Seema Chandani
Institute of Business Management, Pakistan
E-mail: snaushad.chandani@gmail.com
Mashal Mabood
Institute of Business Management, Pakistan
E-mail: mashalmabood@gmail.com
Waqas Mahmood
Institute of Business Management, Pakistan
E-mail: waqas@sharepointexperts.org
Submission: 19/09/2017
Revision: 06/03/2018
Accept: 19/03/2018
ABSTRACT
Code
of Corporate governance around the globe encourage the appearance of women in corporate
board. The objective of this research is to observe the association between
board gender diversity and its effects on bank performance which is based on
evidence of Pakistan. The sample of this research comprises of 10 listed banks of Pakistan. Secondary
data has been collected of 12 years from 2005 to 2016. Bank financial
performance is measured through ROA and ROE. Analysis is done through
descriptive statistics and linear regression are applied on the data through
different tests such as Heteroscedasticity, Stationary of the data,
Multicollinearity is tested through Dickey fuller and Augmented Dickey fuller
approaches. The study summarizes that there is an insignificant association
between board gender diversity and banks performance in Pakistan, it concludes
that this study does not support the developed hypothesis that woman on board
has insignificant effect on bank financial performance. The finding of this
study recommends to use a large sample of banks with difference methodologies such as surveys, case studies and qualitative
research to find out the causes of the question that why the women on board
decreasing the financial performance.
Keywords: Corporate Governance, Gender Diversity, Women on
Board Number, Bank Financial Performance
1. INTRODUCTION
1.1.
Background
of study
Corporate governance is a term which
defined by various researchers in different ways. The firms who are operating
according to the principles of corporate governance are more powerful in terms
of profitability for their shareholders. Board of directors is one of the
essential mechanisms of corporate governance. Board of director plays a vital role in accomplishing the
objectives of the growth of company as well as caring the interests of company
shareholders.
Right selection of the board of
directors is essential part as they involved in strategic decision making as
well as policy formulation of the company in this competitive age (VISHWAKARMA, 2017). The Board of directors (BOD) perform
various task for instance: responsible for supervising and controlling
managers, appoint and decide remuneration of senior management (NAHAR ABDULLAH, 2004).
Further research found higher ratio
of female in board increases the productivity and profitability of
organization, thus positive performance effects of board gender diversity (VON BERGEN et al., 2005). The induction of women director is essential in some
countries such as Norway and Spain has made it mandatory to have at least 40%
women director for all listed companies, similarly Malaysia has imposed to have
at least 30% women director on board (MOHAMED et al., 2015).
This is evident that women are
different from men in terms of education background, experience and expertise,
personality which mainly considers all these traits in decision making of firm (LIAO et al., 2015). Additionally women also consider as risk takers,
compassionate, more dedicated and hard-working then men counterpart (ADAMS; FUNK, 2012).
Lee et al. (2014) also explained that women is the source of well interactive
with human resource and assist companies in retaining and developing
relationship with investors, stakeholders and customers which leads to progress
in the companies. We have hardly seen women director as independent,
non-executive director and executive director. There are many women director in
board who belongs to the controlling family and several businessmen grasp their
family directorship just to get hold of their family business to carry further
till next generation.
1.2.
Objectives
The purpose of the paper is to
observe the effects of women director on bank performance level in Pakistan.
This study adds various contributions to the present literature as there is
lack of practical facts of the association between board gender diversity and
bank performance in Pakistan, thus we deliver different approach on the
participation of women director in the Pakistan banking sector through
considering the presence of women director on board brings more benefits to
bank.
This research increases a large
variety of data of the 10 listed banks of Karachi Stock exchange from 2005 to
2016. Worldwide researchers have strived to build the association between the
ratios of women on board and firms’ performance. The organization financial
efficiency is determined by different constraints such as return on assets ROA,
return on equity ROE.
This paper supports the exiting
literature in two diverse ways: first we provide different approach on the
participation of women director in the Pakistan banking sector by empower the
accurate placing of women director on the corporate board.
1.3.
Problem
Statement
In corporate sector of Pakistan, the
subject of board gender diversity has become broadly discussed in present time.
Rising number of women on boardroom has raised several queries about firm’s
non-financial and financial efficiency. In light of above, many scholars are in
process of studying about the effect of board gender diversity on banks
profitability in several countries.
