Women on Boards and Firm Performance: the Mediation of Employment Downsizing

Most of existent studies have directly estimated the relationship between women on boards (board composition) and firm performance. They usually overlook the mediating factors that possibly link board composition to firm performance. They rarely consider what actions a board with female directors tends to make, and how such actions affect firm performance. The purpose of this study is to examine how female board representation shapes the board's involvement in the strategy of employment downsizing, which in turn mediates the female directors' influence on firm performance. The analysis will be based on the panel data of Taiwanese manufacturing firms over 1996–2019. It can be noted that significant causality problems are contained in an econometric model with mediating variables and reverse causality, so I will mitigate the endogeneity bias by adopting appropriate dynamic panel methods and GMM estimation procedures. I contend that in Taiwanese socio-cultural context, the cognitive frames and human capital female directors bring to boards can promote the improvement of the firm's accounting-based performance, but investors' general bias against women may dilute such positive impact and lead to unfavorable market valuation of the firms with female directors. I further argue that when focusing on the indirect effect of women on boards through the mediation of employment downsizing, perhaps because female directors' leadership style, core values and preferences may bring perspectives that require the board to consider a wider variety of stakeholders, the firms with a higher fraction of female directors on the board are predicted to implement less employment downsizing, and this employee-oriented and talent-retaining strategy constitutes a stable employment policy, which will be beneficial to firm performance. It can also be predicted that this positive indirect impact on firm performance is investors' bias-free, that is, it will be reflected on both accounting-based performance and stock market performance. In sum, I expect this study to provide broader views and more findings about the role of women on boards in determining a key strategy of the firms, namely employment downsizing, and then influencing the firm performance.