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Impact of Female Directors and Board Size on Firm’s Performance:
Evidence from Textile Sector of Pakistan
Supervisor:
Asif Saeed
Govt. College University, Faisalabad.
Authors:
Ahmad Waleed
Sadia Yousaf

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Abstract
The textile sector of Pakistan is a well known textile industry in all over the world. 65 percent of
Pakistan’s earnings from foreign exchange depend upon textile industry solely. This industry has
problems relating to the corporate governance. These problems are obsolete mechanisms for
running these organizations. There is no doubt that the textile firms in Pakistan are large in size
and employment but are not so efficient as this type of large firms in all over the world. These
firms should introduce governance reforms in their systems in order to work efficiently,
effectively and make a competition with other large firms to get higher profits. In this study we
have selected eleven (11) leading textile firms. Data of each firm for five years is taken from
2008-2012. OLS Regression model is used as data analysis technique. We have made a research
in finding the relationship between firm performance (ROA, EPS) and gender diversity (female
directors). Also interpret results to find relationship between board size (BS) and Firm
performance (ROA, EPS).
Keywords: Female Directors, Firm Performance, Board Size, Corporate Governance.

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Introduction
During last ten to twenty years issues of gender diversity (Female board members) and
board size has been focused in organizations and is increasing on daily basis. Some countries
have formulated regulations for maintaining a level of female board members in firms. Even in
2005 Government of Norway has passed a regulation which describes that large firms should
maintain 40 percent female board members in total board members. In Europe more than 60
percent of top companies have a minimum of one female board director. In this research paper
we will study “If there is any relation between number of female directors, board size and
performance of firms”.
There is a remarkable study on this particular topic because in current scenario this is an
attraction for researchers. Here we will discuss about what advancements are made on this topic
till now. Latif, Shahid, Zia ul haq, Waqas & Arbab (2013) have said that board size has a
significant impact on firm’s performance while board composition has insignificant impact on
firm’s performance. Dang, Nguyen & Chi Vo (2012) studied comparatively on women on
corporate boards and firm performance. They did not find any significant relation between
gender diversity (female directors) and firm performance. Here it should be noted that they used
time series data. Erhardt et al (2003) and Carter et al (2003) resulted positive relation between
female directors and firm performance. While Shrader et al (1997) has not resulted any relation
in gender diversity and firm performance.

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Abdullah et al (2013), Bathula (2008) has also created significant and positive relation
between females on board and firm’s performance. Result positivity and negativity varies from
authors to authors and sector to sector. There can be differences in national, cultural and
geographical factors.
The study sector of our research is Textile sector in Pakistan. Pakistan is agricultural
country. Almost 60 percent of its population depends directly or indirectly on agriculture. Cotton
is produced at high level and it is major raw material for the textile industry of Pakistan. Textile
sector is as old as Pakistan and there were 3000 looms and 78000 spindles at time of
independence. Economic survey of 2008 described that there are 440 units, 8.4 million spindles
and 143 textile units are operating in this country. Textile industry is contributing 65 percent of
total foreign exchange earnings. Exports contribution of Pakistan is 1 percent of total world
exports. The reason for poor performance of Pakistan is usage obsolete technology, machinery
and absence of code of corporate governance.
Data and Methodology
Data
The sample consists of balanced panel. We have selected eleven (11) textile mills in
Pakistan for our research. Data of each company is from 2008 to 2012. All textile mills are listed
in Karachi Stock Exchange, which is the biggest stock market in Pakistan. A big care was taken
in collection of this data because most of the data from data source was manipulated. The biggest
source of data collection is annual reports of selected textile mills. Some of the data was

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excluded because the results were not as good as we wanted to prove our model. Data of a textile
mill was excluded because we did not find its data of year 2012. So, that the total sample of our
research paper is Fifty five (55). We used a total of 5 variables two of them were independent
variables, two were dependent variables and one of them is control variable. The variables are
Female Directors, Board Size, Firm Size, Earning per Share and Return on Equity. Source of
public internet is only used and each data entry is made after very careful calculations. We find
that the firms which are medium in size and having firm size of 16-17(natural log) were more
profitable than other firms.
Method
Our data interpret that in textile mills of Pakistan number of female directors are
decreased by almost eleven percent (11%) in 2012 as compared to 2008 which shows
dissatisfaction of these firms about appointment of female directors. While board size of these
firms are decreased 1.16% in 2012 as compared to 2008. The figure of 1.16% is small but it
could be increased or decreased in any future time period.
We used OLS Regressions to interpret our results. Return on Assets (ROA) and Earning per
Share (EPS) are the dependent variables, while Board Size (BS) and Female Directors (FD) are
the independent variables in our study. For data entry Microsoft Excel is used and then we used
EViews for data and model interpretation and finding favorable results.
Description Of Variables

