investors, customers etc. For example, if the company wants to attract young investors it should have a general manager, members of the management team of the age of shareholders that he wants. Diversity means different perspectives, different mentalities. To have a young team in the management board means variety, perspectives, innovation and hard work to achieve a higher performance. An older member, even approaching retirement is often an honorary member, who brings value to the company by his presence, personal prestige which he has enjoyed. It is true that without the adults, the young ones have little learning. Hypothesis 3: The age of General Manager/Chairman of the Board of Directors positively affects performance /dividend policy of listed companies. 3. Data base and research methodology The analysis starts with the identification of variables values that influence the performance of the company/ dividend policy and which have been stated in previous assumptions. To test the validity of the assumptions stated above for listed firms practice it was consisted a sample of 62 companies listed on the Bucharest Stock Exchange, Class I and II. Necessary financial information was gathered from several sources: the site BSE site and Investment Advisory Company KTD Invest SA. In the previous section there have been mentioned some relationships drawn from the literature, relationships which are established between performance/dividend policy of the company and a number of determinants. Thus in Table 1 there are listed the variables used in the research: Table 1. Variables definition Variables Description ROA Return on assets = Net Income/Total Assets ROE Return on equity = Net Income/Shareholder s equity RETURN Stock profitability = (Stock Exchange N Stock Exchange N-1)/Stock Exchange N-1 DIV The size of annual dividend CEO CEO female person. Dummy variable: 1- CEO is a woman, 0 CEO is not a woman. 216

3 Variables Description PRES Chairman of the Board of Directors female person. Dummy variable: 1 - is a woman, 0 is not a woman. % MAN The percentage of women that have the manager position. % CA The percentage of women that have positions in the Board of Directors. AGE CEO The age of CEO (Chief Executive Officer) AGEPRES The age of the Chairman of Board of Directors SIZE The size of the company = Natural logarithm of exchange capitalization D/E Debt-to Equity Ratio = The proportion between Total Debt / Shareholder's equity The dependent variable is ROA (economical profitability)/roe (financial profitability)/retrurn (stock exchange profitability) or DIV (annual dividend), variables which measures the performance or the size of offered dividend. From the data we can build a regressor vector X i (CEO, PRES, % MAN, % CA, AGE CEO, AGE PRES, SIZE, D/E), which it assumes that it may influence the result Y (performance or dividend). Practical, we will assume that the model will take the form: Y = α + β 1X 1 + β 2X β kx k + ε (1) where k = 1,2, 62 (number of companies listed to the Bucharest Stock Exchange), Y-dependent variable which measures economic profitability/financial profitability/ stock exchange profitability or the size of the dividend and noted with ROA/ROE/RETURN, X k - independent variables described in table no. 1. Based on the financial literature predictions and on the previous discussions there are considered the following regression models: ROA = f (CEO, PRES, % MAN, % CA, AGE CEO, AGE PRES, SIZE, D/E) ROE = f (CEO, PRES, % MAN, % CA, AGE CEO, AGE PRES, SIZE, D/E) RETRUN = f (CEO, PRES, % MAN, % CA, AGE CEO, AGE PRES, SIZE, D/E) DIV = f (CEO, PRES, % MAN, % CA, AGE CEO, AGE PRES, SIZE, D/E) 4. Empirical results Descriptive statistics for the main variables are presented in Table 2. Statistics presents some important remarks: on average stock profitability is equal to -0.08, financial profitability is negative and equal to and economic profitability is The average dividend size in 2011 was 0.53 lei/share. Regarding gender-related diversity, it appears that in the Boards of Directors there are on average 14% females and 86% males. Regarding the composition of the management team it was observed in average the management is of 25% female persons. Regarding the main function of team managers, the general manager one, this is owned by women for about 14% of listed companies of the sample. Tabel 2. Descriptive statistics RETURN ROE ROA DIV CEO PRES % MAN % CA AGE CEO AGE PRES D/E SIZE Mean Median Maximum Minimum Std. Dev Skewness Kurtosis Regarding the position of the Chairman of the Board of Directors, in the management of Boards of Directors there are only two women. Diversity is not just about gender, but also age as the average age of general managers of companies listed on the Bucharest Stock Exchange is 52 years old and the age of the Presidents of the Board is 55 years. The elderly CEO has 67 years and the youngest has 34 years. For the Chairman of Board of Directors the age range is years. The information in Table 3 shows, in the model no. 1 and no. 2 the links between stock performances of companies listed on the BSE and the diversity of gender and age of the Board of Directors and of the management team. It is noted that the only variable that explains the stock performance is the variable AGE PRES, showing the age of the Chairman of Board of Directors. The older he is, we observe that the profitability of stock decreases. Because of the descriptive statistics it is observed that the average age 217

4 of Chairman of Board of Directors is 55 years old, the closeness of retirement is considered that they are more interested in less risky investment projects that do not have a critical impact performance. Antia et al. (2010) states that the management team is keen to avoid risky decisions as much as possible. There are studies such as those of the authors Yermack (1996), Bonn et. al (2004), Faleye (2007) who have also identified a negative relationship between performance and the age of the Chairman/General Manager. Theories of social behavior, psychological and organizational, theories of behavior - indicates that when diversity in terms of age is extreme, adverse effects appear such as conflicts within the company and communication problems occur. Coles et. al. (2008), Vafeas (2003), Chamberlain (2010) showed that the extreme diversity of age, in the Board adversely affect firm performance. Table 3. Relationship between alternative measures of performance and the Board of Directors diversity within companies listed to the Bucharest Stock Exchange Variables % MAN or % CA, that show the percentages held by women in the management or Boards of Directors does not affect corporate performance or dividend policy. From the descriptive statistics we concluded that these percentages are very low, on average management teams comprising only 25% females and within the Council, the members are only in 14% female persons, although according to the European Commission report on equality between sexes the legislation establishes that at least 30% of the members of the management team/board of Directors shall be women by 2015, and 40% by More and more countries require companies to report their strategies on the increase of gender diversity in the annual reports. If these standards are not met, it is required a written justification in the annual report. Norway passed a law requiring that 40% of managers of a company to be female. Spain has recently adopted a legislation that requires a minimum of 30% for the percentage of female managers (Adams and Ferreira, 2009). 5. Conclusions From the empirical analysis performed on companies listed on the Bucharest Stock Exchange in 2001, the following conclusions can be drawn: i) the age of the Chairman of Board of Directors adversely affects the stock profitability and positively affects the dividend size, ii) the increase of the number of women on the Board of Directors or within the management team has no impact on ROA, ROE, on stock profitability or on the dividend paid, iii) variables showing the existence of women in leadership positions - CEO or President, have no impact on stock, financial, economic profitability or on the size of the dividend. If a CEO or Chairman of the Board of Directors has an older age it often shows that he has more experience, but this will not positively affect the company's performance. Another reason would be the reduced ability of presidents or of the general managers to bring in originality in the company, to be creative, to innovate in terms of strategic. Due to age, most often the CEO or President prefers un-risky investment projects. Another conclusion would be that managers or presidents may have resources invested in the company and therefore they prefer strategies, projects less risky and opt for a modest dividend distribution, but secure to provide them extra income after retirement. References 1. Adams, R., & Ferreira, D., (2004). Women in the Boardroom and their Impact on Governance and Performance. Journal of Financial Economics,

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