1.4.
Hypothesis
development
One of the reason for low
participation rate of women on board particularly in Pakistan’s corporate
environment is due to gender discrimination where women consider as weaker
leader than men counterpart (DOLDOR et al., 2012), the other reason is women are less likely to pursue their
career because of their high family and cultural obligation and boundaries.
Consequently firms perceived that, to have women director will affect their
performance negatively (GOLDIN; KATZ, 2008).
However, in banking sector, the most
preference is given to women on job due to many inherited benefits. It has also
noticed that over the past few years the more women are on the senior
management positions in banking industry. At this point, we generate our first
hypothesis:
·
H1: Higher the number of women on boards
the better is the performance of banking sector.
·
H2: The presence of woman on board, the
better the efficiency of bank performance.
·
H3: Gender diversity improves the banking
performance as measured through financial performance indicators that are ROA
and ROE.
2. LITERATURE REVIEW AND THEORETICAL BACKGROUND
This study investigates two element
of board composition – first is independent director and other is women
director that is limited to gender diversity. We initiate with theorizing of
how women director may affect banking efficiency and performance and then we examine
the influence of independent director of banking performance.
2.1.
Women
director and bank performance
We discuss three major theories that
provides the huge gender diversity that may improve board performance and
contribute better in bank performance: agency theory, theory of resource
dependency and third is gender role theory (TERJESEN et al., 2009a).
An agency theory explained that
women brings balanced view on complicated problems which could maintain
accurate information in problem solving and strategic decision making process (FRANCOEUR et al., 2008).
In addition, with greater number of
women particularly more than one woman or more than that on board improves and
persuade on board’s decision making process (FONDAS; SASSALOS, 2000). There is evidence that shows greater
number women in board have huge level of development program, evaluation (NIELSEN; HUSE, 2010) and monitor the management reporting
that increase earnings value of organization (SRINIDHI et al., 2011).
The second theory is resource dependency
as women directors bring quality resources, commitments and unique relations in
board. The evidence shows that women have diversified network through which she
understand and capture certain markets and customers as compare to male
counterparts (IBARRA, 1993).
This theory also suggested that the
greater number of board diversity is better the strategic decision and
monitoring role of board and greater amount of women in banks boards enhance
the diversity of knowledge, perspective, opinion, problem solving which improves the formulation of polices and
strategy and decision making process as well as controlling and monitoring
function of board (WESTPHAL; MILTON, 2000).
Furthermore the induction of women
independent director on boardroom brings better performance of bank in terms of
monitoring and controlling function as the BOD could be able to oppose the
authority of the higher management in the decision and control them from
mishandling the power (HILLMAN et al., 2002).
The gender role theory described the
individual gender that uses approach which is associated with their gender that
expected to be apparent improved by others and this theory also explained that
how men and women are different in terms of behaviors tactics with respect
influences qualities and communication. For instance women are anticipated to
more feminine part such as courtesy, understanding and flexible which expresses
to better management of uncertain circumstances. Conversely men are likely to
have more aggressive and assertive role (EAGLY, 1987; EAGLY et al., 1995).
In this study we expect the finding
of our research will gives a significant signal to the policy makers to enhance
the women selection rates in the corporate board in order to strengthen bank
performance.
2.2.
Gender
Diversity and bank performance
Existing research furnish mixed
proof in terms of the connection between board gender diversity and banks
performance. Agency theory describe that the affirmative impact of gender
diversity on the organization efficiency and according to that theory, gender
diversity is the essential corporate governance practice of organizations (GALLEGO-ÁLVAREZ et al., 2010) and diversified gender board perform a
better controlling and monitoring tool of organization which resulting decrease
the agency cost with agency issues hence, enhance financial performance of
organizations.
Agency theory also implies as
shareholder as principal and manager as agent, they do not take interest to
share general purposes of companies with each other (JENSEN; MECKLING, 1976). This includes in conflict of interest
which extent a huge problem to shareholders as the managers have right to use
the internal information of company which makes them to track and use for their
own benefits and interest.
These agent-principal conflicts of
interest direct to formation of corporate governance regulations which
integrate the task of board of directors as they perform the controlling,
supervisory and counseling roles for decision making by top management which
support the shareholder benefits that improve the efficiency of organization
particularly banks because failure of the board of director has higher negative
consequence to banks which direct to financial disorder and crises (CLAESSENS; YURTOGLU, 2013).
