Does board gender diversity reduce ceo luck

Does board gender diversity reduce ‘CEO luck’?
Viput Ongsakula,b
, Anutchanat Jaroenjitrkamc
,
Sirimon Treepongkarunad,e
, Pornsit Jirapornf
a
NIDA Business School, National Institute of Development Administration (NIDA)
b
Securities and Exchange Commission (SEC) of Thailand
c
Thammasat Business School, Thammasat University, Bangkok, Thailand
d
University of Western Australia, Crawley, WA, Australia
e
Center of Excellence in Management Research for Corporate Governance and Behavioral
Finance, Sasin School of Management, Chulalongkorn University, Bangkok, Thailand
f
Great Valley School of Graduate Professional Studies, Pennsylvania State University, State
College, PA, USA
Abstract
We explore the role of female directors in mitigating CEO luck. CEOs are
‘lucky’ when they receive stock option grants on days when the stock price is
the lowest in the month of the grant, implying opportunistic timing. Our results
show that board gender diversity significantly deters the opportunistic timing of
option grants. The effect of board gender diversity is 17.19 percent stronger
than that of board independence in reducing CEO luck. Board gender diversity
plays an effective governance role, even more effective than board indepen-
dence does. Our results support the benefits of board gender diversity in
mitigating the agency cost.
Key words: Board gender diversity; Female directors; CEO luck; Opportunistic
timing of option grants; Corporate governance
JEL classification: M14, J16, G34
doi: 10.1111/acfi.12788
1. Introduction
There has been intense debate over the role of board gender diversity,
particularly in the recent literature. This debate spans a number of areas,
including management, finance, economics and accounting. Linnenluecke
Please address correspondence to Anutchanat Jaroenjitrkam via email: anutchanat@
tbs.tu.ac.th
© 2021 Accounting and Finance Association of Australia and New Zealand
Accounting & Finance

et al. (2017a, 2017b) highlight diversity as a future promising area of
research, while Benson et al. (2014) report corporate finance as a dominant
area in accounting and finance in the Asia Pacific region over the past
50 years. In spite of an enormous volume of research, the effect of board
gender diversity on corporate outcomes and performance remains equivocal.
Some studies suggest a favourable effect of board gender diversity on firm
performance (Carter et al., 2003; Erhardt et al., 2003; Bonn et al., 2004;
Campbell and Minguez-Vera, 2008; Julizaerma and Sori, 2012; Reguera-
Alvarado et al., 2017; Papangkorn et al., 2019). By contrast, other studies
argue for a negative effect (Shrader et al., 1997; Pelled et al., 1999; De
Andres et al., 2005; Adams and Ferreira, 2009; Carter et al., 2010; Darmadi,
2011). Yet, some studies find that board gender diversity has no significant
impact on firm performance (Rose, 2007; Wang and Clift, 2009; Marimuthu
and Kolandaisamy, 2009).
The issue of board gender diversity has attracted a great deal of attention in
Australia as well. For instance, using a sample of Australian firms, Pandey
et al. (2020) investigate the effect of board gender diversity on the cost of debt.
They argue that, to the extent that female directors are perceived as more risk-
averse by creditors, their presence on the board should result in a lower cost of
debt. Consistent with this notion, they find that firms with female directors on
the board enjoy a lower cost of debt. Using a sample of Australian firms on the
Australian Securities Exchange (ASX) between 2010 and 2014, Nadeem et al.
(2017) report that higher female representation on the board leads to more
corporate sustainability practices.
Furthermore, several studies have explored the effect of board gender
diversity in Australia on various corporate outcomes, such as earnings quality
(Strydom et al., 2017), probability of fraud (Capezio and Mavisakalyan, 2016),
firm performance (Wang and Clift, 2009; Ali et al., 2011, 2014; Chapple and
Humphrey, 2014; Vafaei et al., 2015; Galbreath, 2018), stock market liquidity
(Ahmed and Ali, 2017), continuous disclosure to the stock market (Ahmed
et al., 2017), likelihood of tax aggressiveness (Richardson et al., 2016) and
environment and social performance (Galbreath, 2011; Nadeem et al., 2017;
Biswas et al., 2018).
We contribute to the on-going debate by investigating the effect of board
gender diversity on a specific outcome, i.e. ‘CEO luck’. CEOs are ‘lucky’ when
they receive stock option grants on days when the stock price is the lowest in
the month of the grant, implying opportunistic timing. Prior research shows
that corporate governance plays a crucial role in mitigating CEO luck
(Bebchuk et al., 2010; Chintrakarn et al., 2013). We extend prior research by
focusing on the role of board gender diversity, an important characteristic of
the board that has not been investigated before in this context. The
opportunistic timing of option grants has attracted enormous attention in
the literature and has spawned a large number of related studies (Yermack,
1997; Aboody and Kasznik, 2000; Collins et al., 2005; Lie, 2005; Heron and
2 V. Ongsakul et al./Accounting & Finance

