Female Directors in Play Keep Short-Sellers Away

ABSTRACT

Multiple media reports and academic studies have indicated several benefits of having a gender-diverse board. However, corporate boards still lack female representation. Considering this gender imbalance, we examine the relation between short-selling and gender diversity on corporate boards and explain the underlying mechanism. We find strong evidence that increased female representation on corporate boards deters short-sellers because female directors improve the information environment for their firms. Female directors enhance corporate governance and play a vital role as effective monitors of firms. Our results are especially relevant in the post-Regulation FD period suggesting that female directors work as enforcers of regulations for their firms. Therefore, it would be astute to increase female representation on corporate boards as it would serve the interests of managers, regulators, and shareholders.

Keywords:

• Board gender diversity
• Corporate governance
• Short-sellers
• Regulation fair disclosure

JEL codes:

• G14
• G18
• G30
• G38

Acknowledgements

We thank two anonymous referees and Beatriz Garcia Osma (editor) whose constructive comments have substantially improved this paper.

Supplemental Data and Research Materials

Supplemental data for this article can be accessed online at https://doi.org/10.1080/09638180.2022.2103012.

This Internet Appendix (IA) provides additional tables for ‘Female Directors in Play Keep Short-Sellers Away’. We summarize the content as follows:

Table IA1. How do firm performance and accounting quality jointly affect the relation between short-selling and gender diversity?

Table IA2. Independence of female directors.

Table IA3. Industry subsample analysis

Figure IA1. Time series of short position and the percentage of female directors on corporate boards.

Notes

1 Less than 20% board seats at S&P 500 companies are held by women (http://www.catalyst.org/knowledge/2015-catalyst-census-women-and-men-board-directors).

2 https://www.latimes.com/opinion/op-ed/la-oe-boden-quotas-women-corporate-boards-unconstitutional-20190708-story.html

3 https://www.hsph.harvard.edu/ecpe/why-diversity-matters-women-on-boards-of-directors/

4 Please note that sample sizes vary depending on the tests conducted. See detailed discussion in subsection 4.1. Sample description.

5 Short interest refers to the number of shares that investors have sold short and have not covered yet with an opposite position.

6 The Business Roundtable, 1990.

7 https://www.wsj.com/articles/gamestop-frenzy-prompts-sec-to-weigh-more-short-sale-transparency-11613593827.

8 Managers take multiple measures like withdrawing shares from the lending market and filing suits to protect their firms against short-sellers (Lamont [2012]).

9 See example here: https://www.wsj.com/articles/how-nikola-stock-got-torched-by-a-short-seller-11600867055.

10 Recent studies have also used this methodology to measure the quality of accounting information, especially in the context of studying top-level executive characteristics (Zhang, 2019).

11 We obtain the 12 Fama-French Industry Classification from their website (https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library/det_12_ind_port.html).

12 We have included the relevant figure in the Online Supplements of the paper due to space constraints. Please see Figure IA1: Time series of short position and the percentage of female directors on corporate boards.

13 We have included the relevant table and associated discussion in the online supplements of the paper due to space constraints. Please see Table IA1: How do firm performance and accounting quality jointly affect the relation between short-selling and gender diversity?

14 We have included the relevant table and associated detailed discussion in the Online Supplements of the paper due to space constraints. Please see Table IA2: Independence of female directors.

15 Schwartz-Ziv (2017) uses other measure of critical mass. However, they argue that critical mass with female directors constituting 35% to 65% of board seats alleviates the concern that the critical mass variable may be sensitive to board size.

16 We have included the relevant table and associated discussion in the online supplements of the paper due to space constraints. Please see Table IA3: Industry subsample analysis.