Conversely, several theoretical
arguments enlightened the greater benefits will be achieved while women
contribution in board, thus gender diversity also focus on societal pressure
and certain quota sets by government regulations, thus forcing by government to
fulfill certain quota and societal pressure, companies to induct incapable and
incompetent women director hiring for their board that effects the efficiency
of companies (BANTEL; JACKSON, 1989).
Agency theory is used to explain a
positive effect of gender diversity of board for organizations performance. As
per the perspective of agency theory, board gender diversity is essential
system of corporate governance for organizations (GALLEGO-ÁLVAREZ et al., 2010).
Hence, board gender diversity can be
system that helps to reduce the cost associated with agency problems (REGUERA-ALVARADO et al., 2017a). Previous literature indicates that
powerful corporate governance can decrease agency problems, thus enhances the
financial performance and improve board controlling and monitoring (CARTER et al., 2003).
One of the research investigation
suggests that the composition of board influence the results of organizations,
hence the outcomes are mixed in terms of influence of female (TERJESEN et al., 2009b) and independent (DALTON et al., 1998) directors.
Research has futile to investigate
board independence formation in a gender diversity structure despite of taking
interest by academics, policymakers and practitioners. Researchers have call
for more exploration of relationship of board gender diversity outcome(ADAMS et al., 2015).
Literature entails various reasons
for taking women as a board member of firm which increase variety of board
members that could broaden team of experience, professional and expert for the
boardroom to complete its tasks for shareholders favors (BURGESS; THARENOU, 2002). Another study described that female
board member are more expected to actively participate in board activities as
compare to the male counterpart (VIRTANEN, 2012) and also display collaboration and
leadership skills (EAGLY; JOHNSON, 1990).
As per Daily et al. (1999) almost 60% women involve in purchases in the US, as this is
the essential part of any business and it shows that females are responsive and
active observer of the market conditions and can bring a more positive approach
as they thoroughly understand the customers requirement.
First study conducted on gender
diversity in Pakistan, (YASSER, 2012) explained the facts from 2008 to 2010 of all companies on
KSE index 100 that only 25% organizations consisted of at least one woman in
board and the percentage of woman CEO was found 33.3%. The most important
argument in support of management diversity is that more alternatives of decisions
come up with more diversified board of directors.
Corporate governance is mainly
concerned with the progress of systems and carries out the responsibility of
corporate management and Increase Company’s efficiency (BRAMMER et al., 2007). Board gender composition has generally concern on two
elements: economical and ethical concerns. According to economical perspective
that the preference is best possible way rather than depraved. Conversely, as
per the ethical aspect, an inadequate representation of women in board could be
considered as bias. This viewpoint claims that it is immoral to eliminate woman
director from the top echelons organization only because of gender (BRAMMER et al., 2007).
The upper echelons theory is
familiar with more diversified senior management teams, thus more resourceful
ideas generated with connected to improved advancement in organizations (JACKSON, 1992). Further researcher explained that more women particular on
top positions are appointed, thus it increases the external pool of talent for
board members.
Zahra
and Stanton (1988) observed the
association between gender diversity and financial competence of firms, they
studied on 100 fortune 500 companies and applied ROE return on equity, EPS
earning per share, profit, sale profit margin, dividend per share as
performance constructs and found insignificant relationship between both
financial competence of firms and gender diversity. In contract, (DARMIDI, 2010) found that existence of women on top position is negative
effect on firms performance.
In
addition, one of the researches explore that the ratio of women on senior
executive position is positively effect on firms performance, even after
manipulative for several qualities, this affect depends on the talent of women
on senior position (SMITH et al., 2006).
2.3.
Theoretical
Framework
Figure
1:
Theoretical Framework
In light of above literature review,
we came up with the following constructs, one independent variable that is
women on board number is taken as dummy variable, value is 1 if a woman is
there in board in banking sector, otherwise 0 if there is no woman on board.
The dependent variable consists of two constructs that are return on assets ROA
and return on equity ROE that shows the bank efficiency with reference to
financial performance. We have taken current assets, earning per share and
board size as control variables to measure the bank performance.
3. METHODOLOGY
3.1.
