Female Board Representation and M & A 1 Female Board Representation and Corporate Acquisition Intensity

This study examines the impact of female board representation on firm-level strategic behavior within the domain of mergers and acquisitions (M&A). We build on social identity theory to predict that greater female representation on a firm’s board will be negatively associated with both the number of acquisitions the firm engages in and, conditional on doing a deal, acquisition size. Using a comprehensive, multi-year sample of U.S. public firms, we find strong support for our hypotheses. We demonstrate the robustness of our findings through the use of a difference-indifferences analysis on a sub-sample of firms that experienced exogenous changes in board gender composition as a result of director deaths. Female representation on public corporate boards around the world has traditionally been low. For example, only 17% of current U.S. Fortune 500 directors are women (Catalyst, 2014). Recently, though, legislators and firms have come under increasing pressure to redress this imbalance. Since 2008, all Norwegian public firms have been required to have at least 40% of directorships filled by women (Ahern and Dittmar, 2012). And, in 2012, the European Commission debated legislation that would have required all EU public firms to achieve a minimum of 40% female board representation by 2020 (Ibarra, 2012), or face heavy fines. Thus, understanding the impact of board gender characteristics is a vitally important practical matter. Public policy discussion of this issue has mostly focused on the eventual firm performance implications, with supporters and opponents having contrasting views on whether mandatory quotas would be beneficial for firms (e.g., Ibarra, 2012; Merchant, 2011). Academic research on the topic is mixed, with studies showing both positive (e.g., Carter, Simkins, and Simpson, 2003) and negative (e.g., Adams and Ferreira, 2009) overall impacts of female board representation. However, although many of the contributors to this discussion have offered arguments based on fundamental human capital differences (i.e., women in general will be more, less, or equally capable as men in fulfilling director roles), few studies have carefully examined a more proximal issue – how might a change in female board representation differentially affect a firm’s strategic behavior? We address this issue in our paper. Building on social identity theory, we Female Board Representation and M&A 3 theorize that higher levels of female board representation will affect intra-board social psychological dynamics such that deliberations become more thorough and comprehensive, resulting in more exhaustive evaluations and active oversight of proposed strategic actions. We examine these ideas within the context of the acquisition intensity of S&P 1500 firms. Our study provides several important contributions to strategic management. First, we contribute to strategic leadership (Finkelstein, Hambrick, and Cannella, 2009) by providing a theoretically-grounded explanation, based on social psychological processes, of why boards with greater female representation will be associated with different firm-level strategic actions. Methodologically, we also account for the impact of several alternative forms of intra-board diversity, increasing the likelihood that our results are being uniquely driven by board gender characteristics. Second, we contribute to mergers and acquisition research (Haleblian et al., 2009) by providing insights into the influence of board characteristics (i.e., gender) on acquisition behavior. Finally, our study offers a novel, econometrically-rigorous response to a fundamental challenge that bedevils most attempts to assess the firm-level impact of board characteristics. Specifically, it is often unclear to what extent board composition is itself endogenous to the strategic behavior and performance outcomes of a firm (Ahern and Dittmar, 2012). We address this challenge, and thereby demonstrate the robustness and validity of our original results, via a difference-in-differences analysis of a sub-sample of firms experiencing exogenous board changes as a result of director deaths. THEORY AND HYPOTHESES Women on corporate boards and board decision-making processes Since the 1970s, a broad array of research has explored the issue of gender differences in leadership and governance roles (e.g., Daily, Certo, and Dalton, 1999; Kanter, 1977; Nielsen and Huse, 2010). Because the number of female CEOs in U.S. public firms continues to be extremely Female Board Representation and M&A 4 low (Lee and James, 2007), many authors have focused on female representation on corporate boards, which is both more common and more heterogeneous across firms (Daily et al., 1999). A large amount of work in this area has examined the causes – such as status, social roles, homosocial reproduction, and interpersonal networks – of the underrepresentation of women on boards compared with their