Lie, 2007; Narayanan and Seyhun, 2008). The Securities and Exchange
Commission (SEC) also launched an investigation on this issue.
It has been previously observed that female directors may be tougher
monitors than their male counterparts (Papangkorn et al., 2019). For instance,
Adams and Ferreira (2009) report that firms with a high percentage of female
directors are associated with stronger CEO turnover sensitivity, fewer board
attendance problems, and better board monitoring. Board gender diversity is
also associated with more transparent information disclosure (Gul et al., 2011).
Furthermore, board gender diversity leads to better oversight of management
that improves the quality of earnings (Srinidhi et al., 2011). In conclusion,
gender diversity on the board improves board monitoring quality and thus
enhances corporate governance control (Papangkorn et al., 2019). For these
reasons, we hypothesise that board gender diversity mitigates the opportunistic
timing of option grants. In other words, board gender diversity reduces
‘CEO luck’.
Our empirical results show that board gender diversity reduces the
opportunistic timing of option grants significantly. To put it in perspective,
we find that the effect of board gender diversity in reducing CEO luck is
actually stronger than the effect of board independence, which has been the
dominant measure of board quality. In particular, the effect of board gender
diversity is 17.19 percent stronger than the effect of board independence. To
alleviate endogeneity concerns such as the omitted variable, simultaneity and
measurement error biases, we execute an instrumental variable (IV) analysis
and propensity score matching.
Our instrument is the average percentage of female directors of firms located
in the same zip code, excluding firm i. Our instrument is motivated by
Knyazeva et al. (2013), who find that board composition is determined by the
local director pool. Because firms located in the same location share the same
female director pool, their board gender diversity should be correlated. Our
instrumental variable analysis confirms that board gender diversity mitigates
CEO luck significantly. Furthermore, our analysis based on propensity score
matching similarly confirms the results. While not impossible, it is unlikely that
our results are driven by endogeneity.
The rest of this paper is organised as follows. Section 2 briefly reviews the
related literature. Section 3 presents the sample and the data description.
Section 4 reports and discusses the results, and Section 5 concludes the paper.
2. Review of the related literature
Managers are expected to put their own interest aside and maximise
shareholders’ interests. According to agency theory, managers’ self-interests
may not be aligned with the interests of all stakeholders, causing conflicts over
priorities between shareholders and their agents. The disputes between
shareholders and their managers could result in lower firm performance or
V. Ongsakul et al./Accounting & Finance 3

financial costs to the firm, known as an agency cost. Board diversity facilitates
the monitoring role and could potentially mitigate this agency cost.
The existing literature on board diversity documents how women’s skills
can improve the monitoring and advisory roles. Female directors may make
different board decisions from their male counterparts due to demographic
characteristics (Ahern and Dittmar, 2012; Dang et al., 2014), experience and
expertise (Singh et al., 2008), and personal traits like risk aversion (Croson
and Gneezy, 2009). Studies supporting better monitoring and advisory roles
by women are ample. For example, Francoeur et al. (2008) suggest that
women can offer a different perspective on complex issues, improving the
informational biases in strategy formulation and problem solving. In
addition, women are more likely to show participative leadership, encourage
collaboration (Eagly, 1997), offer ideas in debating complex issues (Ingley
and Van der Walt, 2005), hold firms accountable to a higher level of ethical
standards (Pan and Sparks, 2012) and play active roles in pursuit of their
duty (Virtanen, 2012). Further, Fondas and Sassalos (2000) document that
at least one female on the board affects female’s influential power on board
decisions, while Konrad et al. (2008) indicate that more than three women
on the board increases female power. The number of females on the board
is also associated with more board development evaluation (Nielsen and
Huse, 2010), with a better oversight of management reports, with improved
earnings quality (Srinidhi et al., 2011) and with a greater level of public
disclosure (Ben-Amar et al., 2017). Based on the above arguments and
findings, female directors are more likely to have a stronger oversight and
better monitoring role than their male counterparts.
The role of luck has gained attention in recent scholarly discussions with
the aim of explaining the role of the CEO in firm performance (Liu and De
Rond, 2016). Luck and skills are the two major components contributing to
firm performance. Traditionally, the majority of existing papers justify the
idea that CEO compensation and performance rely only on CEO skills to
explain the performance differences among firms (Denrell, 2004). Challeng-
ing this idea, recent empirical studies focus more on CEO luck, rather than
CEO skills, as producing observable superior performance (Henderson et al.,
2012; Denrell et al., 2014). These studies seem to indicate that unanticipated
situations beyond the CEO’s control can actually enable CEOs to contin-
uously outperform their competitors, regardless of their skills. This stream
of thought supports a provocative discussion around the idea of executive
performance and compensation (Quigley et al., 2017). Regarding this issue, a
few studies have concluded that CEO compensation signifies a failure of the
underlying principal-agent models, as well as a failure in corporate
governance (Bebchuck et al., 2009; Goergen and Renneborg, 2011), in
addition to the calls for the reformation of managerial compensation by
Kandel (2009). Not only do lucky CEOs show signs of weak corporate
governance, lucky CEOs also invest less in corporate social responsibility

