Breaking the glass ceiling: How women directors positively impact a firm

The corporate world is experiencing a change in the regulatory norms related to the gender diversity at the board level. The regulations of Norway, Spain, Iceland and France require that the board of directors of publicly traded firms are to be comprised at least 40 per cent of women.

In India also, the Securities and Exchange Board of India (SEBI) has made it mandatory to have at least one woman director on the board of all the listed firms. However, this change in the corporate laws related to the mandatory appointment of a woman director as a board member raises an important question. Would this mandatory appointment of at least one woman director at the board level really improve the firm performance?

The existing literature on the appointment of women directors and their contribution to the financial performance of the firm has been extensively examined in the Western and developed countries. In a recent study in Spain, the impact of the presence of women directors on firm performance was positive. A similar observation was found in the US context (Dezsö & Ross, 2012). 

Role of gender in the success of a firm—

The theoretical base for the relationship between women at the board level and firm performance can be established on the basis of two important theories, namely human capital theory and social identity theory. The human capital theory provides the economic perspective and argues that the value of an individual depends on the amount of skill, education and experience.

Skills, education and experience of women differs from that of men (Metz & Tharenou, 2001).

This may result in the differential performance and may result in the difference in the firm performance. Social identity theory argues that each individual identifies himself or herself with a particular group (Tajfel & Turner, 2004). Extending this theory to gender, women identify themselves with their own group, which in turn influences their behaviour and thereby their performance on the board.

What does the study indicate?

It is found in the study conducted that the positive impact of women director is significant for the business group-affiliated firms and insignificant for standalone firms. The result has to be seen in the context of a call for more gender-specific regulations to increase the participation of women in the corporate affairs.

However, the study provides insights into the regulators and policymakers that such regulations could have the positive impact on the performance of corporate firms in a developing country like India, as it is different in its social, economic, cultural and legal aspects.

—Excerpted from Would Firm Performance be Better with Women Directors? Evidence from India in Vision: The Journal of Business Perspective.

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