Corporate Board Gender Diversity and Dividend Decisions: Evidence from India

Abstract The Indian Companies Act (2013) mandates the appointment of at least one woman director for large publicly listed companies in India order to increase gender diversity on corporate boards. study analyzes relationship between governance mechanisms, board diversity, and ownership structure dividend payout decisions an emerging economy like India. uses data collected nonfinancial firms NSE (National Stock Exchange) 500 from period 2008 2020. Contrary evidence developed economies, finds that increased female representation greater proportion independent directors are associated with lower context. As it stands, boards is woefully low appears be mere tokenism. explores role regulation increasing offers insights where such a place. Keywords Corporate Gender Ownership Dividend Board Citation Vinjamury, R.S. (2023), "Corporate Diversity Decisions: Evidence India", Biswas, R. Michaelides, M. (Ed.) Contemporary Issues Financial Economics: Emerging Economies (Research Finance, Vol. 37), Emerald Publishing Limited, Bingley, pp. 1-13. https://doi.org/10.1108/S0196-382120230000037001 Publisher: Limited Copyright © 2023 1. Introduction can viewed as set mechanisms by which “suppliers finance corporations assure themselves getting return their investment” (Shlifer & Vishny, 1997). encompasses allow stakeholders corporation exercise control over firm insiders management so interests protected (John Senbet, 1998). In other words, may help address issue separation control, often lead agency problems. this context, policy device. Specifically, means mitigate Jensen’s (1986) free cash flow problem. similar vein, prior studies posit dividends reduce within firm, thereby reducing costs (e.g., Easterbrook, 1984; Rozeff, 1982). Given importance governance, developing economies have introduced regulatory changes strengthen mechanisms. For example, enacted Parliament seeks major overhaul norms adopted Also, Securities Exchange (SEBI) revised Clause 49, requirements been changed bring line (2013). Not surprisingly, key provisions pertain composition. Section 149 (1) provides compulsory provision light literature, impact managers decision-making. This literature suggests significant these decisions. Matsa Miller show less likely downsize workforce. Similarly, make acquisition bids more acquisitions bid premiums (Levi, Li, Zhang, 2014). take debt risky financing investment choices (Faccio, Marchica, Mura, 2016). Firm’s important decision deliberated board. recent analyzed members Chen, Leung, Goergen, 2017). Adams Ferreira (2009) Chen et al. (2017) provide empirical focus monitoring than male counterparts terms performed members. mechanism Dividends contribute toward argument assumes high might compel capital markets frequently meet funding needs attracts scrutiny market participants. However, most focused there gap analyzing economies. background, chapter attempts analyze monitors mitigating Prior al., 2017) argue payouts device larger related view link payouts, presence propensity pay dividends. provided (2017), its shareholders. result statistically holds true Consistent previous 2017; Hu Kumar, 2004), positively size independence. audit committee independence payouts. addition, negatively promoter ownership. On hand, pressure-sensitive institutional investors. rest organized follows: 2 discusses women per Act. 3 review lists objectives study. 4 methodology 5 results. 6 implications conclusions. 