Companies that are listed on stock exchanges in India will soon start looking for women directors for their boards. India’s capital market regulator, Securities and Exchange Board of India (Sebi), recently approved a proposal to make it mandatory for listed companies to have at least one woman director on their boards. Companies have till 1 October to do so. According to a study by Prime Database, two-thirds of the companies listed on National Stock Exchange of India Ltd do not have even one woman director on their boards.

Though these companies might face some difficulty in finding women directors as there are relatively few women in senior management roles, shareholders are likely to benefit.

A recent study by a group of researchers led by Kai Li of Sauder School of Business Office at the University of British Columbia, titled Director Gender and Mergers and Acquisitions, published in the Journal of Corporate Finance, suggests that the presence of women directors on company boards has substantial positive effects on maintaining firm value. It says the more women on a corporate board the less a company pays for its acquisitions. The study shows that the cost of a successful acquisition is reduced by 15.4% with each female director added on a board. It also reveals that each additional female director reduces the number of a company’s attempted takeover bids by 7.6%. The researchers attribute this to the fact that women tend to be less interested in pursuing risky transactions and require the promise of a higher return on investment.

The findings are significant as numerous studies have shown that mergers and acquisitions have failed to create value for shareholders.

The researchers analysed the sample of acquisition bids made by S&P 1500 companies and examined the bid premium—the difference between the final offer price and the stock price of the firm being acquired before the deal was signed. These figures were then correlated with the number of women directors on various boards. The results were significant. This should give Indian minority shareholders a reason to cheer as they have often complained of managements making imprudent decisions.

By Sunil B.S.

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