Does Board Gender Diversity Have a Financial Impact Evidence Using Stock Portfolio Performance - Article Example

Market operators like securities exchanges, regularly give best corporate governance practice guidelines. Market operators and law breakers started addressing women under-representation in the corporate world’s upper echelons. For example, in UK and Australia, the operators suggest that companies listed explain and disclose their self-assessed performance and chosen diversity policy (AICD, 2012). The growing regulation targets on board gender diversity and the development of the entire corporate board diversity.

In portfolio approach, gender diversity provides an extensive economic development over firm-level analysis. Forming portfolio requires the averaging out of firm-specific characteristics, getting rid of heterogeneity issues and reduction of neglected variable problems. The research of corporate governance is affected by endogeneity, such as reverse causality, omitted variables and heterogeneity among samples (Adams & Ferreira, 2009). Therefore, portfolios accurately reflect the impact of new regulation on the entire market.

In addition, portfolio statistics shows that the board diversity adoption has led to a significant transition. Between 2004 and 2010, sampled companies’ percentages with diverse boards increased to 36% and 42%. After self-regulation (2011), a total of 52% of the sampled companies reported that they have diverse boards. For example, the Institute of Company managers in Australia stated to have recruited women in a relatively large number to boards since 2010 (AICD, 2012). Hence, self-regulation contributed hugely to diversity growth in firms.

Firms’ portfolio aggregate returns can examine diversity. It is carried out through comparing the diversity-boards with non-diversity boards and boards that have varying degrees of diversity. The diversity boards have more than one woman representing the directors while the non-diversity boards have none. According to research, the boards with woman representation have more