Do women in the boardroom influence foreign acquisitions' premium and outcomes? Evidence from China

Abstract

This paper examines whether gender diversity influences foreign merger and acquisition (M&A) premiums and outcomes in China. Consistent with agency and resource dependence theories, we find that female directors significantly reduce the acquisition premium paid for foreign targets. We show that the market responds positively in the short‐term (measured by cumulative abnormal returns) to the announcement of foreign acquisitions by firms with greater female representation in the boardroom. We further find significant evidence that acquirers' boards comprising more female directors experience value creation and better operating synergies (measured by buy‐and‐hold abnormal returns and changes in return on assets) in the long‐term following engagement in foreign M&A deals. Interestingly, after distinguishing between female independent and executive directors, we find that our previous finding on board gender diversity can be attributable to both the monitoring (independent directors) and supervisory (executive directors) roles played by female directors. We also find evidence accords with the argument of the critical mass of female directors' representation in the boardroom. Our results are robust after controlling for endogeneity issues using instrumental variables (IV), propensity score matching (PSM), Heckman, and firm fixed‐effects methods. Overall, our findings offer additional empirical support for the global concern by regulators for improving corporate governance practices by increasing female quotas in the boardroom.