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There are five (5) variables which are used to express the results on “Impact of Female Directors
and Board Size at Firm’s Performance in Pakistan’s Textile Industry”. All variables are
described as following:
Female Directors (FD)
It means the number of female directors in a firm’s board of directors. Data of eleven
(11) firms for five (5) years each as used for data entry. Number of total female directors is
pasted in analysis. The maximum number of female directors in the data is four (4) and
minimum is zero (0). It is so because in Pakistan there was no interest shown for making a
female director in past but now things are going to be changed. It is an independent variable.
Board Size (BS)
It refers to the total number of board of directors in a firm. It is an independent variable
of our study. Latif et al. (2013) said that board size has a significant impact on firm’s
performance. The average number of board of directors in Pakistan oriented textile firms is seven
(7). While maximum number is ten (10) and minimum number of board of directors is seven (7).
Firm Size (FS)
Raithatha & Bapat (2012) has described in their research paper that firm size (FS) has
insignificant impact on corporate governance(board size, female directors etc). This variable is
placed as a control variable in this study. Firm size is extracted by calculating Natural logarithm
of firm’s total assets.
Firm Size (FS) = Ln (Total Assets)

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For example,
If a firm’s total assets are of Rs-2,312,432 then the calculation will be as under:
FS = Ln (23,12,432)
FS = 14.6538
Return on Assets (ROA)
Singh and Davidson (2003), Eisenberg et al. (1998) has described that there is a significant
negative relation in board size and firm performance. Under light of this recommendation, Latif
et al. (2013) said that ROA is no affected by Board Size.
Return on Asset is a dependent variable which measures firm performance. ROA is calculated by
dividing “Net Income” with “Total Assets”. We can calculate it using following equation:
Return on Assets (ROA) = Net Income/Total Assets X 100
If a firm’s Net Income is 42’654 and Total Assets is 5,67,343 then Return on Assets will be:
Return on Assets (ROA) = 42,654/5,67,343 X 100
= 7.51 Percent
Earnings per Share (EPS)
EPS is aggregate earning of a firm on each of its share. It is important for company and its
investor. Because company attracts its investors by exposing it’s earning per share and investor
puts his investment in a company by analyzing the earnings of a company. Earnings per Share
can be calculated by following formula:

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Earnings per Share (EPS) = Net Income – Dividend Paid on Preferred shares
Literature Review
Carter, Simkins & Simpson (2003) has presented a strong opinion on the topic. Duality of
CEO and board chair, number of annual board meetings, age of directors, size, number of
directors, percentage of insiders, number of women directors, percentage of women, percentage
of minorities on board, number of minority directors were the key variables of this paper. They
concluded after controlling for industry, size, and other corporate governance measures, they
find positive relation between presence of women and minority on board and firm value.
Abdullah et al (2013), Bathula (2008) has also created significant and positive relation between
females on board and firm’s performance. Result positivity and negativity varies from authors to
authors and sector to sector. There can be differences in national, cultural and geographical
factors.
Smith et al. (2005) has highlighted board diversity and firm value’s relationship is dependent on
selection of variables that express performance of a company or firm. However, Adams &
Ferreira in 2004 made a conclusion of their study that presence of female directors a positive
effect on Return on equity (ROE). While, gender diversity has a negative impact at return on
assets (ROA). Lückerath-Rovers (2012), Adams & Ferreira (2009), Ararat et al.(2010) and
Erhart et al. (2003) these all researchers has proved a positive relation in performance(measured
by ROA, ROI and ROE) and board gender diversity. However, Francoeur et al. (2007), Darmadi
(2011) and Minguez Vera et al. (2010) found a significant negative relation in board gender
diversity and performance of a firm.