representation in management roles or the workforce generally (e.g., Hillman, Shropshire, and Cannella, 2007; Ibarra, 1993; Smith, 2002). In addition, a growing body of work has begun to explore the different implications of female vs. male leadership, and how gender-diverse boards might differ from all-male boards (e.g., Hillman, Cannella, and Harris, 2002; Sealy, Singh, and Vinnicombe, 2007; Singh, Terjesen, and Vinnicombe, 2008). One area of ongoing debate in the literature is whether female and male directors differ systematically in terms of underlying personality characteristics, preferences, and cognitions. For instance, in the general population, meta-analytic reviews (Byrnes, Miller, and Schafer, 1999) and cumulative evidence from economic experiments (Croson and Gneezy, 2009) suggest that men are significantly more likely than women to engage in risk-taking behavior. However, extrapolating this finding – or findings related to other possible gender differences in personality (Barber and Odean, 2001) – to a senior leadership population is problematic for several reasons. First, researchers have argued that the effect of gender on risk taking remains heavily contingent on the nature of the task being examined and the context within which risk taking is evaluated (e.g., Holt and Laury, 2002; Schubert et al., 1999). Second, and more importantly, although there is some evidence that male and female leaders may be associated with different behavioral patterns (e.g., Huang and Kisgen, 2013), the small number of survey-based studies in this area provide little support for the claim that female directors are significantly more risk-averse than male directors (Adams and Funk, 2012; Graham, Harvey, and Puri, 2013). Because of this lack of clarity, we instead consider the theoretical impact of female board Female Board Representation and M&A 5 representation from the perspective of how it might impact board decision-making processes. To do so, we draw on social identity theory (Tajfel and Turner, 1979), one of the most established and widely-studied perspectives in the realm of social psychology. Social identity theory is an umbrella term describing a series of socio-cognitive sub-theories that address how individuals’ interactions and behavior are influenced by the different categories to which they belong (Hogg, 2006; Hogg and Terry, 2000). Social identity theory addresses both the processes whereby individuals are categorized into groups (by themselves and others), and how categorization and identity influences interactions among individuals from different groups. Crucially, social identity theory is underpinned by the notion that collective phenomena cannot adequately be explained by recourse to individual differences or personality traits alone (Turner, 1996). Individuals can self-categorize, and be categorized by others, along any number of dimensions, but identification with a particular category is strongest when it is highly psychologically salient, i.e., it reflects aspects of an individual that are central, valued, and frequently employed (Ashforth and Mael, 1989; Yzerbyt and Demoulin, 2010). Highly salient categories – such as gender – are represented cognitively as prototypes, which maximize perceptions of intra-category similarities and inter-category differences (Hogg and Terry, 2000). Categories thus have a depersonalizing influence. A superordinate group where multiple categories are represented – such as a board of directors – can act as a ‘crucible in which intersubgroup differences are sharpened’ (Hogg, 2006: 123). Research suggests that such inter-subgroup differences are sharpened in two distinct ways (Yzerbyt and Demoulin, 2010). First, the process of categorization is associated with an “interindividual-intergroup discontinuity effect” (Wildschut and Insko, 2007), whereby intergroup responses are more hostile than interindividual responses. When members of one category (an ingroup) see others as being representatives of another salient category (an outgroup), they are Female Board Representation and M&A 6 more likely to see their interactions with these others as being with the depersonalized category itself than with specific individuals. In turn, this can cause ingroup members to experience a subconscious fear response – because their heightened levels of distrust lead them to expect zerosum competition from outgroup members – and a greed response – because they may think that outgroup members are vulnerable (Wildschut et al., 2003). Additionally, individuals are more likely to consciously frame intergroup contexts as being characterized by mixed motives, and therefore prone to competitive behavior. Thus, people tend to be more competitive and less cooperative in intergroup than in interindividual contexts. Second, and relatedly, individuals respond differently to ingroup members than to outgroup members, via ingroup favoritism and outgroup derogation (Hewstone, Rubin, and Willis, 2002). Individuals tend to allocate more resources toward in