Measuring Tokenism in Female Director Appointments and its Impact on Firm Performance

• In Event: Traditional Accounting Issues

Abstract

Regulatory changes, across the world, are increasingly mandating higher female participation in corporate boards. The requirement varies from having at least one female director (India) to as high as 40% seats reserved for women (Norway). These mandates have both a sociological and an economic impact. The sociological implication is that the compliance attempts to break the glass ceiling that women have historically faced to enter into positions of responsibility in firms (Bilimoria, 1995). The economic impact, though, is uncertain since it is not clear whether the female directors add value economically to the firm or their presence is mere tokenism. Prior literature uses the term ‘tokenism’ based on the headcount of female directors and considers experience, qualification, number of directorships or committee memberships of the female directors to assess their status on the board. We argue that one or two parameters are insufficient to measure tokenism, and a multidimensional perspective is required to understand female directors’ contribution to the board. In this paper, we intend to construct an anti-tokenism index that captures multiple aspects of female directors to classify firms based on whether they indulge in appointing token directors. We propose to conduct a multi-country study where there is a gender-based quota to examine female directors’ effectiveness for the firm by considering their role in three firm level outcomes – (a) earnings and audit quality, (b) firm’s accounting performance, and (c) market valuation. We expect that in firms which have low levels of potential tokenism, female directors would add higher value to the firm outcomes.

Authors

• Shobhit Aggarwal, Indian Institute of Management Udaipur

• Amish Dugar, Indian Institute of Management Udaipur

• Sandhya Bhatia, Indian Institute of Management Udaipur