The effect of female board representation on the level of ownership in foreign acquisitions

Research Question/Issue How female representation on corporate boards affects firm outcomes that have significant implications for stakeholders is a major corporate governance issue in the 21st century. We examine the effect of female director representation on acquirers' boards on the level of ownership in foreign acquisitions. We further test how the relationship is moderated by institutional distance, that is, the dissimilarities between host and home countries' institutional environments. Research Findings/Insights Using a sample of 1118 firm-year observations in 48 countries from 1997 to 2016, we find that greater female representation on acquiring firms' boards is associated with lower levels of ownership in foreign acquisitions. In addition, we find that only firms with a critical mass of 30% or more women on the board prefer low ownership. We also find that institutional distance, measured as the Mahalanobis distance between countries based on the extracted factor of the regulative institutional profile for each country, magnifies the relationship. Theoretical/Academic Implications Using the information economics perspective, we decompose acquisition risks into ex ante and ex post hazards. Then by integrating this perspective with gender role theory, we challenge the assumption of unidimensional risk attitudes of female directors. Thus, we contribute to the debate about how female directors affect firms' strategic choices. Further, our findings provide unique insights to international corporate governance research that focuses on how female representation on boards affects firm-level outcomes. In addition, our finding that institutional difference moderates the effect of female directors highlights that institutional context should be considered for understanding boards' strategic roles. Practitioner/Policy Implications Board nominating committees should match a firm's board composition to the desired acquisition strategy with respect to the types of risk they wish to undertake. The study also highlights the dilemma that female directors may face in balancing their managerial and gender roles and may assist firms in better addressing these concerns.