Mergers and acquisitions do better with women on the board

Corporations with women on the board do better with mergers and acquisitions, according to a new study from the Sauder School of Business at Canada’s University of British Columbia.

Kai Li, lead author of the study, titled “Director gender and mergers and acquisitions”, says:

“The prudence exhibited by women directors in negotiating mergers and acquisitions has had a substantial positive effect on maintaining firm value.”

She and her colleagues report in a recent online issue of the Journal of Corporate Finance how the more women directors a firm has, the less it pays for its acquisitions.

They note it is already known that women are less overconfident than men and they wanted to find out if this meant less overconfident female directors were less likely to overestimate merger gains.

For their study they analyzed a large number of acquisition bids made by S&P 1500 companies between 1997 and 2009.

They correlated bid premium – the difference between the final offer price and the stock price of the target firm before the deal was signed – versus the number of women directors on the board.

Cost of acquisitions reduced when women present

They found that the cost of a successful acquisition is 15.4% lower for each female director on the board.

Their analysis also shows that the number of attempted bids falls by 7.6% for each additional female director.

The authors suggest their findings support the idea that female directors help create value for shareholders – they are less interested in pursuing risky transactions and more interested in securing a promise of higher returns on investments.

Prof. Li:

“Female board members play a significant role in mitigating the empire-building tendency of CEOs through the acquisition of other companies.”

“On average, merger and acquisition transactions don’t create shareholder value, so women are having a real impact in protecting shareholder investment and overall firm performance.”

She says their findings add “fire and force” to recent calls to make it a requirement to have a minimum number of women on the boards of publicly traded firms.

An example of this was seen in October when Canada’s largest single-profession pension plan, the Ontario Teachers’ Pension Plan, asked the Ontario Securities Commission to require that by 2020, all companies listed on the Toronto Stock Exchange have at least three women on their boards of directors, or face being delisted from the exchange.