Does Gender Diversity on Board Promotes

Corporate Sustainability? Evidence from Large Indian Firms

 
Dr.Jagvinder Singh, Assistant Professor, , University School of Management & Entrepreneurship, Delhi
Technological University.

Dr.Deepti Aggarwal, Assistant Professor University School of Management & Entrepreneurship, Delhi
Technological University.

Dr. A. K Singh, Associate Professor, Department of Commerce, Delhi School of Economics, University of Delhi.

Mr.Shubham Singhania, Research Scholar, University School of Management & Entrepreneurship, Delhi
Technological University.
 
INTRODUCTION
Debacle of high-profile firms throughout the world as well as India has led to a lot of
surge in the area of Corporate Governance.
 Major decisions are taken by the Board of Directors and hence the composition of board
has gone a sea change.
Developing Countries external markets are weak, Board plays a major role in decision
making as well as wealth creation.
Women on Board has become a global scenario and legislations are passed in most of
the countries to give representation to women’s (Norway,Sweden)
Mandatory legislations passed in India in the year 2013 under companies act 2013.
1 Women on Board Mandatory(for certain class of companies)
Companies Act 2013 also made it compulsory for firms to contribute 2% of the average
net profits of the past 3 years in social & sustainable activities.
Hypothesis Development/Literature Review
Author & Year Findings & Conclusions
Adams & Ferreira(2009) Found in their study that women have a major role to play in terms of the
board inputs & firm outcomes in terms of the attendance in board meetings
as well as monitoring role.

Zhang Zhu et.al(2012) In their study found empirical evidence of the presence of gender diversity
on social performance.

Dezso Ross(2012) In their study concluded that gender diversity improves managerial task
performance which not only impacts firms financial performance but also
social performance.

Kesner (1988) Women directors are characterized by their empathy, communication

skills, participation & co-operation which lead them to have greater
concern for social & environmental matters.
Catalysts(1995) Women empathize with stakeholders and show a higher sensitivity towards
their demands & needs.
Hypothesis Development /Literature Review
Author & Year Findings & Conclusions

Catalysts(1995) Through their study they made it clear that board gender diversity imply a
variety of opinions and it shall affect the CSR & sustainability since the
stakeholders are also heterogeneous.
Reguera Alvarda(2015) Agency Theory postulates that efficient supervisory role performed by female
directors will reduce asymmetries, thereby mitigating agency problems
between the managers & Stakeholders.
Carter et.al(2003) Diverse boards with a mix of knowledge and experience result in generation of a
variety of ideas and perspectives of a problem, add to creativity and
innovation, which help in critical evaluation of multiple alternatives and
making astute decisions
Landy et.al(2016) Gender Socialization Theory suggests that a female leadership style is more
ethical and social than that of males and is thus more likely to be oriented
towards stakeholders therefore increasing CSR.
Luckerath-Rovers (2013) Resource Dependence Theory also argues that female directors given their
capacity to build and maintain outside connections shall positively affect CSR
related matters and embark upon the legitimacy theory as well.
Research Gap
Gender Diversity & Financial Performance is a well researched area both Globally and in the
Indian Context.
Gender Diversity & Sustainability/(CSR) has not been taken care off and there is dearth of
Research in the Indian Context.
The effects of corporate governance attributes such as board diversity may vary between
the developing country and developed country due to difference in Institutional & Cultural
context.
In the Indian context the economy has been rooted in terms of socio-cultural barriers for
women, whereas in west the women’s life in terms of the working, lifestyle & education is
not based on the social& cultural norms.
This is the First Research of its kind in the Indian Context considering gender diversity
(Blau & Shannon) & CSR as its major variables.
OBJECTIVES OF STUDY
 To find out the impact of Gender Diversity on Board on Corporate Sustainability
measured through Corporate Social Responsibility.
Research Methodology

Multivariate regression method of data analysis uses more than two

independent variables to find out their impact on the dependent variable.
Ordinary Least squares(OLS) method of regression was used for the analysis
in our study.
DEPENDENT VARIABLE:
 Corporate Social Responsibility(CSR)- Expenditure Incurred on Social as
well as Sustainability related issues.
RESEARCH METHODOLOGY
 INDEPENDENT VARIABLES :
 P-Women -is the percentage of women directors on the board in relation to the
total no of Directors.
 P-Women= Female Directors/ Board Size
 CONTROL VARIABLES:
 Return on assets = (Profits/ Total Assets Employed)
 Leverage = (Long term Debt/ Total assets)
 Firm size=(Total assets)
 AGE of the firm- No of Years from the date of Incorporation
 Board Size- No of Directors present in the Board
Robustness Check:
 BLAU INDEX
 The Value of Blau Index varies from 0 to 0.5 (Lowest to highest Diversity)
 BLAU Index

