Women on Board, Firm Financial Performance and Agency Costs

Abstract

This study investigates the link between female board directors and company financial performance and agency costs in Sri Lanka’s publicly listed companies. A well-balanced board is critical to the effective strategic direction and running of any company, especially in countries where external corporate governance mechanisms are less developed. In order to investigate the impact of board gender diversity on firm financial performance, dynamic panel GMM estimation is applied, using Tobin’s Q as a measure of performance. Three variables are used as proxies for gender diversity of the board on the board of directors, namely the percentage of women on the board, a dichotomotons dummy, and the Blau index. A Tobit model with endogenous regressors is used to investigate the impact of female board members on agency cost, using growth opportunities as a measure of agency cost. After controlling for size, industry, and other corporate governance measures, this study finds a significant negative relationship between the proportion of women on boards and firm value while increasing company agency cost. This evidence provides insights for governments and academic institutions in their efforts for provide resource that may help enhance women leadership skills.