Gender diversity and financial performance: evidence from US REITs

ABSTRACT

Our paper is the first to identify the determinants which explain the presence of women on the board of directors and to study the relationship between gender diversity and financial performance in a US REIT context. We apply a two-stage Heckman approach to a unique panel dataset of 112 US Equity REITs over the period 2005–2015. Our results show that a REIT’s likelihood of having a woman on the board of directors depends strongly on board attributes. Especially institutional investors support gender-diverse leadership teams, which might be driven by the perception that women contribute to an enhanced internal monitoring in the REIT context, in which external monitoring is weakened through ownership restrictions. We find evidence of a U-shaped relationship between gender diversity in executive positions and price per net asset value (PRICE/NAV). In the case of REITs, a critical mass of female executives is reached at approximately 30% representation. This finding holds especially for real estate sectors with a strong consumer orientation and a high proportion of women in the workforce, such as retail and healthcare. Our performance analysis demonstrates that gender diversity has a positive effect on market performance (PRICE/NAV), but not on operating performance (FFO/SHARE).

KEYWORDS:

• Gender diversity
• listed real estate companies
• financial performance
• corporate governance
• two-stage Heckman procedure

JEL CLASSIFICATION:

• C23
• D53
• G11
• G34
• L85
• M1

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The statistical methods applied in the discussed studies are mean comparison test, anova, pooled OLS, panel data fixed effects, 2SLS, 3SLS and GMM.

2. The most widely used performance measures are ROA, return on equity (ROE), return on sales (ROS), return on investment (ROI), earnings before interest and tax (EBIT), stock price growth, Tobin’s Q and market to book value.

3. Gender diversity is measured in terms of binary variables for the presence of at least one woman in the boardroom, the percentage of women in the boardroom or specific diversity indices (e.g. Blau-Index).

4. In the context of critical mass theory, ‘teams’ refer to the board of directors, as well as the group of executives and non-executives.

5. Our definition of an independent board member is in accordance with New York Stock Exchange’s independence requirements.

6. We apply the Hausmann test to determine the existence of a correlation between the unobserved effects and the explanatory variables. Since the unobserved heterogeneity is correlated with the observed variables, the fixed effects method is applied.

7. WOMAN BOARD is the dependent variable in the first stage probit model and % WOMEN BOARD is the independent variable of particular interest in the second-stage performance regression.

8. We also tested the performance effects of FFO/SHARE on the likelihood that a REIT has a woman on the board of directors. Similarly to PRICE/NAV, FFO/SHARE has no impact on female participation.

9. The U-shaped relation only holds for gender diversity in the group of executives and for the market-based measure PRICE/NAV. The gender distribution within the group of non-executives does not show any significant effect, and neither does the operating performance measure FFO/SHARE.

Additional information

Notes on contributors

Liesa Schrand

Liesa Schrand is a research associate at the University of Regensburg, IREBS International Business School.Her PhD research includes corporate accounting and investor information, performance analysis and corporate governance topics of listed real estate vehicles.

Claudia Ascherl

Claudia Ascherl is a research associate at the University of Regensburg, IREBS International Business School. Her PhD research includes IPO pricing of listed real estate companies, performance analysis and corporate governance topics of listed real estate vehicles.

Wolfgang Schaefers

Wolfgang Schaefers is a full professor at the University of Regensburg, IREBS International Business School, with main research interest in Real Estate Asset Pricing, Corporate Governanceand Corporate/Public Real Estate Management. His research work has been frequently published in leading real estate journals including Journal of Real Estate Finance and Economics, Journal of Real Estate Research, Journal of European Real Estate Research, Journal of Property Investment andFinance, German Journal of Real Estate Research.