 SHANNON INDEX aims to state in quantitative terms, the uncertainty in predicting the species
identity of any person chosen randomly from a given set of data.
 The value of Shannon Index varies from 0 to 0.69. (Lowest to highest Diversity)
 Shannon Index

where p denotes-proportion of objects & N/S denotes no of categories.

Model Formulation:

The Model that has been used is as follows-

Model 1- CSRit = 0+ 1P-WOMANit +2 LEVERit + 3 F-SIZEit +4 ROAit +5 AGEit +6 BOARD
SIZEit +it

Model 2- CSRit = 0+ 1BLAUit +2 LEVERit + 3 F-SIZEit +4 ROAit +5 AGEit +6 BOARD SIZEit + it

Model 3- CSRit = 0+ 1SHANNONit +2 LEVERit + 3 F-SIZEit +4 ROAit +5 AGEit +6 BOARD SIZEit
+ it

Where CSR represents CSR expenditure our proxy for Sustainability Measure, WOMAN represents the
independent variables such as p-woman (% of woman directors on board, Blau & Shanon Index which
are our proxy for gender diversity and CV represents the control variables such as ROA, Firm Size,
Leverage, Age & Board Size.
 Sample Size- NIFTY 50 Index was considered for the analysis, but after eliminating
Sample Size & Data Collec ti on Sourc es

the banking firms and missing data finally 42 firms were considered for the study.
 Time Period- 5 Years time from 2014-2019 were considered in order to measure
the impact post the Companies Act 2013.
 Prime Database Group and Indianboards.com: It was be used to collect complete
data on directors and composition of boards for various Indian firms listed on BSE.
 CMIE PROWESS: was used in collecting data on financial performances (analytical
ratios, interim results) of firms on BSE.
 Capital line Database for annual reports of companies.
 Corporate Governance & CSR Reports of the firms.
RESULTS:HAUSMAN TEST- ENDOGENITY TEST
H01: Random Effects Model shall be used.
Ha1: Fixed Effects Model Shall be used.
Cor related Random Effec ts - Haus m an Tes t
Equation: Untitled
Tes t cr os s -sec tion random effec ts

Tes t Sum m ary C hi- Sq. Statis tic C hi- Sq. d.f. Prob.

Cr os s -s ec tion random 41.858657 8 0.0000

Cr os s -s ec tion random effec ts tes t c om par is ons :

Var iab le Fixe d Random Var (D iff.) Prob.

PW OMAN 19.210812 4.590178 14 1.781889 0.2195

LOG(BOAR D_ SIZE) 3.129723 - 6.972568 52.157609 0.1619
LO G( TOTAL_ASSETS) -2.277366 - 2.063335 1.434824 0.8582
RETURN_ON_EQUITY 0.142228 0.188425 0.000518 0.0423
LEVER 1.931794 0.367090 0.599374 0.0433
AGE_O F_FIR M 0.321101 0.053379 0.037123 0.1647
R ETURN_O N _ASSET -0.210038 - 0.147810 0.004750 0.3666
EARNIN GS_PER _SH AR E -0.024120 - 0.017206 0.000012 0.0440

Cr os s -s ec tion random effec ts tes t equation:

Dependent V ariable: TO BI NS_Q
Method: Pa n el Le ast Squar es
Date: 03/07/19 Tim e: 23:03
Sam ple: 2014 2018
Per iods inc luded: 5
Cr os s -s ec tions inc luded: 43
Total panel (un ba lanc ed) obs ervation s: 214

Var iab le Coeffic ient Std. Error t-Statis tic Prob.