(CSR) measures. They view CSR investments as depriving the free cash flow
within the firm that they could otherwise exploit (Jiraporn and Chintrakarn,
2013).
Consistent with the view above, some studies provide evidence that CEO
compensation is related to the market performance where the firm has good
performance when the market performs well but not when the market performs
poorly. Bertrand and Mullainathan (2001) show that CEOs are compensated as
much for luck as for their skills, where they describe ‘luck’ as the portion of
firm performance predictable from exogenous market factors beyond the
CEO’s control. They find that CEO total compensation is sensitive to the
average industry performance.
Supporting the findings by Bertrand and Mullainathan (2001), Kim et al.
(2017) control for CEO skills to the degree that luck can be used to explain
the difference in firm performance across the CEOs. They observe that more
than 95 percent of the differences in firm performance outcomes between the
good performing and the average performing firms are attributable to luck,
with the CEOs being equally skilled. The evidence indicates that more
attention should be paid to the role of unanticipated and uncontrollable
changes on firm performance. Following the idea of failure in corporate
governance by Bebchuck et al. (2009) and Goergen and Renneborg (2011),
Chintrakarn et al. (2013) explored the effect of the overall quality of
corporate governance on CEO luck by broadening the governance metrics to
include factors such as audit, state laws, boards, ownership and director
education. The findings show that stronger governance diminishes CEO
luck. An improvement in governance quality by one standard deviation
reduces CEO luck by 14.77–21.06 percent.
It should be noted that CEOs are ‘lucky’ when they receive stock option
grants on days when the stock price is the lowest in the month of the grant. This
opportunistic timing of CEO luck is a sign of agency costs, where agents’ self-
interests may overshadow those of shareholders. Given the monitoring and
advisory roles of a gender-diverse board, we hypothesise that firms with more
female directors are likely to have a lower level of ‘CEO luck’.
3. Sample and data description
The data on ‘lucky’ CEOs are from Bebcheck et al. (2010). The data on board
characteristics, including board gender diversity, are from the Institutional
Shareholder Services (ISS) database. We exclude firms in the financial and
utility industries as they are subject to different regulations than regular firms.
The final sample consists of 3,493 firm-year observations from 1996 to 2005.1
1
Due to regulatory changes around 2006, option backdating is no longer possible. That
is why our sample period ends in 2005.

Our measure of board gender diversity is the percentage of female directors
on the board. Our dependent variable is CEO luck, which is equal to one if the
CEO is given option grants on days when the stock price is lowest in the grant
month, and zero otherwise. We include several control variables as follows:
board size (the number of directors on the board), board independence (the
percentage of independent directors), firm size (natural log of total assets),
profitability (ROA), leverage (total debt/total assets), capital investments
(capital expenditures/total assets), intangible assets (R&D and advertising
expense/total assets), and cash flow (free cash flow/total assets). To account for
possible variations across time and industries, we include year and industry
fixed effects (based on the first two digits of firms’ standard industrial
classification (SIC)).
Table 1 displays the summary statistics. In terms of CEO luck, 12.6 percent
of CEOs are ‘lucky’, obtaining option grants on days when the stock price is the
lowest in the month of the grant. On average, only 7.73 percent of directors are
female. The average percentage of independent directors is 64.413 percent. The
average board has 8.722 directors. Table 1 also presents several firm charac-
teristics.
Table 1
Descriptive statistics
Mean SD Median 25th 75th
CEO luck 0.126 – – – –
Board gender diversity 7.733 8.897 7.690 0.000 12.500
Board independence 64.413 17.609 66.67 54.55 77.78
Board size 8.722 0.250 8.000 7.000 10.000
Total assets 3,372 1,307 1,022 480 2,556
Profitability 0.023 0.208 0.050 0.012 0.087
Leverage 0.222 0.189 0.215 0.051 0.339
Capital expenditures/Total assets 0.060 0.061 0.042 0.023 0.075
R&D/Total assets 0.039 0.068 0.006 0.000 0.058
Advertising/Total assets 0.011 0.030 0.000 0.000 0.006
Free cash flow/Total assets 0.089 0.103 0.089 0.045 0.139
This table reports summary statistics for all variables included in this paper. The sample
consists of 3,493 firm-year observations over the period 1996–2005. CEO luck is equal to one
if the CEO is given option grants on days when the stock price is lowest in the grant month,
and zero otherwise. Board gender diversity is the percentage of female directors on the board.
Board independence is the percentage of independent directors on the board. Board size the
number of directors on the board. Total assets is reported in millions. ROA is return on
assets, representing profitability. Leverage is defined as the ratio of total debt to total assets.
Capital investments or growth is measured as the ratio of capital expenditures to total assets.
Intangible assets are the ratio of R&D to total assets and the ratio of advertising expense to
total assets. Cash flow is defined as the ratio of free cash flow to total assets.

4. Results
4.1. Main regression analysis
Table 2 shows the logistic regression results. The standard errors are
clustered at the firm level. The dependent variable is the CEO luck dummy.
Column (1) presents the result of the logistic regression. The baseline results
show that board gender diversity exhibits negative and significant coeffi-
cients. The results thus confirm our hypothesis that female directors improve
board monitoring quality and mitigate the opportunistic timing of option
grants. Our result is consistent with those in prior studies that document a
beneficial role of board gender diversity (Carter et al., 2003; Erhardt et al.,
2003; Bonn et al., 2004; Campbell and Minguez-Vera, 2008; Papangkorn
et al., 2019).
It should be noted that the coefficient of independent directors is also
negative and significant, consistent with the findings in prior research that
board independence hinders the opportunistic timing of option grants
(Bebchuck et al., 2010). In fact, the magnitude of the coefficient of board
gender diversity is larger than that of board independence. To make a
more accurate comparison, we calculate the standardised coefficients for
board gender diversity and board independence, which turn out to be
0.0791 and 0.0655 respectively. So, while board independence has been
the dominant measure of board quality, board gender diversity appears to
deter the opportunistic timing of option grants more effectively than board
independence does. Based on the standardised coefficients, Figure 1 shows
the relative effects of board gender diversity and board independence on
CEO luck. The effect of board gender diversity is 17.19 percent stronger
than the effect of board independence ((0.0791 0.0655)/0.0791) Board
gender diversity seems to play an effective governance role, at least, in this
context.
It could be argued that our results may be driven by unobservable
heterogeneity. One approach to control any unobservable characteristics that
remain constant over time is to run a firm-fixed-effects analysis, which captures
only the variations over time of the variables. However, our dependent variable
exhibits little variation over time, making it challenging to execute a firm-fixed-
effects regression. Therefore, we rely on an alternative method, where we add
the 1-year lagged value of CEO luck as a control variable. The logic is that both
CEO luck at time t and time t 1 are influenced by the same time-invariant
unobservable characteristics. By including this lagged value, we control for any
possible omitted variables that remain constant over time. Column (2) of
Table 2 shows the regression result where the coefficient of board gender
diversity remains negative and significant. Finally, as a further robustness
check, we execute a random-effects regression in column (3) and continue to
find that female directors reduce CEO luck.

