Go ahead, make all the cracks you want about men asking for directions less often than women. There may just be some truth to the idea.
Research has shown that having more female directors on a corporate board is linked with better stock performance in choppy markets, higher return on equity, fewer governance-related scandals and cheaper mergers. And now a new study in the Journal of Risk and Financial Management adds yet another possible advantage: Boards with a higher number of female directors are more likely to ask top-ranked financial advisers for help when it comes to assessing the price at which their companies will sell.
The researchers, from the University of British Columbia and the University of Utah, looked at nearly 500 companies that were the targets of mergers or acquisitions. It found that for every woman added to the board at these companies, there was a roughly 7 percent increase in the use of top-ranked advisers.
Kai Li, one of the study's researchers, had previously looked at the link between testosterone levels and merger activity, as well as between female directors and acquisition price. Her latest findings, she said, are yet another argument for greater diversity on boards. "When there is an offer on the table, female directors do more due diligence by seeking high-quality outside opinion," Li said in an interview. "Diversity in the workplace, in the business decision-making process and in leadership roles is quite important and helps create shareholder value."
While boards being targeted in a merger almost always hire some kind of adviser, Li and her colleagues wanted to examine how the gender makeup of directors correlated with asking for help from top investment banks, which the researchers ranked based on average annual deal value. More market share, and more advising on deals, Li said, implies more experience and expertise across industries. That should generally lead to higher-quality advice, she said.
Notably, in the case of "bidder boards" (those doing the acquiring), the study showed no link between the gender composition of a board and the advice it sought. That could be for several reasons, according to Li. For instance, when they're bidding, boards are more interested in getting advice on strategies for combining the two organizations, rather than on deal price. Litigation risks are also lower for "bidders" who take a high price than for "sellers" who accept a low one.
Li's study began with a sample of all M&A deals initiated between 1997 and 2010, and then winnowed the list down based on factors such as whether data was available on deal characteristics and board make-up. Their final list comprised 2,595 "bidder boards" and 483 "target" boards.
Li said she and her colleagues are open to other possible explanations for their findings—CEOs who like to seek advice might already be inclined to hire a more diverse board, for instance, or more female directors could just be a mark of a larger company that has more relationships with big banks.
Still, she noted, the link between gender and advice-seeking is an "important association." Men have been shown to be more overconfident, yet cautiousness can be key when it comes to evaluating potential deals. "Having more women on the board, and more diversity of opinion, helps to preserve shareholder value," Li said.