Sample
Size and Data Collection
The
sample of this research comprises of 10 listed bank of Pakistan. Secondary data
has been collected of 12 years from 2005 to 2016. The data of return on assets,
return on equity, current assets, earning per share, board size and number of
women on board are collected from annual reports and financial statements of
banks available on their websites. This sector was selected because most of the
women are in favor to join banks for constant time as compare to other sector
and most of the market share belongs to these banks.
3.2.
Bank
Performance
There are several financial
performance indicators such as return on investment, Tobin’s Q, return on
equity, return on assets and return on sales. These are classified into two
types market based performance and financial performance. In this research
paper we are using ROA and ROE as dependent variables. These two performance
ratios are used to show the capability of accounting based income and return to
shareholders (SHRADER et al., 1997).
The return on assets indicates that
ability and power of the managers to use the assets of company which related to
shareholders. The management of the
company is inefficient if the rate of ROA is lower. ROA is broadly used to
measure the efficiency of companies in previous studies of gender diversity.
As per agency theory, management is
used to mistreat earning and misused profits, resulting left with fewer returns
for shareholders (UJUNWA et al., 2012). The second financial
performance is ROE which is also generally use to measure firms performance,
shows return on shareholder investments (ERHARDT et al., 2003).
3.3.
Board
gender diversity
Woman
director represents the independent variable, we have taken women on board
number to measure board gender diversity. For women on board number, the total
number of women that were present in that year in their respective bank are
taken.
Three other independent variables
have been taken in this study i.e. current assets, earning per share and board
size and their impact on bank’s financial performance is analyzed. One of the
study argue that corporate governance research discovered that there is a
opposing relationship between board size and companies performance (HERMALIN; WEISBACH, 2001), however there is a affirmative relationship
between board size and Tobin’s Q which is market based performance (YERMACK, 1996).
3.4.
Model
Specification
Model
A
LNTROAit = α0 + β1 LNTCRit + β2
TEPSit + β3 BSIZEit + β4 TWOBNit + еit
Model
B
LNTROEit = α0 + β1 LNTCRit + β2
TEPSit + β3 BSIZEit + β4 TWOBNit + еit
Table 1: Definition of Variables
Variable |
Definition |
LNTROA |
TROA
ratio is calculated by dividing net income by average total assets. Then
taken natural logarithm of ROA |
LNTROE |
TROE
ratio is calculated by dividing net income by shareholders equity. Then taken
natural logarithm of ROE |
LNTCR |
TCR
is calculated by dividing current assets by current liabilities. Then taken
natural log of CR |
EPS |
EPS
is calculated by dividing profit by common outstanding share of bank |
BSIZE |
Number
of board of directors in banks |
WOBN |
Number
of women director on board of banks |
α |
Intercept
Coefficient |
β |
Coefficient
of Slope |
е |
Error
Term |
4. ANALYSIS
4.1.
Descriptive
Statistics
The summary of descriptive
statistics of the used variable is displayed in table 2:
Table 2: Descriptive Statistics
|
Minimum |
Maximum |
Mean |
Std.
Deviation |
Skewness |
Kurtosis |
Current Ratio |
4.07 |
4.29 |
4.19 |
0.09 |
-0.09 |
-1.82 |
Earnings per share |
6.98 |
11.17 |
8.37 |
1.49 |
1.22 |
0.09 |
Board Size |
8.4 |
9.1 |
8.75 |
0.24 |
-0.23 |
-1.07 |
Women on Board number |
0 |
2 |
1.08 |
0.79 |
-0.16 |
-1.26 |
Natural Log of Return on
Asset |
0 |
0.69 |
0.31 |
0.18 |
0.58 |
0.64 |
Natural Log of Return on
Equity |
2.28 |
3.34 |
2.83 |
.29 |
.10 |
.15 |
The
table 2 presents a summary of the descriptive statistics of the study. The
average ROA and ROE are 0.31and 2.83 respectively. Out of the 10 banks taken
for the study, 30% have one or more women directors on their boards.
The number of woman director in
banks is low as mean value is 1.08 ranging from 0.00 to 2.00 as compare to many
European countries such as, Spain, Greece, Switzerland, Belgium (“GMI (Governance Metrics
International) (2013), “GMI ratings’ 2013 women on boards survey”, available
at:
http://www.communitybusiness.org/library/other_publication/gmiratings_wob_032012.pd
f (accessed 15 August 2014). - Google Scholar,” n.d.).
