The answer appears to be yes, according to researchers Dr Kumari Ranjeeni and Dr Dharmendra Naidu. Our research paper is published as open access in ABACUS.
Our research paper is available for free downloading and reading in ABACUS, Click Here!
Dr Kumari Ranjeeni who led this project spent years analyzing why investors undervalue firms with female directors. She started working in the area of Board Gender Diversity and Equity Mispricing during her Honours in Accounting at Monash University, Australia. She received Monash Business School Award for achieving the highest in her Honours year education (GPA 4.0/4.0).
Female representations on corporate boards are increasing. The move to include women on corporate board is both voluntarily as well as through legislation. Research has shown that there is a business case for having women on board (see for example, our recent open access research published in Journal of Business Ethics, Click here), and therefore, regulators have considered the need to enhance board gender diversity.
The question that comes to mind is: How are investors perceiving Female Directors?
Our research offers interesting findings with potential policy implications.
Gender Role Stereotyping of Female Directors
In today’s modern society women are playing an active role in the education system, workforce and also in the decision-making process. The role of females on board has received a lot of societal importance.
However, it is possible that some investors may perceive that women do not add value to corporate boards and the firm. Women have communal qualities, such as being inclusive, selfless, sensitive, and friendly, but leadership and board roles require agentic qualities. Due to this role incongruency, we argue that investors have a perceptual bias that women are less favourable than men for leadership roles. Kanter’s token status theory suggests that individuals receive negative attention if they hold positions that diverge from societal expectations.
Therefore, we argue that investors’ detrimentally stereotype female directors and value a firm with female directors below its intrinsic value.
Investors Undervalue Firms with Female Directors
Based on a sample of US firms, we find that firms with female directors are associated with higher equity undervaluation, although they are competent!
“Our results show that firms with competent female directors, as proxied by their committee membership and board experience, are associated with higher equity undervaluation”.
This is concerning because prior research has shown that female directors contribute to board governance and firm value. The question that follows is how can we address negative stereotyping of female directors? Click the link below for more information!
See Pra2Njeeni Blog on "New Research: Investors undervalue female directors. Need for more societal awareness!"
References:
Ranjeeni, Kumari and Naidu, Dharmendra, Female Directors, Do Investors Undervalue Female Directors due to Gender Role Stereotype? Evidence from the United States. ABACUS (2024). Open Access. https://doi.org/10.1111/abac.12321
Naidu, D., Ranjeeni, K. Shhh… Do Gender-Diverse Boards Prioritize Product Market Concerns Over Capital Market Incentives? J Bus Ethics (2023). Open Access. https://doi.org/10.1007/s10551-023-05553-3
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