Mitigating Effects of Gender Diverse Board in Companies Managed by Overconfident CEOs
71 Pages Posted: 21 Jun 2017 Last revised: 6 Feb 2020
Date Written: June 6, 2018
Prior literature examines the matching of firm-types with board composition, but very little research focuses on the matching of CEO types with directors' skill sets. We examine whether a gender-diverse board helps to mitigate the negative impacts of overconfident managers, thus improving firm performance. Specifically, we argue that female directors have different viewpoints, approach, and skills vis-`a-vis their male counterparts, which helps to provide a more nuanced atmosphere inside the boardroom and consequently, improves board effectiveness. We find support for our hypothesis when CEOs are overconfident and the female directors are independent, i.e. not gray or executive directors. We find female director departures due to pure exogenous reasons such as death, have a negative effect on the value of firms managed by overconfident CEOs. Also, the positive effects of gender-diverse boards are concentrated in pre-SOX-non-compliant firms with overconfident managers. Our results imply that simpler governance-improving mechanisms may be in many cases equally effective in achieving desirable changes in CEO behavior.
Keywords: Gender-diverse board, Female directors, Firm performance, Independent board, Overconfident CEOs, Over-investment, SOX, SOX compliant firms
JEL Classification: G23, G32, G34
Suggested Citation: Suggested Citation