The results indicate that the mean
value of the number of directors for the banking industry BSIZE is 8.75 from
minimum 8.4 to a maximum 9.1. The average of current ratio is 4.19 ranging from
4.07 to 4.29. The results shows that the mean value of earning per share is
8.37 from minimum 6.98 to a maximum 11.17.
4.2.
Simple
Linear Regression Model
Simple linear regression model is
used to check the regression of the linear equation and also analyze the
performance of the given variables in the model. Eviews 5 is applied to run the
regression between ROA, ROE with WOBN, CR, EPS and BSIZE to analyze their
association and examine the presence of women on board improve the banks
performance of Pakistan.
Table 3: Regression Analysis –
Model A
Dependent Variable: LNROA |
|
|
||
Method: Least Squares |
|
|
||
Date: 09/03/17 Time:
16:06 |
|
|
||
Sample: 2005 2016 |
|
|
||
Included observations: 12 |
|
|
||
|
|
|
|
|
|
|
|
|
|
Variable |
Coefficient |
Std.
Error |
t-Statistic |
Prob. |
|
|
|
|
|
|
|
|
|
|
C |
-7.571631 |
4.294729 |
-1.763005 |
0.1213 |
LNCR |
2.188822 |
1.138319 |
1.922855 |
0.0959 |
EPS |
0.119738 |
0.089033 |
1.344877 |
0.2206 |
BSIZE |
-0.261957 |
0.364008 |
-0.719646 |
0.4951 |
WOBN |
0.013624 |
0.081552 |
0.167063 |
0.8720 |
|
|
|
|
|
|
|
|
|
|
R-squared |
0.358039 |
Mean dependent var |
0.313333 |
|
Adjusted R-squared |
-0.008796 |
S.D. dependent var |
0.184457 |
|
S.E. of regression |
0.185266 |
Akaike info criterion |
-0.239711 |
|
Sum squared resid |
0.240265 |
Schwarz criterion |
-0.037666 |
|
Log likelihood |
6.438264 |
F-statistic |
0.976022 |
|
Durbin-Watson stat |
1.778275 |
Prob(F-statistic) |
0.477604 |
Table
3 indicates that only board size is inversely related to return on assets,
other than that all are positively related to return on assets as when a women
enter in board, bank performance increases with return on assets. Earnings per
share, board size and women on board are statistically insignificant, therefore
we do not reject Hₒ. Only current assets are significant.
The
C is intercept with a value of -7.57, as this is the initial point of return on
equity, keeping other variables constant.R2 Value is 0.35%, F statistics is low
i.e. 0.97% which is less than 2 and probability is 0.47% which is > 0.05.
This indicates the overall insignificance of the model.
Table 4: Regression Analysis –
Model B
Dependent Variable: LNROE |
|
|
||
Method: Least Squares |
|
|
||
Date: 09/03/17 Time:
16:14 |
|
|
||
Sample: 2005 2016 |
|
|
||
Included observations: 12 |
|
|
||
|
|
|
|
|
|
|
|
|
|
Variable |
Coefficient |
Std. Error |
t-Statistic |
Prob. |
|
|
|
|
|
|
|
|
|
|
C |
-10.53493 |
6.095882 |
-1.728205 |
0.1276 |
LNCR |
4.162195 |
1.615715 |
2.576071 |
0.0367 |
EPS |
0.273835 |
0.126372 |
2.166892 |
0.0669 |
BSIZE |
-0.728338 |
0.516668 |
-1.409682 |
0.2015 |
WOBN |
0.025237 |
0.115754 |
0.218020 |
0.8336 |
|
|
|
|
|
|
|
|
|
|
R-squared |
0.492502 |
Mean dependent var |
2.830000 |
|
Adjusted R-squared |
0.202504 |
S.D. dependent var |
0.294464 |
|
S.E. of regression |
0.262964 |
Akaike info criterion |
0.460739 |
|
Sum squared resid |
0.484051 |
Schwarz criterion |
0.662784 |
|
Log likelihood |
2.235565 |
F-statistic |
1.698292 |
|
Durbin-Watson stat |
1.656929 |
Prob(F-statistic) |
0.253622 |
Table
4 shows that the board size is inversely related to return on equity, however,
current ratio and earning per share and women on board are positively related
to return on equity as when a woman enter in board performance of bank
increases with return on equity. Board size and women on board are
statistically insignificant, conversely EPS and Current ratio are significant,
therefore we reject Hₒ.