Table 2
The effect of board gender diversity on CEO luck
(1) (2) (3)
Logit Logit Random-effects logit
CEO luck CEO luck CEO luck
Board gender diversity 0.017** 0.021* 0.016**
( 2.234) ( 1.809) ( 2.127)
Board independence 0.007** 0.007 0.007**
( 2.102) ( 1.499) ( 2.238)
Ln (Board size) 0.359 0.044 0.355
( 1.331) (0.110) ( 1.286)
Ln (Total assets) 0.023 0.046 0.018
(0.415) (0.609) (0.326)
Profitability 0.045 0.537 0.036
( 0.189) (1.399) ( 0.144)
Leverage 0.029 0.946** 0.050
( 0.085) (2.074) ( 0.148)
Capital expenditures/Total assets 0.111 1.869 0.250
( 0.097) (1.071) ( 0.216)
R&D/Total assets 1.400 2.111 1.371
(1.371) (1.511) (1.474)
Advertising expense/Total assets 0.982 1.222 1.168
( 0.562) (0.484) ( 0.552)
Free cash flow/Total assets 0.079 0.709 0.107
(0.123) ( 0.729) (0.176)
CEO luck (t 1) 0.556***
(2.868)
Constant 0.952 0.724 0.955
( 0.717) ( 0.534) ( 0.719)
Year fixed effects Yes Yes Yes
Industry fixed effects Yes Yes Yes
Observations 3,485 1,508 3,485
Pseudo R2
4.60% 6.52% –
This table reports the baseline logistic regression, where the dependent variable is CEO luck
and the key variable of interest is board gender diversity. CEO luck is equal to one if the CEO
is given option grants on days when the stock price is lowest in the grant month, and zero
otherwise. Board gender diversity is the percentage of female directors on the board. Control
variables include board independence, firm size (defined as the natural logarithm of total
assets), the natural log of board size, profitability (ROA), leverage, capital investments, the
ratio of R&D to total assets, the ratio of advertising expense to total assets and the ratio of
free cash flow to total assets. The sample consists of 3,493 firm-year observations over the
period 1996–2005. Column (1) presents the baseline result, column (2) exhibits the results
when 1-year lagged CEO luck is included, and column (3) shows the results when we consider
the random effects.

4.2. Instrumental variable (IV) analysis
To ensure that our results are robust and are not driven by endogeneity, we
execute an instrumental variable analysis. This approach helps alleviate the
endogeneity biases that can be attributed to reverse causality, unobserved
heterogeneity and possible measurement errors. Knyazeva et al. (2013) find that
firms tend to recruit directors locally. Firms located close by share the same
local director pool and exhibit similarity in board composition. We exploit this
insight from Knyazeva et al. (2013) and argue that firms located in the same
geographic area should exhibit similar board gender diversity as they share the
same local pool of female directors.
-0.08
-0.07
-0.06
-0.05
-0.04
-0.03
-0.02
-0.01
0
% Female Directors % Independent Directors
Figure 1 Relative effects of female directors and independent directors on CEO luck.
This figure presents the relative effects of board gender diversity and board independence on CEO
luck, which is calculated from the standardised coefficients from the baseline logistic regression. The
result shows that the effect of board gender diversity is 17.19 percent stronger than that of board
independence.

Our instrumental variable is the average percentage of female directors of all
firms located in the same 3-digit zip code, excluding firm i.2
We thus exploit the
variation in board gender diversity across the zip codes. Because zip codes are
designed to maximise efficiency in mail delivery, they are not related to
corporate outcomes or policies. Zip code assignments are thus likely exogenous
to firm characteristics (Jiraporn et al., 2014; Chintrakarn et al., 2015, 2017).
Table 3 shows the results of our instrumental variable analysis.3
Model (1) is
the first-stage regression, where board gender diversity is regressed on the
average percentage of female directors in the surrounding firms in the same zip
code, excluding firm i, and the control variables. The coefficient of the
instrumental variable is positive and significant. As expected, the average
percentage of female directors in the same area exhibits significant explanatory
power, consistent with the results in Knyazeva et al. (2013). Model (2) is the
second-stage regression, where board gender diversity is instrumented from the
first-stage regression. The coefficient of instrumented board gender diversity is
negative and significant. So, our IV analysis reinforces the conclusion that
board gender diversity significantly deters the opportunistic timing of option
grants. We conduct a Wald test of exogeneity. The Chi-squared statistic is
significant, suggesting that it is appropriate to use an instrumental variable
analysis.
As a robustness check, we adopt an alternative instrumental variable, i.e. the
average percentage of female directors of all firms in the same state, excluding
firm i. Models (3) and (4) are the first-stage and second-stage regressions
respectively. Again, the results remain similar. It is unlikely that our conclusion
is driven by endogeneity.
4.3. Propensity score matching (PSM)
To further ensure that our results are robust, we execute propensity score
matching (PSM). We divide the sample into four quartiles using board gender
diversity. We classify the observations in the top quartile where board gender
diversity is the highest as our treatment group. For each observation in the
treatment group, we identify an observation in the control group (the other
three quartiles) that is most similar using eight firm characteristics (the eight
control variables in the regression analysis). Our treatment and our control
firms are therefore nearly identical in every observable dimension, except for
the degree of board gender diversity. To the extent that board gender diversity
2
Managers may have some influence over the board of directors of their own firm.
However, it is unlikely that they have any influence over the boards of the other firms
located in the area. Therefore, the degree of board gender diversity of all firms in the
same area, excluding firm i, should be exogenous.
3
To prevent any mechanical relationship, we require that there be at least three
companies in each zip code in the IV analysis here.