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Carter et al. (2002) also studied at this topic and found results that a positive relation lays
between woman director percentage and company’s performance. Gulam hussen & Santa
(2010)has studied with this topic and a huge sample 461 commercial banks of different countries
and different geographical sectors and made a conclusion that bigger the boards of directors
smaller will be the firm’s performance and also these firms have a low level of asset quality as
compared to the firms which have smaller number of directors on board.
Latif et al (2013) have said that board size has a significant impact on firm’s performance while
board composition has insignificant impact on firm’s performance. Now the question arises is
that why different authors have resulted opposite and reverse conclusions from each other
researcher. Answer is might be that every region and country of world has its own tradition,
culture, geographical exposure, norms, values, policies, regulatory authorities, and needs. It is
not compulsory that every area of world represents one type of phenomena.
Schwizer et al. (2011) has studied at the topic of our interest in 2011. They used variables of
Independent female directors, female directors, female audit committee members, size of firm,
risk faced by the firm, return on assets, return on equity, leverage and price earnings ratio.
At this stage of our research we came to argue about some questions which our research will
answer are as following:
Q.1. What is relation between firm performance and board gender diversity?
Q.2. What is relation between board size and firm’s performance?
Q.3. What is the impact of firm size on firm’s performance?
Q.4. Is ROA and EPS really represent firm’s performance?

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Results and Interpretation
Here we will discuss our key variables which are dividing in two fundamental heads:
1. Independent Variables.
2. Dependent Variables.
Independent Variables
Those variables which are not dependent on other factors but other variables are influenced by
this type of variables. In our research independent variables are as follows:
Board Size (BS), Female Directors (FD).
Dependent Variables
It is a type of variable which are affected by other factors and independent variables. In our study
these are as following:
Return on Asset (ROA), Earning per Share (EPS).
Descriptive Statistics.
Here is Table 1 which describes descriptive statistics of independent variables.
Table 1. Descriptive Statistics (Independent Variable).
Board Size(BS) Firm Size(FS) Female Directors(FD)
Mean 7.709 16.20 0.781
Median 7.000 16.19 0.000

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Descriptive statistics is very important in order to check the data and its healthiness. The
descriptive statistics of our data is good in health. This is so because from data collection to entry
each step is taken carefully. The minimum values of Board Size (BS), Firm Size (FS) and
Female Directors (FD) are 7, 11.8 and 0 respectively and maximum values are 10, 22.73 and 4
respectively. Standard deviation of BS is 0.875, FS is 2.494 and FD is 1.227. Thus the
descriptive statistics shows that data gathered is reliable and valid. Reliability and validity is
thing which a researcher and readers wanted to have in the research paper. Table 2 presents
descriptive statistics of dependent variables.
Table 2. Descriptive Statistics (Dependent Variables).
The descriptive statistics of dependent variables is also showing good results. Mean of ROA is
3.733 and EPS is 21.81. Median of ROA is 3.139 and EPS is 6.230, Std. dev. for ROA is 7.676
and EPS is 47.69.
Std. Dev. 0.875 2.494 1.227
Jarque-Bera 8.053 18.63 30.86
Maximum 10.00 22.73 4.000
Minimum 7.00 11.80 0.000
Return on Assets(ROA) Earnings per Share(EPS)
Mean 3.733 21.81
Median 3.139 6.230
Std. Dev. 7.676 47.69
Jarque-Bera 4.135 737.2
Maximum 22.74 287.7
Minimum -16.78 -32.84

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Correlations.
Table 3. Correlations between independent variables.
BS FD FS
BS 1
FD -0.284294 1
FS -0.242081 -0.342846 1
This table shows correlations between all the independent variables we used in regression model.
Correlations of independent variables are found because it shows the relationship of independent
variables and tells the direction of research either it is positive or negative. As the results are
shown in table, it can be said that independent variables have a negative correlation between
each other. The variables among which correlation is being discussed are Female directors (FD),
Board size (BS) and Firm size (FS). Here it should be noted that Firm Size (FS) is a control
variable which is added in variables to express our regression model more effectively.
Regressions.
Table 4. RegressionTable.
EPS ROA
Variables T-Statistics Coefficient Probability T-Statistics Coefficient Probability
FD
FS
BS
-5.924190
1.435630
-0.177465
-3.048443
5.516008
-0.618833
0.0000
0.1587
0.8600
-6.606944
0.649068
-0.044956
-2.725019
1.419392
-0.053138
0.0000
0.5199
0.9644
R-Squared
F-Statistics
0.603489
4.800153
0.696536
7.238979