The
C is intercept with a value of -10.53, as this is the initial point of return
on equity, keeping other variables constant. R2 Value is 0.49%, F statistics
value is low i.e. 1.69% which is less than 2 and probability is 0.25% which is
> 0.05. This indicates the overall insignificance of the model.
4.3.
Correlation
Following table shows the relationships though correlation
Table 5: Correlation Analysis
|
BSIZE |
LNCR |
EPS |
LNROA |
LNROE |
WOBN |
BSIZE |
1.00 |
|
|
|
|
|
LNCR |
-0.13 |
1.00 |
|
|
|
|
EPS |
0.60 |
-0.73 |
1.00 |
|
|
|
LNROA |
0.10 |
0.40 |
-0.02 |
1.00 |
|
|
LNROE |
0.06 |
0.32 |
0.09 |
0.91 |
1.00 |
|
WOBN |
-0.17 |
0.32 |
-0.47 |
-0.001 |
-0.08 |
1.00 |
Table
5 shows the Current ratio and Board size, Women on board number and Board size,
Earning Per share (EPS) and Current Ratio, Return on Assets (ROA) and Earning
per share (EPS), Women on board number and earning per share (EPS), Women on
board number and return on Assets (ROA), Women on board number and Return on
Equity (ROE) are inversely correlated to each other.
Earnings per share (EPS) and Board
size, Return on Assets (ROA) and Board size, Return on Equity (ROE) and Board
size, Return on Asset and Current Ratio, Return on Equity (ROE) and Current
Ratio, Women on Board number and Current Ratio, Return on equity (ROE) and
Earning Per share (EPS), Return on Equity (ROE) and Return on Assets (ROA) are
positively correlated.
Return on Equity (ROE) and Return on
Assets (ROA) have the strongest correlation (r=0.91) followed by Earning per share
(EPS) and Board Size (r=0.6). The weakest correlation is between Women on board
number and Return on Asset (ROA) (r=0.001).
4.4.
Heteroscedasticity
Heteroscedasticity is when the variance of the error term is not
constant. When the data suffers from heteroscedasticity, the
OLS estimators become less efficient thus leading to lesser reliability of the
statistical results.
4.4.1. Graphical
Method
The Error term is represented by ERR
and is the Residual term in the data. The ERRSQ is also taken by taking square
of the term ERR. Then we see graph to detect heteroscedasticity. We can plot
histogram for ERSQ.
Figure 2:
Histogram of Error term |
Figure 3:
Histogram of Square of Error term |
The variance of ERRSQ is different
for different observations. The variations in the histogram shows
heteroscedasticity.
4.4.2. Breush
Pagan Test
Now we took ERRSQ as dependent
variable and ran the regression with independent and control variables to check
the results.
Table 6: Breush Pagan Test
Dependent Variable: ERRSQ |
|
|
||
Method: Least Squares |
|
|
||
Date: 09/03/17 Time:
17:38 |
|
|
||
Sample: 2005 2016 |
|
|
||
Included observations: 12 |
|
|
||
|
|
|
|
|
|
|
|
|
|
Variable |
Coefficient |
Std. Error |
t-Statistic |
Prob. |
|
|
|
|
|
|
|
|
|
|
C |
-0.503422 |
1.154522 |
-0.436044 |
0.6759 |
LNCR |
0.163739 |
0.306006 |
0.535082 |
0.6092 |
EPS |
-0.005106 |
0.023934 |
-0.213338 |
0.8371 |
BSIZE |
-0.008430 |
0.097854 |
-0.086148 |
0.9338 |
WOBN |
-0.023068 |
0.021923 |
-1.052231 |
0.3277 |
|
|
|
|
|
|
|
|
|
|
R-squared |
0.231211 |
Mean dependent var |
0.040338 |
|
Adjusted R-squared |
-0.208097 |
S.D. dependent var |
0.045312 |
|
S.E. of regression |
0.049804 |
Akaike info criterion |
-2.867114 |
|
Sum squared resid |
0.017363 |
Schwarz criterion |
-2.665070 |
|
Log likelihood |
22.20269 |
F-statistic |
0.526307 |
|
Durbin-Watson stat |
3.167333 |
Prob(F-statistic) |
0.720810 |
|
|
|
|
|
|
Table
6 indicates that the value of F stats is 52.6 and probability is 72.1 % which
is more than 10%, therefore, we do not reject Ho and say that there is no
heteroscedasticity present.