Table 3
An instrumental variable (IV) analysis
(1) (2) (3) (4)
Board gender diversity CEO luck
Board gender
diversity CEO luck
Board gender diversity
(zip code-average)
0.191***
(5.245)
(instrumented)
0.080*** 0.087**
( 2.717) ( 2.312)
(state-average)
0.246***
(3.583)
% independent directors 0.068*** 0.003 0.070*** 0.003
(6.489) (0.906) (6.613) (0.921)
Ln (Board size) 5.256*** 0.244 5.495*** 0.297
(6.438) (0.936) (6.723) (0.952)
Ln (Total assets) 1.293*** 0.090* 1.272*** 0.099*
(8.167) (1.756) (8.004) (1.668)
ROA 1.511* 0.155 1.586* 0.167
(1.860) (1.017) (1.945) (1.085)
Total debt/Total assets 0.152 0.119 0.021 0.110
( 0.140) ( 0.544) (0.020) ( 0.507)
Capital expenditures/
Total assets
1.868 0.119 1.288 0.120
( 0.527) (0.170) ( 0.362) (0.174)
R&D/Total assets 6.233** 1.285** 6.759** 1.320**
(2.129) (2.322) (2.296) (2.429)
Advertising expense/
Total assets
24.253*** 0.717 25.747*** 1.015
(3.853) (0.421) (4.076) (0.545)
Free cash flow/Total
assets
4.719** 0.190 4.554** 0.242
(2.426) (0.464) (2.332) (0.564)
Constant 27.650*** 2.732*** 28.053*** 2.929***
( 11.430) ( 3.069) ( 11.564) ( 2.763)
Year fixed effects Yes Yes Yes Yes
Industry fixed effects Yes Yes Yes Yes
This table reports the results of an instrumental variable analysis. Columns (1) and (3) present
the first-stage regressions that use the average percentage of female directors in the firms
within the same zip code excluding firm i, and the average percentage of female directors of all
firm in the same state excluding firm i, respectively. Columns (2) and (4) present the second-
stage regressions of columns (1) and (3), respectively. The dependent variable is CEO luck
and the key variable of interest is board gender diversity. CEO luck is equal to one if the CEO
is given option grants on days when the stock price is lowest in the grant month, and zero
otherwise. Board gender diversity is the percentage of female directors on the board. Control
variables include board independence, firm size (defined as the natural logarithm of total
assets), the natural log of board size, profitability (ROA), leverage, capital investments, the
ratio of R&D to total assets, the ratio of advertising expense to total assets and the ratio of
free cash flow to total assets. Robust t-statistics are in parentheses. ***p < 0.01, **p < 0.05,
*p < 0.1.

does not matter, the treatment and the control firms should exhibit a similar
degree of CEO luck.
To verify that our PSM is successful, we run the following diagnostic
tests. Panel A of Table 4 shows the results of a logistic regression analysis
predicting the probability of being included in the treatment group. Model
Table 4
Propensity score matching (PSM)
Panel A: PSM diagnostics
(1) (2)
Pre-match Post-match
treatment treatment
% independent directors 0.019*** 0.004
(4.855) ( 0.813)
Ln (Board size) 0.307 0.398
(1.053) (1.093)
Ln (Total assets) 0.245*** 0.045
(4.213) ( 0.614)
ROA 0.090 0.156
(0.282) ( 0.343)
Total debt/Total assets 0.429 0.145
( 1.283) ( 0.315)
Capital expenditures/Total assets 2.891** 1.622
( 2.574) (0.920)
R&D/Total assets 0.074 0.839
(0.054) (0.574)
Advertising expense/Total assets 9.472*** 1.399
(5.233) (0.732)
Free cash flow/Total assets 2.213*** 0.215
(3.217) ( 0.228)
Constant 4.885*** 0.383
( 7.144) ( 0.468)
Observations 3,493 1,678
Pseudo R2
0.0625 0.00392
Panel B: The effect of board gender diversity on CEO luck (PSM)
(1)
CEO luck
Board gender diversity 0.021**
( 2.191)
% independent directors 0.013***
( 2.659)
Ln (Board size) 0.262
(0.639)
(continued)