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Note: The total sample of this research is 55 and cross-section is 11. (n = 55)
*** Significance of 0.01
** Significance of 0.05
* Significance of 0.10
Table 4 provides statistical evidence of fitness of model. If we discuss relation of Earning per
share (EPS) with our independent variables it shows R-squared of 0.603489 and F-statistics of
4.800153. F-statistics is a measure which describes overall fitness of model. Its minimum value
should be 3.84 and F-statistics value of our model is more than this so that our model is
considered as fit. R-squared value of our model is more than 60 percent, which means that the
model is effectively describing our variables.
The relation of Return on Assets (ROA) with independent variables is healthy also and shows
R-squared of 0.696536 which means that model is explaining the variables effectively and F-
statistics is 7.238979 that show that model we have used if fit. Here is the regression equation:
Firm Performance (FP) = α + β FD + β BS + β FS + β ROA + β EPS + ε
This regression model is OLS Regression and is explaining all the variables in light of Firm
Performance (FP). In order to differentiate results of both dependent variables (return on assets
and earnings per share) we can split regression equation into two regression equations. Those
equations are as under:
Return on Asset (ROA) = α + β FD + β BS + β FS + ε
Earnings Per Share (EPS) = α + β FD + β BS + β FS + ε

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As the model describes that there are two dependent variables which are used to measure firm
performance. These variables are now effecting separately on independent variables.
Hypotheses
There are two hypotheses found in our study and advancements made by previous researchers
that,
H1: There is a significant negative relation between firm’s performance and Female Directors
(FD).
H2: There is insignificant relation between Board Size and Firm’s performance.
H1: There is a significant negative relation between firm’s performance and Female Directors
(FD).
After meaningful discussion and careful study it is found that female directors have a negative
relation with firm performance. As research concluded by Francoeur et al. (2007), Darmadi
(2011) and Minguez Vera et al. (2010)and some other authors which found a significant negative
relation in board gender diversity(Female Directors FD) and performance of a firm. A very
comprehensive research was made by Adams & Ferreira in 2009 they also found a negative and
significant relation between Female Directors (FD) and performance of a firm(ROA).
H2: There is not any significant relation between Board Size and Firm’s performance.
In the study we have found an insignificant relation between Board Size (BS) and firm
performance. We did not find any relationship in BS and Firm Performance. Latif et al. (2013)

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said that board size has a significant impact on firm’s performance but the sector they chose was
sugar mill sector and our sector was textile sector in Pakistan, Lipton & Lorsch (1992), Jensen
(1993) and Tornyeva & Wereko (2012) all of them has created a negative relation between
Board Size and Firm Performance.
Conclusion
In research paper there are different heads under them discussion has been made. Board Size
(BS) and Female Directors (FD) are independent variables. Return on Assets (ROA) and Earning
per Share (EPS) are dependent variables which are used to measure the performance of the firm.
Performance of company means the financial performance of that particular firm which includes
different ratios and method to measure. So, that we have added ROA and EPS as the dependent
variables which are measuring the performance of the firm or company. One control variable is
also included which is Firm Size (FS). We obtained data of eleven (11) listed textile mills in
Pakistan. Data of each company is gathered for five (5) years so, that the sample size was fifty
five (55). We have constituted two hypotheses. First says that, “there is a significant and negative
relation between the gender diversity (female directors FD) and firm’s financial performance.”
while, second hypothesis elaborates that, there is not any significant relation between firm’s
performance(FP) and board size(BS).The reason for this is that there is no positive or negative
change in our results in change of each of them on each other. So, both of these (BS and FP)
have zero influence on each other. While the female directors (FD) and firm’s performance
(ROA, EPS) are negatively correlated with each other. Simply there is a significant negative
relation between firm performance and female directors. In this study we studied all the
dependent and independent variables carefully in order to find relationship between female

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directors and board size with firm performance. OLS Regressions was used to interpret and make
a result of the given data. So, we found no significant relation between Board Size (BS) and Firm
Performance (ROA, EPS), while there is a negative and significant relation between Firm
performance and Female Directors.

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