4.4.3. White Test
The outcomes of the white test are
as below:
Table 7: White
Heteroscedasticity Test |
|
|||
|
|
|
|
|
|
|
|
|
|
F-statistic |
0.120940 |
Probability |
0.992194 |
|
Obs*R-squared |
2.926314 |
Probability |
0.938896 |
|
|
|
|
|
|
|
|
|
|
|
Dependent Variable: RESID^2 |
|
|
||
Method: Least Squares |
|
|
||
Date: 09/03/17 Time: 17:46 |
|
|
||
Sample: 2005 2016 |
|
|
||
Included observations: 12 |
|
|
||
|
|
|
|
|
|
|
|
|
|
Variable |
Coefficient |
Std. Error |
t-Statistic |
Prob. |
|
|
|
|
|
|
|
|
|
|
C |
-59.13176 |
143.4513 |
-0.412208 |
0.7079 |
LNCR |
31.64362 |
89.25311 |
0.354538 |
0.7464 |
LNCR^2 |
-3.737031 |
10.47711 |
-0.356685 |
0.7449 |
EPS |
0.178835 |
0.759663 |
0.235413 |
0.8290 |
EPS^2 |
-0.008876 |
0.037018 |
-0.239769 |
0.8260 |
BSIZE |
-1.973011 |
15.69757 |
-0.125689 |
0.9079 |
BSIZE^2 |
0.112578 |
0.890224 |
0.126461 |
0.9074 |
WOBN |
-0.044819 |
0.265815 |
-0.168609 |
0.8768 |
WOBN^2 |
0.017664 |
0.127895 |
0.138110 |
0.8989 |
|
|
|
|
|
|
|
|
|
|
R-squared |
0.243860 |
Mean dependent var |
0.020022 |
|
Adjusted R-squared |
-1.772515 |
S.D. dependent var |
0.028575 |
|
S.E. of regression |
0.047580 |
Akaike info criterion |
-3.139116 |
|
Sum squared resid |
0.006791 |
Schwarz criterion |
-2.775436 |
|
Log likelihood |
27.83469 |
F-statistic |
0.120940 |
|
Durbin-Watson stat |
2.950611 |
Prob(F-statistic) |
0.992194 |
|
|
|
|
|
|
|
|
|
|
|
Probability
is more than 10 % that is 99.2 %. So we do not reject Ho and say there is no
heteroscedasticity exists.
4.5.
Multicollinearity
We have to run auxiliary regression
and make LNCR (Current ratio) as dependent and EPS, BSIZE and WOBN as
independent variable to check its multicollinearity.
Table 8: Multicollinearity
Table 8 indicates that R² is 68% and
f-stat is 5 and Probability is 2% so we reject Ho (there is no
multicollinearity). We conclude that there is no multicollinearity exists
between Current ratio and Earning per share, board size, women on board number.
4.6.
Data
Stationary or Non Stationary
4.6.1. Augmented
Dickey Fuller Test - Model A with ROA
To check the stationary of data ADF
Augmented Dickey Fuller test is applied on Model A with ROA.
Table 9: Augmented Dickey Fuller
Test for ROA
At level: Ho is rejected as
Probability is 3.6 which is less than 10%, so data is stationary at level.
Condition of ADF Test
If the t stats > t-Critical =Reject
Ho
If the t stats < t-Critical
=Accept Ho
Table 10: Augmented Dickey
Fuller Test for ROA
At
1st difference: Probability is 14.3 % which is more than 10 % we accept null
hypothesis and say data is non-stationary.
4.6.2. Augmented
Dickey Fuller Test - Model B with ROE
Following
table is for Augmented Dickey fuller for the model B with Dependent variable as
ROE.
Table 11: Augmented Dickey
Fuller Test for ROE
At level: Ho is rejected as
Probability is 5.7 which is less than 10%, so data is stationary at level.
