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Published in: Journal of Business Ethics 2/2022

02-01-2021 | Original Paper

Not Just a Gender Numbers Game: How Board Gender Diversity Affects Corporate Risk Disclosure

Authors: Andreas Seebeck, Julia Vetter

Published in: Journal of Business Ethics | Issue 2/2022

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Abstract

This paper examines how board gender diversity affects corporate risk disclosure. We exploit an exogenous shock on firms’ risk environment created by the United Kingdom’s vote to leave the European Union (Brexit) and analyze related risk disclosure in annual reports of public firms in the UK. Using this unique setting, we mitigate concerns about omitted variables in concurrent studies. The findings suggest that board gender diversity is positively related to corporate risk disclosure. However, our results also indicate that the proportion of female directors needs to reach a critical mass to impact the risk disclosure decision. Moreover, we find lower bid–ask spreads immediately after the referendum date for those firms that disclosed Brexit-related risks in their annual reports prior to the vote. Collectively, our results are consistent with board gender diversity promoting the disclosure of decision-relevant information through improved board group dynamics.
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Footnotes
1
Similarly, the proportion of women on corporate boards of S&P 500 firms increased from 16% in 2009 to 26% in 2019 (Spencer Stuart 2019).
 
2
California was the first state in the United States to adopt a board gender resolution, followed by five other states that passed similar resolutions urging more women directors on corporate boards.
 
3
Figures are self-computed based on daily closing stock prices of FTSE 350 firms derived from Thomson Reuters Datastream.
 
4
Briefing paper CBP-7960 of the House of Commons Library provides a detailed timeline of the major events leading up to the referendum and subsequent dates of note (Walker 2019).
 
5
FRS 5 has been superseded by FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland for accounting periods beginning on or after 1 January 2015.
 
6
In the case of a hard Brexit, there is no close alignment to the EU which implies that the UK will leave the EU’s single market and its custom union. If a soft Brexit occurs, the UK is closely aligned to the EU which means that the UK will stay in the EU’s single market and its custom union. In the case of a no-deal Brexit, the UK will immediately leave the EU and its single market and custom union without any agreement.
 
7
Even though using an instrumental variable approach significantly reduces concerns of endogeneity, finding instrumental variables is challenging (Larcker and Rusticus 2010; Lousdal 2018). Thus, in line with prior studies we cannot fully rule out endogeneity bias, even though we carefully identified the instrumental variables used.
 
8
We thank KPMG’s Macroeconomics Team in the UK for providing useful insight in the underlying data of their study (KPMG 2017).
 
9
In addition, Wooldridge’s (1995) test of over-identification yields a robust score χ2 of 2.06 with a corresponding p-value of 0.1508. In line with Wahid (2019), we also performed Sargan’s χ2 test (1.42; p-value 0.2328) and Bassmann’s χ2 test (1.4055; p-value 0.2358) yielding similar results.
 
10
Underlying data stems from Thomson Reuters Datastream.
 
11
In the post-referendum phase, 92.4% of the firms report Brexit-related risks. However, 7.6% of the firms still do not disclose Brexit-related risks in their annual reports.
 
12
In untabulated analyses, we replace the proportion of independent directors with the proportion of non-executive directors and yield similar results.
 
13
Following Joecks et al. (2013) and Ben-Amar et al. (2017), we also analyze whether the relation between female board representation and corporate risk disclosure is U-shaped by including quadratic terms of our board gender diversity variables (FEMALE and BLAU) in our regression model. Consistent with Ben-Amar et al. (2017), we do not find a non-linear relation between our board gender diversity variables and corporate risk disclosure. Results are untabulated.
 
14
In further robustness checks (results are untabulated), we extend the time period for the measurement of BA and include the week before the referendum took place. Again, we find that the coefficient of BA is still negative and significant which further reflects the robustness of our results.
 
15
In untabulated analyses, we replace FEMALE with BLAU. The results remain qualitatively unchanged and confirm the finding that board gender diversity is significantly positively related with the disclosure of Brexit-related risks only in the pre-referendum phase.
 
16
Following Campbell et al. (2014), we take the logarithm of the number of the words of the Brexit-related risk disclosure.
 
17
In further robustness checks (results are untabulated), we replace FEMALE with BLAU. The positive coefficient for BLAU confirms our finding that board gender diversity is positively and significantly related to the extent of corporate risk disclosure.
 
18
Bill McDonald’s Word List Page provides the word lists: http://​www3.​nd.​edu/​~mcdonald/​Word_​Lists.​html.
 
19
Since the dependent variable UNCERT is calculated relative to the total number of words, it is important to control for the total number of words.
 
20
In further robustness checks (results are untabulated) we replace FEMALE with BLAU. The positive coefficient of BLAU confirms our finding that board gender diversity is positively and significantly related to the uncertainty of corporate risk disclosure.
 
21
In further additional analyses we conduct an analysis of the different board types according to Kanter (1977a, b) and the extent and tone of corporate risk disclosure. Our findings suggest that a critical mass of 20 to 40% also exists for the effect of board gender diversity on the extent of corporate risk disclosure. Results are untabulated.
 
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Metadata
Title
Not Just a Gender Numbers Game: How Board Gender Diversity Affects Corporate Risk Disclosure
Authors
Andreas Seebeck
Julia Vetter
Publication date
02-01-2021
Publisher
Springer Netherlands
Published in
Journal of Business Ethics / Issue 2/2022
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-020-04690-3

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