(1) is for the entire sample (pre-match). Several variables carry significant
coefficients, showing that the treatment and the rest of the sample are
different along several dimensions. In particular, the treatment firms have
more independent directors, are larger, have less capital investments, spend
more on advertising and have more free cash flows. These significant
differences in firm characteristics may potentially complicate our empirical
tests. Model (2) is the logistic regression after propensity score matching is
executed (post-match). None of the coefficients in Model (2) are significant.
Table 4 (continued)
Panel B: The effect of board gender diversity on CEO luck (PSM)
(1)
CEO luck
Ln (Total assets) 0.017
( 0.216)
ROA 0.392
( 0.744)
Total debt/Total assets 0.275
( 0.490)
Capital expenditures/Total assets 3.414
(1.349)
R&D/Total assets 0.347
(0.213)
Advertising expense/Total assets 1.458
( 0.572)
Free cash flow/Total assets 0.060
(0.057)
Constant 1.919
( 1.353)
Year fixed effects Yes
Industry fixed effects Yes
Observations 1,607
Pseudo R2
0.0671
This table reports the results of a regression after applying PSM. Panel A presents the results
of a logistic regression of the pre-PSM sample, shown in column (1), and that of the post-
PSM sample, shown in column (2). Panel B reports the results of a logistic regression on the
PSM sample. The dependent variable is CEO luck and the key variable of interest is board
gender diversity. CEO luck is equal to one if the CEO is given option grants on days when the
stock price is lowest in the grant month, and zero otherwise. Board gender diversity is the
percentage of female directors on the board. Control variables include board independence,
firm size (defined as the natural logarithm of total assets), the natural log of board size,
profitability (ROA), leverage, capital investments, the ratio of R&D to total assets, the ratio
of advertising expense to total assets and the ratio of free cash flow to total assets. Robust
z-statistics are in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1.

Our treatment and control firms are therefore statistically indistinguishable,
indicating that our PSM is successful.
Panel B of Table 4 shows a logistic regression based on the propensity-
score-matched sample. The coefficient of board gender diversity remains
significantly negative. Even when we carefully control for all observable
characteristics using PSM, we still find that board gender diversity signifi-
cantly deters the opportunistic timing of option grants. Our results are
unlikely driven by unobservable heterogeneity and appear to be quite robust.
5. Conclusions
We contribute to the debate on the role of female directors by exploring the
effect of board gender diversity on the opportunistic timing of option grants.
Our results demonstrate that board gender diversity leads to a significantly
lower propensity for the CEO to be ‘lucky’, suggesting that board gender
diversity deters the opportunistic timing of option grants. Our results strongly
reinforce the argument that female directors are more effective monitors and
play a vital corporate governance role (Adams and Ferreira, 2009; Gul et al.,
2011; Srinidhi et al., 2011; Papangkorn et al., 2019).
Crucially, our results show that the effect of board gender diversity in
preventing the opportunistic timing of option grants is actually stronger than the
effect of board independence. This is particularly noteworthy as board indepen-
dence has traditionally been the dominant measure of board quality in the
literature, whereas board gender diversity has been given a relatively much
weaker emphasis. Our results imply that more attention should be directed at
board gender diversity as it may play a stronger governance role than even board
independence does. Finally, we carefully address possible endogeneity and
execute several robustness checks, including an instrumental variable analysis
and propensity score matching. All the robustness checks yield consistent results.
While not impossible, our results are unlikely driven by endogeneity.
References
Aboody, D., and R. Kasznik, 2000, CEO stock option awards and the timing of corporate
voluntary disclosures, Journal of Accounting and Economics 29, 73–100.
Adams, R. B., and D. Ferreira, 2009, Women in the boardroom and their impact on
governance and performance, Journal of Financial Economics 94, 291–309.
Ahern, K. R., and A. K. Dittmar, 2012, The changing of the boards: the impact on firm
valuation of mandated female board representation, The Quarterly Journal of
Economics 127, 137–197.
Ahmed, A., and S. Ali, 2017, Boardroom gender diversity and stock liquidity: evidence
from Australia, Journal of Contemporary Accounting and Economics 13, 148–165.
Ahmed, A., R. M. Monem, D. Delaney, and C. Ng, 2017, Gender diversity in corporate
boards and continuous disclosure: evidence from Australia, Journal of Contemporary
Accounting and Economics 13, 87–107.

