We examine the impact of board gender diversity on information asymmetry using a data panel of 531 firm-year observations of companies listed on the Spanish Stock Exchange in the period 2004–2009. To estimate the perception in the financial markets of the adverse selection that exists between informed and uninformed traders, we compute various market microstructure proxies for information asymmetry using high frequency data: the relative spread, intraday price impact, and the probability of informed trading (PIN). We use the system generalized method of moment (System GMM) and dynamic panel technique to control the endogenity and heterogeneity effects. By controlling for corporate governance, company characteristics and the firm’s information environment, we find a negative relationship between gender diversity and the degree of information asymmetry in the market.
This paper contributes to the prior literature in several ways. First, it extends previous literature on the economic and market effects of board gender diversity by providing new empirical evidence on the association between female presence on corporate boards and the level of information asymmetry in the market. We could not identify any paper in the previous literature that specifically analyses this association. Only Gul et al. (2011, 2013) investigate the effects of the presence of women on director boards on the firm’s information environment (by using as proxies the idiosyncratic volatility and analyst earnings forecasts, respectively). Although they do not explicitly analyse the association between gender diversity on boards and the information asymmetry among traders, they provide findings that may be considered contradictory regarding this relationship as seen in the next section. Consequently, we consider that it is still an open empirical question.
Second, we are also the first to examine the relationship between gender diverse boards and information asymmetry in the market by using microstructure proxies for adverse selection risk and conducting an association study. Previous papers have analysed the relationship between the quality of corporate governance and the information environment of firms in the stock market around different corporate events (e.g. Cai et al., 2006; Kanagaretnam et al., 2007). Unlike these studies, we examine how gender diversity on boards is related to the average level of information asymmetry over a year, which avoids the weaknesses of the short-run event study methodology (i.e. difficulty in clearly determining the correct event date and measuring the unanticipated component of an announcement).
Finally, this paper provides evidence from Spain, one of the pioneer countries in developing laws to encourage the presence of women on boards of directors. Following the example of Norwegian legislation, which required that 40% of board seats be taken by female directors by the end of 2008, the Spanish Gender Equality Act (Ley de Igualdad) encouraged companies to increase the share of female directors to 40% by 2015. Companies that achieved this target were to be given priority in the allocation of government contracts but there would be no formal sanctions. In a similar way, other European countries (e.g. France, Italy, the Netherlands, Belgium) have required listed companies to reach minimum quotas for female representation on boards of directors. These legislative advances, to prevent discrimination (Mateos de Cabo et al., 2011) and to promote diversity in management positions, may have a positive influence on the management of the firm. In this way CNMV (Comisión Nacional del Mercado de Valores) describes the inclusion of women on the board of directors as “an efficiency objective”, representing “economically rational conduct”, and not only social justice and ethics. Therefore, gender diversity on boards has become a key policy focus in many countries as well as having generated an intense debate on its effects on corporate governance and company performance in academic and professional literature.
By: David Abad, María Encarnación Lucas-Pérez, Antonio Minguez-Vera, and José Yagüe