Introduction

Literature review and theoretical framework

Data and methodology

Results

Discussion and conclusions

References

Abstract

The European Commission has proposed that member countries develop their national self-regulation and governance initiatives to increase the number of women on corporate boards with the aim of promoting gender equality in the processes of decision-making. This has provoked some controversial opinions, which in turn has led to the search for factual data which may support the legal initiatives. In order to shed more light on this topic, this study investigates the influence of a higher percentage of women on the board of directors of companies (excluding financial companies) included in the index of the Spanish Stock Exchange IBEX35 for a fifteen-year period: 2003–۲۰۱۷٫ To do this, we use a two-stage instrumental variables (IV) regression to address endogeneity and reverse causality problems. Moreover, we study the influence of a mandatory law on female presence on company boards by using a panel data methodology. The findings of this study show that the increasing number of women on boards is positively related to higher financial performance. Moreover, as expected, the gender mandatory law boosts the female proportion on boards of directors. Consequently, there are valid business as well as ethical arguments to support mandatory gender legislation.

Introduction

Diversity among board members means heterogeneity, which can be measured with either visible characteristics (race, age, gender, etc.) or intangible items (education, occupational background, etc.) (Rao & Tilt, 2016). The scarce traditional representation of women in management positions is due to the so-called glass ceiling, namely, an invisible cultural barrier which prevents trained women from holding responsibility in organizational positions (Mateos del Cabo, Gimeno, & Nieto, 2012). Equal opportunities in both social and economic circles is a basic human right. Furthermore, the systematic exclusion of women, who constitute half of society, leads to sub-optimal boards of directors (BenAmar, Chang, & McIlkenny, 2017). Gender diversity in the composition of company boards and its implications for the firm’s financial performance is an important consideration and a prominent line of current research on the effect of related legal initiatives implemented in several countries (Velte, 2017). Some governments have enacted certain laws to promote gender equality, either mandatory or not, whilst others have only implemented some recommendations or disclosure requirements to companies. Table 1 shows the legislation governing gender diversity on the boards of directors and the proportion of women on these boards from 2007 to 2017 in the main European countries.