Ali, M., C. T. Kulik, and I. Metz, 2011, The gender diversity-performance relationship
in services and manufacturing organizations, International Journal of Human Resource
Management 22, 1464–1485.
Ali, M., Y. L. Ng, and C. T. Kulik, 2014, Board age and gender diversity: a test of
competing linear and curvilinear predictions, Journal of Business Ethics 125, 497–512.
Bebchuk, L., A. Cohen, and A. Ferrell, 2009, What matters in corporate governance?,
The Review of Financial Studies 22, 783–827.
Bebchuk, L., Y. Grinstein, and U. Peyer, 2010, Lucky CEOs and lucky directors, The
Journal of Finance 65, 2363–2401.
Ben-Amar, W., M. Chang, and P. McIlkenny, 2017, Board gender diversity and
corporate response to sustainability initiatives: evidence from the Carbon Disclosure
Project, Journal of Business Ethics 142, 369–383.
Benson, K., R. Faff, and T. Smith, 2014, Fifty years of finance research in the Asia
Pacific Basin, Accounting and Finance 54, 335–363.
Bertrand, M., and S. Mullainathan, 2001, Are CEOs rewarded for luck? The ones
without principals are, The Quarterly Journal of Economics 116, 901–932.
Biswas, P. K., M. Mansi, and R. Pandey, 2018, Board composition, sustainability
committee and corporate social and environmental performance in Australia, Pacific
Accounting Review 30, 517–540.
Bonn, I., T. Yoshikawa, and P. H. Phan, 2004, Effects of board structure on firm
performance: a comparison between Japan and Australia, Asian Business and
Management 3, 105–125.
Campbell, K., and A. Minguez-Vera, 2008, Gender diversity in the boardroom and firm
financial performance, Journal of Business Ethics 83, 435–451.
Capezio, A., and A. Mavisakalyan, 2016, Women in the boardroom and fraud: evidence
from Australia, Australian Journal of Management 41, 719–734.
Carter, D. A., B. J. Simkins, and W. G. Simpson, 2003, Corporate governance, board
diversity and firm value, The Financial Review 38, 33–53.
Carter, D. A., F. D’Souza, B. J. Simkins, and W. G. Simpson, 2010, The gender and
ethnic diversity of US boards and board committees and firm performance, Corporate
Governance: An International Review 18, 396–414.
Chapple, L., and J. E. Humphrey, 2014, Does board gender diversity have a financial
impact? Evidence using stock portfolio performance, Journal of Business Ethics 122,
709–723.
Chintrakarn, P., P. Jiraporn, and J. C. Kim, 2013, The effect of corporate governance on
CEO luck: evidence from the Institutional Shareholder Services (ISS), Finance
Research Letters 10, 169–174.
Chintrakarn, P., P. Jiraporn, and S. Tong, 2015, How do powerful CEOs view corporate
risk-taking? Evidence from the CEO pay slice (CPS), Applied Economics Letters 22,
104–109.
Chintrakarn, P., P. Jiraporn, N. Jiraporn, and T. Davidson, 2017, Estimating the effect
of corporate social responsibility on firm value using geographic identification, Asia-
Pacific Journal of Financial Studies 46, 276–304.
Collins, D. W., G. Gong, and H. Li, 2005, The effect of the Sarbanes-Oxley Act on the
timing manipulation of CEO stock option awards, Working paper. Available at:
http://dx.doi.org/10.2139/ssrn.850564
Croson, R., and U. Gneezy, 2009, Gender differences in preferences, Journal of
Economic Literature 47, 448–474.
Dang, R., A. F. Bender, and M. J. Scotto, 2014, Women on French corporate board of
directors: how do they differ from their male counterparts?, Journal of Applied
Business Research 30, 489–508.

Darmadi, S., 2011, Board diversity and firm performance: the Indonesian evidence,
Corporate Ownership and Control 8, 450–466.
De Andres, P., V. Azofra, and F. Lopez, 2005, Corporate boards in OECD countries:
size, composition, functioning and effectiveness, Corporate Governance: An Interna-
tional Review 13, 197–210.
Denrell, J., 2004, Random walks and sustained competitive advantage, Management
Science 50, 922–934.
Denrell, J., C. Fang, and C. Liu, 2014, Perspective – chance explanations in the
management sciences, Organization Science 26, 923–940.
Eagly, A. H., 1997, Sex differences in social behavior: comparing social role theory and
evolutionary psychology, American Psychologist 52, 1380–1383.
Erhardt, N. L., J. D. Werbel, and C. B. Shrader, 2003, Board of director diversity and
firm financial performance, Corporate Governance: An International Review 11, 102–
111.
Fondas, N., and S. Sassalos, 2000, A different voice in the boardroom: how the presence
of women directors affects board influence over management, Global Focus 12, 13–22.
Francoeur, C., R. Labelle, and B. Sinclair-Desgagn
e, 2008, Gender diversity in
corporate governance and top management, Journal of Business Ethics 81, 83–95.
Galbreath, J., 2011, Are there gender-related influences on corporate sustainability? A
study of women on boards of directors, Journal of Management and Organization 17,
17–38.
Galbreath, J., 2018, Is board gender diversity linked to financial performance? The
mediating mechanism of CSR, Business and Society 57, 863–889.
Goergen, M., and L. Renneboog, 2011, Managerial compensation, Journal of Corporate
Finance 17, 1068–1077.
Gul, F. A., B. Srinidhi, and A. C. Ng, 2011, Does board gender diversity improve the
informativeness of stock prices?, Journal of Accounting and Economics 51, 314–338.
Henderson, A. D., M. E. Raynor, and M. Ahmed, 2012, How long must a firm be great
to rule out chance? Benchmarking sustained superior performance without being
fooled by randomness, Strategic Management Journal 33, 387–406.
Heron, R. A., and E. Lie, 2007, Does backdating explain the stock price pattern around
executive stock option grants?, Journal of Financial Economics 83, 271–295.
Ingley, C., and N. Van der Walt, 2005, Do board processes influence director and board
performance? Statutory and performance implications, Corporate Governance: An
International Review 13, 632–653.
Jiraporn, P., and P. Chintrakarn, 2013, How do powerful CEOs view corporate social
responsibility (CSR)? An empirical note, Economics Letters 119, 344–347.
Jiraporn, P., N. Jiraporn, A. Boeprasert, and K. Chang, 2014, Does corporate social
responsibility (CSR) improve credit ratings? Evidence from geographic identification,
Financial Management 43, 505–531.
Julizaerma, M., and Z. M. Sori, 2012, Gender diversity in the boardroom and firm
performance of Malaysian public listed companies, Procedia – Social Behavioral
Sciences 65, 1077–1085.
Kandel, E., 2009, In search of reasonable executive compensation, CESifo Economic
Studies 55, 405–433.
Kim, S., R. Eberhart, and D. E. Armanios, 2017, What makes a winner? Toward
resolving the role of luck and skill in sustained CEO performance. Available at: http://
www.seoyoungkim.com/papers/KimEberArman_luck.pdf
Knyazeva, A., D. Knyazeva, and R. W. Masulis, 2013, The supply of corporate
directors and board independence, The Review of Financial Studies 26, 1561–1605.
Konrad, A. M., V. Kramer, and S. Erkut, 2008, The impact of three or more women on
corporate boards, Organizational Dynamics 37, 145–164.
16 V. Ongsakul et al./Accounting Finance

