The push for more women on company boards is getting a boost from the results of a new study. Research shows firms that have a higher proportion of female directors on their board commit less fraud in China.
A research study by CEIBS Professor of Finance and Accounting Oliver Rui and his co-authors, Douglas Cumming of York University Schulich School of Business and Tak Yan Leung from Open University of Hong Kong, examined the impact of gender difference on corporate fraud in China.
Douglas Cumming tells VOA's Frances Alonzo what conclusions can be made from the study.
CUMMING: We examine gender diversity on boards of directors amongst companies based in China. We discovered that companies that have more gender diverse boards with up to 50% women on the board, are less likely to be involved in securities fraud. We also discovered that the market reaction to fraud from a gender diverse board is less severe. And we show that the impact of women on the board is more pronounced in industries that are traditionally dominated by males.
ALONZO: So why is that?
CUMMING: There’s two competing predictions. One is that women are more ethically sensitive than men are and a second idea is that diversity itself gives rise to lower likelihood of “group think,” if you will, and better governance and as a result, less fraud. And our data are consistent with the latter view that diversity mechanism appears to be the one that’s driving the reduction in fraud associated with a more diverse board.
ALONZO: How should companies, global companies, view this report? What should they take away?
CUMMING: Our study doesn’t look at the average performance levels, we are more concerned with mitigating the bad actors, so to speak. And as a result, the practical implications are that, a good thing, for at least in terms of a public policy lesson is that having a more diverse board can help governance, better protect investors, and improve companies and their listings.
ALONZO: So now what about in boardrooms, do you think they will be opening the doors wide so that they can let more women on the board?
CUMMING: From what we see in the data, I think that it’s unambiguously a good thing with respect to mitigating fraud. Diversity on boards is something that we think is important, has been understudied and perhaps hasn’t had enough attention in the business world and amongst regulators and policy makers. This type of evidence can be used to support women’s presence in the boardroom and encourage companies to have greater gender diversity on the board. Those are good results in promoting those issues, that’s for sure.