C 3.078683 21 .49708 0.143214 0.8863

PW OMAN 19.21081 13 .58121 1.414514 0.1591
LOG(BOAR D_ SIZE) 3.129723 7.551765 0.414436 0.6791
LO G( TOTAL_ASSETS) -2.277366 1.289306 -1.76635 1 0.0792
RETURN_ON_EQUITY 0.142228 0.042728 3.328671 0.0011
LEVER 1.931794 0.897861 2.151551 0.0329
AGE_O F_FIR M 0.321101 0.193795 1.656910 0.0995
R ETURN_O N _ASSET -0.210038 0.098828 -2.12529 4 0.0351
EARNIN GS_PER _SH AR E -0.024120 0.005824 -4.14121 0 0.0001

Effec ts Spec ific ation

Cr os s -s ec tion fixed ( dum m y variables )

R- s quared 0.899682 M ean dependent var 6.039112

Adjus ted R -squared 0.868909 S.D . dependent var 7.080490
S.E. of regres s ion 2.563594 Akaike info c riter io n 4.925107
Sum s quar ed res id 1071.238 Sc hwa rz c r iterion 5.727279
Log likelihood -475.9865 Hannan-Q uinn c riter . 5.249257
F-s tatis tic 29.23658 D urbin-W ats on s tat 1.911603
Pr ob(F-s tatistic ) 0.000000

Fixed Effect Method has been used for running the OLS regression.
MODEL FITNESS DETERMINATION
Models R R2 Adjusted R2 F-Test Value Significance

Model 1 .706 .499 .484 33.52 000

Model 2 .707 .500 .485 33.50 000

Model 3 .707 .499 .484 33.58 000

SUMMARISED RESULTS:
Model 1 Model 2 Model 3
Variable P-Value Interpretation Variable P-Value Interpretation Variable P-Value Interpretation
Pwoman 0.98 Insignificant Blau 0.96 Insignificant Shannon 0.97 Insignificant
Lever 0.00 Significant Lever 0.00 Significant Lever 0.00 Significant
Firm Size 0.00 Significant Firm Size 0.00 Significant Firm Size 0.00 Significant
Age of firm 0.01 Significant Age of firm 0.02 Significant Age of firm 0.02 Significant
ROA 0.00 Significant ROA 0.00 Significant ROA 0.00 Significant
Board Size 1.00 Insignificant Board Size 0.69 Insignificant Board Size 0.74 Insignificant

Significant at 1% & 5%.

RESULTS:DESCRIPTIVE STATISTICS
BLAU SHANNON TOTAL
INDEX INDEX PWOMAN ASSETS ROA LEVER AGE CSR B-Size

MEAN 0.26103 0.195266 17.4039 1590.856 5.388217 0.157541 49.94 98.80 12.22

MAXIMUM 0.46875 0.661563 37.5 9318.82 22.4 1.947006 148 904 25

MINIMUM 0.142012 0.271189 7.6923 152.93 -20.22 -0.75185 9 0 4

STD.
DEVIATION 0.083242 0.100128 7.004525 1791.165 6.161601 0.524576 27.86 138.67 3.22
DESCRIPTIVE STATISTICS:
In the table, If we look at the mean of Blau index and Shannon index, it is
approximately 0.26 and 0.19 respectively.
This depicts that the diversity is too less to have any impact on Corporate
Sustainability.
The average percentage of women on board is 17.4% only amongst the 210 firm year
observations.
The average assets are Rs.1590.86 crores and the return on assets is 5.388% which
speaks of sound financial health of the firm.
The lower lever ratios are considered to be good as it depicts that less assets are
financed by debt. Table also depicts a very low lever of 0.157 (appx.).
CONCLUSIONS:
 Through our study, we conclude that the gender diversity positively affects the CSR
though it is not significant.
 The existence of women on boards is a mere tokenism as appointment of a single
woman director will not bring much change.
 However the appointment has not led to any negative effect as well..
 Poor women representation and closed culture at board level dominated by
the male directors attitude might have lead to negation of the diversity
advantages.
 Performance may increase based on “Similarity Attraction Theory” or Based
on the Critical Mass theory.
Policy Recommendations & Limitations
 Policy Makers & Firms must consider the regulations in full spirit and not in mere
letter form.
 A larger Female Representations in terms of the Critical Mass theory could make the
voices of women directors be heard in the boardroom.
 Stricter with laws with respect to the Independent Female Board of Directors can
change this scenario.
 Sample includes 42 firms which makes it less representative of the whole
population. A larger sample may give better results.
THANK YOU
Annexures:

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