Lie, E., 2005, On the timing of CEO stock option awards, Management Science 51, 802–
812.
Linnenluecke, M. K., J. Birt, X. Chen, X. Ling, and T. Smith, 2017a, Accounting
research in Abacus, AF, AAR, and AJM from 2008–2015: a review and research
agenda, Abacus 53, 159–179.
Linnenluecke, M. K., X. Chen, X. Ling, T. Smith, and Y. Zhu, 2017b, Research in
finance: a review of influential publications and a research agenda, Pacific-Basin
Finance Journal 43, 188–199.
Liu, C., and M. De Rond, 2016, Good night, and good luck: perspectives on luck in
management scholarship, Academy of Management Annals 10, 409–451.
Marimuthu, M., and I. Kolandaisamy, 2009, Ethnic and gender diversity in board of
directors and their relevance to financial performance of Malaysian companies,
Journal of Sustainable Development 2, 139–148.
Nadeem, M., R. Zaman, and I. Saleem, 2017, Boardroom gender diversity and
corporate sustainability practices: evidence from Australian Securities Exchange listed
firms, Journal of Cleaner Production 149, 874–885.
Narayanan, M. P., and H. N. Seyhun, 2008, The dating game: do managers designate
option grant dates to increase their compensation?, The Review of Financial Studies
21, 1907–1955.
Nielsen, S., and M. Huse, 2010, The contribution of women on boards of directors:
going beyond the surface, Corporate Governance: An International Review 18, 136–
148.
Pan, Y., and J. R. Sparks, 2012, Predictors, consequence, and measurement of ethical
judgments: review and meta-analysis, Journal of Business Research 65, 84–91.
Pandey, R., P. K. Biswas, M. J. Ali, and M. Mansi, 2020, Female directors on the board
and cost of debt: evidence from Australia, Accounting and Finance 60, 4031–4060.
Papangkorn, S., P. Chatjuthamard, P. Jiraporn, and S. Chueykamhang, 2019, Female
directors and firm performance: evidence from the Great Recession, International
Review of Finance, https://doi.org/10.1111/irfi.12275.
Pelled, L. H., K. M. Eisenhardt, and K. R. Xing, 1999, Exploring the black box: an
analysis of work group diversity, conflict, and performance, Administrative Science
Quarterly 44, 1–28.
Quigley, T. J., C. Crossland, and R. J. Campbell, 2017, Shareholder perceptions of the
changing impact of CEOs: market reactions to unexpected CEO deaths, 1950–2009,
Strategic Management Journal 38, 939–949.
Reguera-Alvarado, N., P. D. Fuentes, and J. Laffarga, 2017, Does board gender
diversity influence financial performance? Evidence from Spain, Journal of Business
Ethics 141, 337–350.
Richardson, G., G. Taylor, and R. Lanis, 2016, Women on the board of directors and
corporate tax aggressiveness in Australia: an empirical analysis, Accounting Research
Journal 29, 313–331.
Rose, C., 2007, Does female board representation influence firm performance? The
Danish evidence, Corporate Governance: An International Review 15, 404–413.
Shrader, C. B., V. B. Blackburn, and P. Iles, 1997, Women in management and firm
financial performance: an explorative study, Journal of Managerial Issues 9, 355–372.
Singh, V., S. Terjesen, and S. Vinnicombe, 2008, Newly appointed directors in the
boardroom: how do women and men differ?, European Management Journal 26, 48–
58.
Srinidhi, B., F. A. Gul, and J. Tsui, 2011, Female directors and earnings quality,
Contemporary Accounting Research 28, 1610–1644.
Strydom, M., H. H. A. Yong, and M. Rankin, 2017, A few good (wo)men? Gender
diversity on Australian boards, Australian Journal of Management 42, 404–427.
V. Ongsakul et al./Accounting Finance 17

Vafaei, A., K. Ahmed, and P. Mather, 2015, Board diversity and ﬁnancial performance
in the Top 500 Australian ﬁrms, Australian Accounting Review 25, 413–427.
Virtanen, A., 2012, Women on the boards of listed companies: evidence from Finland,
Journal of Management and Governance 16, 571–593.
Wang, Y., and B. Clift, 2009, Is there a ‘business case’ for board diversity?, Pacific
Accounting Review 21, 88–103.
Yermack, D., 1997, Good timing: CEO stock option awards and company news
announcements, The Journal of Finance 52, 449–476.
18 V. Ongsakul et al./Accounting Finance

Does board gender diversity reduce ceo luck

Recommended

Recommended

More Related Content

Similar to Does board gender diversity reduce ceo luck

Similar to Does board gender diversity reduce ceo luck (20)

Recently uploaded

Recently uploaded (20)

Does board gender diversity reduce ceo luck