Long-term Performance & Volatility Effects of Appointing Women to Monitoring Positions: An Empirical Study of North American Stocks (2012-2022)

Abstract

ender diversity has been on the agenda since the 1970s and increasingly gained attention since. Throughout the past decades, there has been a rise in the importance of gender diversity in monitoring positions in relation to firm performance. Research has proven a higher probability of outperformance for companies led by gender-diverse management compared to less diverse teams. The extensive review of literature provides a foundation for the assumption of a positive relationship between increased gender diversity and firm performance. In addition, this review reveals a discrepancy between the genders’ relationship towards risk, where women are shown to be more risk-averse than men. In financial theory, higher risk generally leads to higher stock volatility, where the risk-return trade-off states that the higher risk taken increases the potential return. Literature and theory therefore provide support in researching the relationship between increased gender diversity, performance, and risk.
By researching this relationship, we attempt to identify potential long-term effects on stock performance and volatility after two types of gender events: a board of directors going from zero female representation to non-zero and a female replacing a male chief executive officer. Our methodology for studying the effects of appointing a woman to a BoD or a CEO position consists of assessing relative cumulative performance through a long-term CAR event study approach together with an approach we believe has not before been applied to this topic; a GARCH model. The gamma and delta coefficients estimated in the GARCH model captures abnormal returns and volatility through a market model with time-varying volatility and indicator variables for the event. The 2,000 largest firms in North America are used to discuss and draw conclusions on the research question. The events included in the study occurred within the 10-year time horizon of 2013-2022. Hypotheses are developed to get a wider insight into the conclusion of the study, taking firm cash ratios, time horizons, and BoD versus CEO positions into consideration.
The main findings revealed by the CAR and GARCH models show different results for the BoD and CEO events. The CAR exhibits a significant cumulative performance effect for BoD but is insignificant for CEO. The GARCH performance effect is insignificant for both events, whereas the volatility effect shows a significant positive effect. The findings from the GARCH models contradict the expectations of a positive performance effect and negative volatility effect arising when reviewing literature. However, the results which exhibit positive CAR and volatility align with the risk-return trade-off. In conclusion, our results indicate a positive long-term performance and volatility effect of increasing gender diversity. However, the thesis’ findings do not allow for explicit conclusions and confirm indecisive previous literature implicating the relationship between gender, performance, and risk being complex and still in development.