Female directors, R&D activities and firms’ investment efficiency: evidence from China

ABSTRACT

In this study, we investigate if board composition, namely board gender diversity, constitutes a pathway to more efficient allocation of capital through greater restraint in R&D activities of Chinese-listed companies. Assessing a large panel of Chinese listed firms over the period of 2009–2017, we find a negative relation between board gender diversity and firms’ innovation inputs and outputs. Boards with more female directors exhibit lower investment inefficiency, resulting in better allocating firms’ resources and higher firm performance. This effect is accentuated in state-owned firms, illustrating that female directors help reduce firms’ investment inefficiency especially those controlled by state.

KEYWORDS:

• Board gender diversity
• innovation performance
• investment efficiency
• corporate governance

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. We are here to illustrate that when we are talking about board gender diversity in this paper, it means that there is at least one female director on the board. That is to say, a board with at least one female director is much diverse in gender than a board with only male directors. Thus, we are much concerned of whether there is mixed gender of directors on the board rather than comparing a board with different diversity degree such as comparing the boards with 40% males and 60% females and that with 80% females and 20% males. Therefore, accurately speaking, this paper focuses on the number of female directors. Thank the referee for pointing out this concern. But the authors are responsible for this.

2. Counter to UET’s propositions, however, is threat-rigidly theory, which contends that board gender diversity may introduce conflict and impede decision making. This could hinder the ability of the firm to make strategic change, especially in times when firm performance is low (Triana, Miller, and Trzebiatowski 2013). Results presented by Triana, Miller, and Trzebiatowski (2013) provide support for this explanation, and the authors conclude that ‘diversity is double-edged because it can propel or impede strategic change depending on firm performance and the power of women directors.’ (p.609).

3. Since there is a marked difference in the number of observations of the full and sub-sample, we perform the analysis of board gender diversity with the full sample in order to avoid sample selection bias. Furthermore, to reduce the impact of extreme outliers, all continuous variables are winsorized at the 1st and 99th percentile levels.

4. GMM-difference and GMM-system are two well-known types of GMM method. GMM-system is a superior method, since it consists of a stacked system of equations in both difference and level. Its process starts by estimating difference, and then lagged levels are used as instruments for the corresponding endogenous variables.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China under Grant [72104218], Humanities and Social Science Research Projects of Zhejiang Education Department [Y202146606] and Humanities and Social Science Pre-research Foundation of Zhejiang University of Technology under Grant [SKY-ZX-20210203].