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More women on boards, cheaper mergers


A new study finds that the more women there are in the boardroom, the less a company pays when it gobbles up another firm.

The forthcoming paper by researchers at the University of British Columbia's Sauder School of Business, which will be published in the Journal of Corporate Finance, reveals that for each female director on a board, the cost of an acquisition goes down by 15.4 percent.

In addition, the study found that each female board member lowers a company's attempted takeover bids, on average, by 7.6 percent. "It's really driven by the behavior differences between men and women," says Kai Li, a professor of finance at UBC. "Men are more overconfident than women. When confronted with great uncertainty or ambiguity, women tend to be more risk-averse and more cautious, which leads to underestimating how good the target will be and therefore pressing for lower prices."

Her research comes amid news that many countries are facing potential regulatory measures to increase the number of women in boardrooms. Last week the European Parliament voted to require quotas for women on European company boards and, by an overwhelming vote, elected to mandate a minimum of at least 40 percent women--a big leap from the roughly 15 percent of board seats held by women at European companies last year. The vote now goes to the individual member countries for discussion. Meanwhile, the Ontario Securities Commission is also facing calls by the large Ontario Teachers' Pension Plan to require all companies listed on the Toronto Stock Exchange to have at least three female directors by 2020 or be delisted.

While there is much debate over how well quotas in particular help to improve company performance (one study from the University of Michigan found that when forced to boost the number of female directors, measures of performance fell), there is plenty of research backing up the idea that greater diversity in the boardroom improves performance. Study after study has shown that companies with women in the boardroom do better than those with all-male boards. Whether this is due to the women on the board or other reasons, such as larger companies that are more financially successful simply tending to put more women on the board, is unclear. "Causality is really hard to establish," Li says.

Other research has shown that governance, at least, is especially improved when there are at least three women on the board--a "critical mass" that allows women to be influential, rather than token members.

Li's study is one of the first, she says, to show a link between the presence of women on boards and acquisition prices. The paper included two studies. In one, she and her colleagues looked at a sample of 460 acquisition bids made by the companies in the Standard & Poor's 1500-stock index between 1997 and 2009. They examined the "bid premium"--the difference between the final offer price and the stock price of the acquired firm before the deal was announced--and then compared this data with the number of women on boards. The other looked at the number of bids made by the same companies over a 13-year period, and compared that to the number of female board members.

So what does Li think about quotas? "I'm a free-market person," she says. She supports recommendations for higher ratios of women on boards but not explicit regulation that might cause companies to bring in less experienced women. "I think bringing awareness is great, but outright intervention might hurt the companies."

Jena McGregor is a columnist for On Leadership.

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