2. Women Directors Act1 among things regulates incorporation, responsibilities, dissolution company jurisdiction. Among provisions, aims introduce reforms Many stipulates that: every shall consisting individuals (a) minimum number three case public company, two private one-person company; (b) maximum fifteen directors.2 “every one-third total directors.” Of special interest Act, following class appoint one-woman (i) (ii) having— paid-up share hundred crore rupees or more; turnover more. mandatory (the focusing companies), 3. Literature Review Objectives Study past attention value, performance, risk-taking behavior Ahern Dittmar, 2012; Dezso Ross, Faccio 2016; Miller, 2013). (2016) choices. influencing Levi (2014) bids. bid, tend premiums. Triana report spend research development increases There growing body discussions complex problems improve when part decision-making processes Gul, Srinidhi, Ng, 2011). find engage To board, looked firm’s helps Easterbrook (1984) argues plays role. Brickley, Lease, Smith (1988) model they categorize investors pressure-insensitive They monitor discipline managers. existing business relationships effective monitors. view, Almazan, Hartzell, Starks, 2005) level executive compensation stronger Cornett, Marcus, Saunders, Tehranian (2007) document positive operating performance. At same time, has no returns. objective understand India; (2) how pressure-resistant impacts 4. Data Methodology Centre Monitoring Economy (CMIE) Prowess database. were National (NSE) 2008–2020. dependent variable used analysis (DIV_PAYOUT), binary variable. DIV_PAYOUT takes value “1” event payment “0” otherwise. Logit models given nature analysis. determine directors, variables decisions, baseline considered. (1)DIV_PAYOUTit =α0+βBoard diversityit+ Other it+ΥOwnership variablesit+ θControl variablesit+Industryi+ Yeart + εit addition logit described above, panel tobit regression year industry fixed effects also employed. Tobit_DIV_PAYOUTit model. represents ratio net income. Since cannot negative, left censored. Therefore, specified (2a)Tobit_DIV_PAYOUTit δOther >0 (2b)Tobit_DIV_PAYOUTit =0, ≤0 (logit tobit) above do not lend causal inference, but us associations variables. detailed analysis, four each considered (i.e., eight models). first fifth models, analyzed. second sixth included third, fourth, seventh, eighth shareholders (B_FEMALE) (FEMALE_IND) (BSIZE), (BIND), (AIND), meetings (BMEETINGS) see 2020). variables, (PROMOTERS), investor (P_SENSITIVE) (P_RESISTANT) along LOG_TA natural logarithm assets proxy size. Leverage (LEVERAGE) defined borrowings assets. Adjusted Tobin’s Q (TQ) growth opportunities. TQ was obtained using calculations Gompers, Ishii, Metrick (2003). Following holding measure liquidity (LIQUIDITY). Return Assets (ROA) profitability. factors constant, profitable higher Again (ASSET_TANGIBILITY) sales (RD_SALES) asset tangibility financial distress costs. characteristics, (BSIZE) percentage (BIND) Audit (AIND) frequency capture extent Finally, FAGE age firm. construction Table 1.1. Both accounted Description Variables Used Study. Variable How Is Measured (Total capitalization – book equity deferred tax liability)/total ROA Net income/total Ratio variable, Defined otherwise BSIZE Number BIND board/number BMEETINGS Frequency annual AIND Percentage B_FEMALE Female FEMALE_IND PROMOTERS Promoter shareholdings shares held promoters P_INSENSITIVE Pressure insensitive nonpromoter mutual funds foreign P_SENSITIVE sensitive banks institutions Age since incorporation (in years) LEVERAGE RD_SALES R&D expenses LIQUIDITY Liquid TANGIBLE_ASSETS Tangible Logarithm Natural log Note: table describes 1.2 reports summary statistics median (DIV_PAYOUT) sample close 22%. 11. 50%. mean (PROMOTER) 55.57% 55.44%, respectively. ownership, 4.078% 10.816%, 75%. 4.4%. only 2.6% even though overall stands 1.2. Descriptive Statistics. N Mean Median 3,919 0.214 0.219 11.742 11.000 0.502 0.500 0.044 0.000 0.026 0.720 0.750 4.377 4.000 40.730 33.000 LOG_ASSETS 10.223 10.152 0.276 0.260 0.013 0.001 0.017 0.177 0.134 0.088 0.080 2.833 1.998 4.078 1.690 P_RESISTANT 10.816 8.570 55.570 55.440 observations (N), (Mean), (Median) Refer 1.1 description Correlation carried out check multicollinearity results documented 1.3. seen table, highly correlated. robustness check, Variance Inflation Factor (VIF) undertaken VIF values generally acceptable limits (<5). concern Matrix. 