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Board Openness During an Economic Crisis

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Abstract

Does a board with greater gender diversity make better investment decisions? Drawing on Austrian economic cycle theory and work groups theory, we argue that such board openness will help male board members to overcome gender biases, discrimination, and conflicts; integrate different perspectives under the economic cycle and crisis; and foster an environment in which better decisions are made. The results of an empirical study of 14,609 firm-quarter observations from 1,555 listed firms in China between 2007 and 2009 strongly support our arguments. We find that a Chinese board is more likely to accept female directorship during an economic crisis than during an economic prosperity stage. Boards with greater gender diversity are more likely to make tough, counter-cyclical investments to improve firm performance during a crisis. Our study enriches the board decision-making literature by exploring the impacts of board gender diversity on firm performance within the context of an economic crisis. The results of our study also carry significant managerial implications for overcoming gender stereotypes, biases, and prejudices on a board.

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Notes

  1. Sellers, P. (2013). After Sandberg, the big money is on women, Fortune, May 17.http://postcards.blogs.fortune.cnn.com/2013/05/17/sandberg-buffett-krawcheck-tilton/?iid=SF_F_River.

  2. PMI is compiled by the HSBC and Markit Group Limited based on a survey of over 430 manufacturing purchasing managers in China. It is similar to the Manufacturer’s New Orders in the U.S. as a leading indicator of future economic growth. A PMI greater than 50 indicates an economic prosperity, while a PMI less than 50 indicates an economic recession.

  3. In a robustness test, we use the quarter variable T as moderator in order to test the time effect on investment growth. We set T = 1 for the stage of 3Q, 2008, T = 2 for 4Q, 2008, T = 3 for 1Q, 2009, …, and T = 6 for 4Q, 2009, respectively. The regression results show that T *Female Percentage has a significant negative impact on investment growth but that T 2*Female Percentage has a significant positive impact. The turning point is T = 1.97 between Q4, 2008 and Q1, 2009. This test confirms our two-stage classification. The results are available on request.

  4. We find that our data are not robust to the normality assumption of the Probit model, and therefore in Table 4 we use the Logit model, which is less sensitive to the normality in the error terms. Our results remain quantitatively similar when using the Probit model.

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Acknowledgments

We thank Rong Ma, Luc D. R. Renneboog, Lisa Song, and Eric Tsang for their helpful comments. This study was supported in part by the Bloch Summer Research Grants of UMKC and National Natural Science Foundation of China (Approval No. 71072145, 71102077, 71132004), the Fundamental Research Funds for the Central Universities (Approval No. 10XNK141), Beijing Social Science Foundation (Approval No. 11JGC122), and the Program for Young Excellent Talents, UIBE (Approval No. 12YQ04). All views expressed are those of the authors and not necessarily those of the sponsors.

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  1. Henry W. Bloch School of Management, University of Missouri – Kansas City, 5100 Rockhill Road, Kansas City, MO, 64110-2499, USA

    Sunny Li Sun

  2. The Center for Finance and Accounting Research/ Business School, University of International Business and Economics, Chaoyang, Beijing, 100029, China

    Jigao Zhu

  3. The Business School, Renmin University of China, Haidian, Beijing, 100872, China

    Kangtao Ye

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  1. Sunny Li Sun
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Sun, S.L., Zhu, J. & Ye, K. Board Openness During an Economic Crisis. J Bus Ethics 129, 363–377 (2015). https://doi.org/10.1007/s10551-014-2164-1

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