title: The Effectiveness of Board Diversity Reforms and Corporate Practices: The Moderating Role of a Familial Culture, Prevalence of Family Businesses and Family Ownership
Creators: name: Dimungu Hewage, Dilrukshi
Publisher: name: University of Liverpool Repository
Year: 2023

description: The thesis examines board diversity practices at both national and firm levels since board diversity and its outcomes differ across countries. Firstly, I focus on the research on board gender diversity by studying the effectiveness of worldwide board gender reforms, i.e. quotas and comply-or-explain, aimed at the meaningful inclusion of female directors on boards. Herein, I study whether gender reforms impact corporate practices and whether the role of (i) a national culture, i.e. familial culture, and (ii) the prevalence of family businesses are relevant factors that contribute to the understanding of such relationships. Secondly, I examine the Latin American (LA) region, a less developed/regulated market, where the regional culture influences corporate behaviour. Here, I determine that a social configuration of the corporate conduct in family firms is essential for understanding the impact of board diversity, i.e. education, gender and tenure of independent directors, on the likelihood of corporate fraud. In the first two empirical chapters (Chapters 2 and 3), gender diversity reforms are recognised as a national-level instrument that has led to an exogenous change in board diversity practices around the world. Chapter 2 examines the effectiveness of gender diversity reforms - voluntary, i.e. comply-or-explain, and quotas, in increasing the number of appointments of independent female directors to boards and whether there is a spillover effect on board independence. To do this, I conduct quasi-experiments on data from 10,313 unique companies from 41 countries for the period 2000-2019 (82,613 firm-year observations). Main findings show that the proportion of independent female directors and board independence fall following voluntary gender reform. As gender diversity reforms aim to protect investors at the national level, I extend the empirical analysis from an institutional perspective to incorporate the country’s familial culture, which defines the strength of family ties and loyalties amongst family members. A strong familial culture is associated with societal attitudes and expectations that establish the role of women as carers and men as breadwinners. This results in stereotypical perceptions of women being less able to hold leadership positions. I find that voluntary gender reforms further decrease the proportion of independent female directors on boards in countries with a stronger familial culture. A possible explanation for this is that companies appoint non-independent female directors to signal to markets that they comply with the recommendation. Consequently, companies in countries with a strong familial culture have a negative spillover effect on board independence after voluntary gender reform. Conversely, the appointment of independent female directors and board independence increase following board gender quota reform, independent of the strength of the familial culture. Chapter 3 examines whether corporate risk-taking is impacted by gender diversity reforms, using the same data as in Chapter 2. To account for national traits that could influence corporate behaviour regarding the role of women in society, I frame this research on behavioural agency theory to define corporate risk-taking. Therefore, I use (i) venturing risk, which represents the degree of acceptance of firm value-enhancing strategies and (ii) performance hazard risk (PHR), which represents the probability of failure in achieving financial targets to protect agents’ wealth or aspirations. I find that both quotas and voluntary reforms decrease PHR, leading to a reduction in the likelihood of performing below financial targets. Venturing risk improves following gender quota reforms, suggesting that gender legislation is successful in improving a firm’s value-enhancing initiatives to align the interests of agents and principals. I further incorporate in the analyses the prevalence of family businesses in order to capture the socioemotional goals of family businesses which significantly contribute to explaining the association between gender diversity reforms and risk-taking. I find that family businesses prevalence plays a moderating role in improving PHR following voluntary gender reform and venturing risk following both types of gender diversity reforms, i.e. quotas or voluntary. These findings highlight that voluntary gender diversity reforms are less effective at curbing the adverse impact of socioemotional wealth (SEW) on corporate risk-taking in countries with greater family business prevalence. Finally, in Chapter 4, I examine the effectiveness of board diversity in reducing the likelihood of corporate fraud in the Latin American region. Based on a SEW framework, I determine that board diversity impacts differently in family and non-family firms, using an unbalanced panel of 1,839 firm-year observations from 244 Latin American firms during the period 2008-2019. I find that family firms are more likely to commit fraud than non-family firms, possibly because of their aim to preserve SEW. However, family firms are more likely to reduce corporate fraud by diversifying their boards, i.e. gender, education and tenure of independent directors, than non-family firms. Additionally, opportunities for family board diversity could be achieved by improving board size but these opportunities become less prevalent as board experience increases. Overall, this thesis contributes to the understanding of the impact of board diversity and gender diversity reforms on corporate outcomes. The findings strongly support the idea that a national institutional setting, i.e. familial culture and family business prevalence, and firm-level setting, i.e. family-controlled business, are best seen as contingent characteristics that moderate the influence of gender diversity practices on corporate outcomes.