Gender Diversity on Boards and M&A Deals

Gender diversity on boards and M&A deals Loes van Hummel s4356241 Supervisor: dr. M. (Max) Visser July 2, 2018 Radboud University Nijmegen Nijmegen School of Management Master Economics Specialization: Corporate Finance and Control 1 Abstract The outnumbering of women on corporate boards has become an increasingly contentious topic in Europe and this research is contributing to the discussion by focusing on the economic consequences of board gender diversity on M&A deals. European countries implement jurisdictions for board gender quotas that has implications for firms. In the majority of cases, M&A deals are value-destroying instead of value- enhancing and one reason for this is the overconfidence of managers concerning the synergies of the acquisition. Overconfidence and risk-seeking behavior could be seen as masculine characteristics. This raises the question if the presence of women on corporate boards influences the acquisition outcomes. This research examines the effect of gender diversity on corporate boards on the bid premium and the size of the target company they acquirer. This research also takes the gender quota legislation into account. By using a sample of 641 M&A deals in Europe in the period 2003-2016 it is found that there is a negative effect between gender diversity and both the bid premium and the size of the target company. Moreover, gender diversity has an unfavorable influence on the bid premium when there is a gender quota legislation implemented in that country. Keywords: mergers and acquisitions, gender diversity, bid premium, target size, gender quota laws. 2 3 Table of Contents 1. Introduction .............................................................................................................................................................. 6 2. Literature review ...................................................................................................................................................... 9 2.1 Women on board in Europe ................................................................................................................................ 9 2.2 Gender behavioral differences in M&A deals .................................................................................................. 11 2.2.1 Overconfidence .......................................................................................................................................... 13 2.2.2 Risk aversion .............................................................................................................................................. 15 2.3 Gender and corporate acquisitions .................................................................................................................... 16 2.4 Formulation of hypotheses............................................................................................................................... 16 3. Research Method.................................................................................................................................................... 18 3.1 Data sample and description ............................................................................................................................ 18 3.2 Variables of interest ......................................................................................................................................... 18 3.2.1 Dependent variable ..................................................................................................................................... 18 3.2.2 Independent variable .................................................................................................................................. 19 3.2.3 Control variables ........................................................................................................................................ 20 3.3 Research strategy ............................................................................................................................................. 21 3.4 Regression models ........................................................................................................................................... 22 4. Results ..................................................................................................................................................................... 24 4.1 Descriptive statistics ........................................................................................................................................ 24 4.2 Variable tests .................................................................................................................................................... 27 4.2.1 Normal distribution ................................................................................................................................... 27 4.2.2 Correlation .................................................................................................................................................. 27 4.2.3 Heteroscedasticity ..................................................................................................................................... 30 4.2.3.1 Standard error testing ......................................................................................................................... 30 4.2.3.2 Cluster testing .................................................................................................................................... 30 4.3 Regression analysis ........................................................................................................................................... 33 4.4 Robustness checks ............................................................................................................................................ 35 4.4.1 Dummy variable gender diversity ............................................................................................................. 37 4.5 Additional analysis .......................................................................................................................................... 38 4.6 Summary of the results .................................................................................................................................... 40 5. Conclusion .............................................................................................................................................................. 41 5.1 Limitations ........................................................................................................................................................ 42 5.2 Directions for further research .......................................................................................................................... 43 References ................................................................................................................................................................... 44 Appendix ..................................................................................................................................................................... 48 4 Table of figures and tables Table 1: An overview of European countries that implemented a gender quota or quota characteristics .................. 10 Table 2: Variable definitions and description .............................................................................................................. 23 Table 3: Statistical description of the data .................................................................................................................. 24 Table 4: Distribution of the sample by year ................................................................................................................. 25 Table 5: Distribution of the gender diversity variable per country ............................................................................. 26 Table 6: Distribution of the sample by industry ........................................................................................................... 27 Table 7: Pearson Correlation Coefficients Matrix of the variables ............................................................................. 29 Table 8:OLS regression with robust standard error terms .......................................................................................... 31 Table 9:OLS regression with the cluster option ........................................................................................................... 32 Table 10: OLS regression ............................................................................................................................................ 34 Table 11: OLS regression with a dummy variable for gender diversity....................................................................... 36 Table 12: OLS regression with an interaction term for gender quota and board experience...................................... 39 Table A1:M&A sample with the acquirer’s industry sector…………………………………………………………………..48 Table A2: Distribution of deals per acquirer’s industry sector……………………………………………………..……….56 5 1. Introduction Women are outnumbered by men in leadership positions and this has been the subject of debate initiated by the European Commission (European Commission, 2011). In recent years, policymakers seek to diversify the board of directors of companies. In 2012, the European Commission debated legislation that would

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