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Source: University of Auckland

Socially responsible companies benefit from having more women on their boards, say Business School researchers.

Businesses with women on their boards do better when it comes to enhancing the effect of strong corporate social responsibility on financial performance, according to recently published research.

“Women are the best directors to have in terms of looking after social and environmental issues, and not only social and environmental issues but also in terms of reducing any negative impact on firm value from these sources,” says co-author Professor Charl de Villiers.

Dr De Villiers, together with University of Auckland finance and accounting lecturer Dr Lina Li, researcher Yunyi Li, and Dr Leonard Li from the University of New South Wales, utilised data from 1,507 US firms over a 10-year period and found that the effect of good corporate social responsibility on market-assessed firm value, is incrementally more positive for firms with greater female representation on their boards compared to firms with no female members.

Prior research, says Dr Li, has looked at how a commitment to corporate social responsibility activities, such as supporting positive employee relations and community and environmental outcomes, can improve and enhance firm value, such as share prices and financial performance.

“We went one step further and looked at how gender diversity might affect the relationship between those two factors – corporate social responsibility and firm value.

“If you look at the positive effect of good corporate social responsibility on firm value, we find that when there is gender diversity on boards, this effect is stronger.”

Although the study found that there’s a positive effect from having women on boards when it comes to upping the financial benefits of being a socially responsible business, Dr Li says that if a board performs poorly when it comes to their corporate social responsibility and has an issue, for example, an accident that causes pollution, having more women on the board sees investors react more negatively.

“Our findings suggest firms that display gender diversity at the board level are penalised more strongly by the market when they perform poorly in terms of their social and environmental goals.”

The authors say this could be due to the fact that women on boards often signal better corporate social responsibility, so when things don’t go well, there’s an element of shock.

“Still, if we look at the net effect,” says Dr Li, “socially responsible companies benefit from having more women on their boards.”