1 −0.02 0 −0.11 0.01 0.04 0.03 0.11 0.72 −0.01 0.27 −0.08 −0.42 −0.1 −0.09 0.07 0.13 0.02 0.17 −0.04 0.4 0.08 0.09 0.18 0.05 0.06 −0.03 −0.05 −0.06 −0.07 0.44 −0.13 −0.17 −0.31 −0.46 −0.15 0.31 −0.32 0.25 0.28 0.39 −0.12 0.1 0.15 0.14 0.12 0.36 0.16 −0.19 −0.34 −0.47 Pearson correlation coefficients 5. Empirical Results analyses reported Tables 1.4 1.5, both largely consistent. association decision. These consistent Overall, strong across all size, independence, significantly support due flows. improved 1.4. Logistic Regression Analysis. Parameter Model Estimate CONSTANT –2.6195*** –2.7559*** –2.3733*** –2.511*** (<0.0001) (0.0003) (0.0001) 0.0398** 0.0381** 0.0377** 0.0358** (0.0137) (0.018) (0.0205) (0.0273) 1.546*** 1.7594*** 1.8422*** 2.0713*** (0.0016) (0.0004) (0.0002) –4.0056*** –1.5665 –3.8659*** –1.4079 (0.2294) (0.2781) –4.1135** –4.1935*** (0.0102) (0.0084) 1.58*** 1.5405*** 1.5446*** 1.503*** 0.0608 0.0565 0.0534 0.0489 (0.1952) (0.227) (0.2591) (0.2997) 0.0158*** 0.0131*** 0.0129*** 0.1388*** 0.1459*** 0.0989 0.1065* (0.0056) (0.0037) (0.1008) (0.0777) 7.9935*** 8.0744*** 7.8567** 7.911** (0.0048) (0.0044) (0.0055) (0.0051) 0.1825 0.1871 0.1546 0.1592 (0.6248) (0.6151) (0.68) (0.6706) –1.323 –1.2446 –1.3484 –1.2605 (0.4755) (0.501) (0.4604) (0.4899) –0.6477 –0.6859 –0.6037 –0.6444 (0.1208) (0.1006) (0.152) (0.1264) 25.1361*** 25.0695*** 25.0153*** 24.9826*** –0.2165*** –0.2166*** –0.1941*** –0.0124*** –0.0117*** –0.0115** –0.0109** (0.0006) (0.0013) (0.0147) (0.0215) 0.0604*** 0.0608*** (0.0009) (0.0008) –0.009 –0.00929 (0.2855) (0.2744) No. Chi-square (likelihood ratio) 905.0587 911.9117 921.2235 928.427 Pr > chi-square <0.0001 Pseudo R-square 0.3985 0.4012 0.4048 0.4076 logistic effects. R-squared statistic. Pr>chi-square included. parenthesis. *** denotes significance 1%, ** 5%, * 10%. 1.5. Tobit 7 8 –0.1958 –0.2130 –0.1752 –0.1921 (–1.59) (–1.73) (–1.42) (–1.55) 0.0145*** 0.0146*** (4.88) (4.89) (4.92) (4.93) 0.2928** 0.3221** 0.3175** 0.3453*** (2.99) (3.25) (3.2) (3.44) –0.3727** –0.0187 –0.3389* 0.0032 (–1.98) (–0.07) (–1.79) (0.01) –0.6707* –0.6519* (–1.94) (–1.89) 0.1735*** 0.1670*** 0.1732*** 0.1668*** (4.12) (3.96) (3.95) 0.0109 0.0107 0.0096 0.0094 (1.17) (1.14) (1.03) (1.01) 0.0025*** 0.0024*** (5.04) (5.01) (4.61) (4.58) –0.0078 −0.0068 −0.0200 (−0.84) −0.72 −1.74 –1.62 –0.0591 –0.0547 –0.0648 –0.0604 (–0.6) (–0.56) (–0.66) (–0.62) –0.0784 –0.0780 –0.0685 –0.0683 (–1.0) (–0.99) (–0.87) (–0.86) –0.8623** –0.8759** –0.8451** –0.8606** (–2.42) (–2.43) (–2.44) –0.3530*** –0.3634*** –0.3298*** –0.3405*** (–4.13) (–4.24) (–3.83) (–3.94) 0.7710*** 0.7579*** 0.7542*** 0.7414*** (4.49) (4.42) (4.39) (4.32) –0.0022 –0.0020 –0.0024 (–0.42) (–0.38) (–0.45) (–0.4) –0.0007 0.0003 (–1.07) (–1.03) (0.29) (0.3) 0.0056** 0.0054** (2.21) (2.16) 0.0014 (0.87) (0.85) Log likelihood −3,961 −3,959 −3,958 −3,956 AIC 7,954 7,952 7,953 7,951 fit (Log AIC). t-Value “Model 1” 5,” we observe 2” 6” include Again, “independent” Two here note much smaller 2.6%. does appear expected, profitability (ROA). (P_SENSITIVE). because expecting compensate perceived ineffective (FAGE). 6. Policy Implications Conclusions USA found shows need Firstly, regulation, 4.4% lower. nominal directorship tokenism perceiving them players however should go down, contrary, made up substantially away “tokenism” traditionally dominated counterparts. necessary step sufficient. implications, contribution, having improvement, benefit women’s contributions. Three normalizes directors’ presence, allowing speak freely men listen open minds. (Konrad, Kramer, Erkut, 2008) appointing member sufficient, work. deliberate attempt actively subcommittees nomination sensitized about issues if formulate affirmative actions regard. makers want work direction. deterrence noncompliance regulations seems minimal allows flout prescribed norms. boards, companies. structure, indicate limited Notes 1http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=17533 2Provided 15 after passing resolution. 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