2. Table of Contents
1. INTRODUCTION & HYPOTHESIS DEVELOPMENT
2. LITERATURE REVIEW &THEORETICAL FRAMEWORK
3. RESEARCH METHODOLOGY
4. RESULTSAND DISCUSSION
5. CONCLUSION AND RECOMMENDATIONS
3. Abstract
This study investigates the impact of board gender diversity and female audit committees on
firm performance in Pakistan, characterized by weak corporate governance. Analyzing panel
data of 155 firms listed on PSX from (2016-2021), The findings of the study indicate a
positive and significant association between board gender diversity and firm performance.
However, a negative impact is observed when diversity is measured solely by the percentage
of female directors. Firms with three or more female directors show enhanced positive
effects on firm performance, emphasizing the importance of a critical mass of female
representation. The study also identifies a positive correlation between female members on
audit committees and firm financial performance, suggesting recommendations for
promoting diversity and advocating for corporate governance reforms in Pakistani firms. our
results remain robust after controlling for possible endogeneity problems and utilizing
alternative measures for board gender diversity.
4. 1. INTRODUCTION
Background of the study
Gender diversity refers to the presence of individuals of different genders, including both men and
women.
Gender diversity in corporate boards has gained attention from regulatory bodies and policymakers
globally, especially following high-profile scandals like Enron and WorldCom. Many countries have
introduced reforms to promote female representation on boards, including mandatory quotas and
recommendations. Despite these efforts, challenges such as the "glass ceiling" persist, hindering women's
advancement to top management roles.
Pakistan doesn't have a specific law to impose gender diversity in board rooms. According to the
Companies Act 2017 Pakistan incorporates regulations to promote gender diversity.
Thus, it is of great importance to consider this issue from an ethical as well as economic point of view.
5. Significance of the study
The study on gender diversity and firm performance holds significant implications both economically and ethically.
Economically, research suggests that diverse teams, including gender diversity, tend to make better decisions and
achieve superior financial performance.
Ethically, examining gender diversity in leadership roles addresses broader societal concerns about equity and
inclusion. It promotes a more inclusive corporate culture and reflects a commitment to fairness, equality, and social
responsibility
Problem statement
To fill this gap we make two important contributions
This study is the latest to empirically explore the relationship between gender diversity on firm performance in the
context of the developing economy of Pakistan.
Secondly, we make an important contribution by adding the role of female audit committees and critical mass, by
employing robust econometrics techniques.
6. LITERATURE REVIEW
The relationship between board gender diversity and performance is inconclusive. According to, Liu et al.
(2014), Nguyen et al. (2015), and Brahma et al. (2020) document that there is a positive and significant
relationship. Similarly, Liu et al. (2013) found a significant positive association in a sample of Chinese listed
companies. Isidro and Sobral (2014) determined a positive relationship in a sample of European firms.
In the context of the USA, Owen Temesvary and Carolyn Wiley (2018) point out the U-shaped relationship in
analyzing Fortune 500 firms. Low et al. (2015) documented that the increasing number of female directors
positively impacted firm performance, particularly within a sample of Asian firms including Hong Kong,
South Korea, Malaysia, and Singapore. Cecília Carmo (2018) female presence is positively related to ROA
when there are at least two women on the Board, or when the proportion of women is, at least, 20%.
7. Hypothesis development
H1. BGD (measured by the percentage of women) has a positive impact on the firm performance of companies
listed on the Pakistan Stock Exchange.
H2. BGD (measured by the percentage of women) has a negative impact on the firm performance of companies
listed on the Pakistan Stock Exchange.
H3. There is a positive association between female audit committees and firm performance.
H4. There is a negative association between female audit committees and firm performance
H5. The critical mass or the absolute number of 3 women positively affects firm performance.
H6. The critical mass or the absolute number of 3 women negatively affects firm performance.
8. METHODOLOGY ANDTHEORETICAL FRAMEWORK
This research has conducted by applying quantitative approach, involving the collection of data
in the form of numerical values.
The research data is based on non-financial firms of Pakistan during the period of 2016 to 2021.
The financial data for the companies has collected through Pakistan stock exchange website
and state bank of Pakistan publish financial statements excluded information from financial
institution banking and insurance companies.
SampleandData
9. 4.THEORETICAL FRAMEWORK
A theoretical framework in research is a conceptual framework that provides a foundation and
structure for understanding, analyzing, and interpreting the relationships between variables or
concepts within a study.
The fundamental objective of agency theory is to address the conflict of interest between
principals (e.g., shareholders) and agents (e.g., managers) The corporate board fulfills several
responsibilities such as, overseeing and addressing these conflicts. According to Fama, E.F. argue
that effective board supervision and monitoring can mitigate these conflicts in organization.
Conversely, weak corporate governance creates agency cost and negatively affect firm
performance. Core, J.E., W.R. Guay (2006).
10. Second, Resource dependency theory posits that organizations depend upon on the provision of external
resources Hillman, A.j., et al.(2000). Therefore, organizations need to establish with external entities to ensure
their survival and success. In this particular context board gender diversity extends the company link of
communication. Furthermore, it enhances relationships with both competitors and customers. As a result, the
inclusion of women on board conveys positive signals to various stakeholders such as customers, investors, and
government Huse, M. and A. Grethe Solberg (2006).
This theory of tokenism and critical mass says that a minority group member won't have much
influence unless there's a certain number of them in the group. According to research, having one
woman on the board is considered a "token," two is seen as "presence," and three or more is called
"voice." The magic happens when there are three or more female directors on the board. Some
studies suggest that reaching a specific number of female directors is important to prevent tokenism
and ensure meaningful representation. For example, having at least three women on the board is
necessary to avoid tokenism and have a positive impact on firm performance.
11. The independent variables in this study are the board gender diversity and audit committee. The board gender
diversity will be measured by using a percentage of women and a set of three dummy variables which are
Fdummy1, Fdummy2, and critical mass. while the female audit committee is measured by the percentage of female
directors divided by total audit committee members.
In this study the dependent variable is firm performance To measure the firm performance, we used Tobin’s Q
which is market market-based performance measure defined as the sum of the market value of a company
divided by the replacement value of the firm assets.
This study will incorporate various control variables such as firm size, Ln sales, Cash hold, tangibility, and family
ownership.
Additionally, we use an instrumental variable approach for the percentage of women to know the presence of
possible endogeneity problems.
Variables
12. MODEL SPECIFICATIONAND ESTIMATION METHOD
Model 1 Y = β0 + β1 PWOMEN i,t + β2 BSIZE i,t + β3 FSIZEit + β4 FLEVGit + εi,t
Where Y = is firm performance
β0 = Intercept
β1 = coefficient
β2 BSIZE i,t Board size is control variable is measured by total number of board of directors.
β3 FSIZEit Firm size is control variable and measured by natural logarithm of the net assets.
β4 FLEVGit Firm leverage is control variable and is measured by long-term debt and total assets.
Critical mass= critical mass is moderate variable in this study.
εi,t = error term