5. DISCUSSION
Board of directors plays an
essential role in governance systems that support to line up the benefits of
shareholders and managers (REGUERA-ALVARADO et al., 2015). The board composition may
affect the success of decision making of board which resultant the effect on
bank financial performance. One of the most essential uniqueness of board is
gender as we know that the percentage of woman director has been rising on a
regular interval. As the women director increases, there is a negative effect
of gender diversity on bank financial performance as this research also
examines the relationship between board gender diversity and bank financial
performance. The results does not support the hypotheses of this research H1,
H2 and H3.
The findings of this study does not
support the hypothesis that woman director has negative insignificant effect on
bank financial performance, thus gender diversity in the board has a negative
association with bank performance which is calculated by financial indicators
of ROA and ROE. Conversely various
reasons are in favor to induct woman director to their board, as gender
diversity has a positive effect on economic growth as per the previous studies.
Corporate governance mechanism is also improved by board gender diversity (CARTER et al., 2003) and women produce better
communication and good relation with other women customers (ROSE, 2007) and also enhance the efficiency
of decision making by coming up with several different views and approaches in
board (CARTER et al., 2003).
Moreover, as per theoretical point
of view, the results of this research study are not reliable with both theories
that is agency and resource dependency theory in which board gender diversity
negatively effect on bank financial performance. It concludes that the women
directors are not likely to enhance the performance of banks. In contrast of
this, a study conducted in banking sector of Pakistan that shows significant
positive relationship between board gender diversity and bank performance and
has negative correlation with the presence of woman CEO in banks (SHAFIQUE et al., 2014). There is another study which
also indicates that there is affirmative relation between board gender
diversity and bank performance (YASSER, 2012).
6. CONCLUSION
It
concludes, gender diversity brings the insignificant impact on economic value
of Pakistan as induction of woman director cannot improve the financial
performance of banks. This study brings attention and also attracted to the
regulatory bodies, government companies, policy makers, shareholders to have
gender composition of board of directors.
There
are several studies indicate to have woman director is positively effect on the
performance of organization but other argue have examined the negative results.
The results of this study shown that man dominance remain on the board of the
Pakistan banks. Moreover the findings signify that gender diversity on board
has insignificant relationship with banks financial performance as calculated
through ROA and ROE.
There
are several discussion and researches in previous studies regarding the effect
of gender board diversity on firm efficiency, from a purely economic perception
this research suggests that firms should proliferation women representation on
their boards of banks.
There
are other factors of gender diversity on which company policies needs to integrate
that are social and ethical reasons, gender diversity should not only based on
economic purposes (REGUERA-ALVARADO et al., 2017b). It is discriminatory and unethical to
eliminate woman from corporate boards only on the base of gender. Board gender
diversity is required and shows a positive indication to the people regarding
its ethical and social behaviors (TERJESEN et al., 2016).
7. LIMITATIONS AND RECOMMENDATIONS FOR FUTURE RESEARCH
There are various limitations of
this research found. First, there are several elements that effect on bank
financial performance and this research could not take all of them to measure
the financial performance in regard to presence of women on board. Hence,
future studies should consist other indicators of liquidity and profitability
ratios of financial performance as in this study we have taken only two that
are ROA and ROE.
Secondly gender is only one
characteristics of board diversity. Therefore future research need to check
other aspects of board diversity such has education, experience, culture and
age on bank performance. This study is purely based on quantitative research as
we have collected secondary data from annual reports of banks.
Further studies needs to be
conducted with large sample of banks and different methodologies such as
surveys, case studies and qualitative research to find out the causes of the
issue that why the number of women on board decreasing with ROA and ROE. Thus
this study recommends to re-assess the association between gender diversity and
bank performance after the regulation concerning the gender quotas has been
executed by code of corporate governance of Pakistan.
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ANNEXURE
1: DATA FOR EVIEWS AND SPSS
Years |
|
LNCR |
EPS |
BSIZE |
WOBN |
LNROA |
LNROE |
2005 |
|
4.28 |
6.98 |
8.40 |
1.00 |
0.47 |
3.34 |
2006 |
|
4.26 |
7.86 |
8.90 |
1.00 |
0.69 |
3.24 |
2007 |
|
4.29 |
7.91 |
8.70 |
1.00 |
0.55 |
3.10 |
2008 |
|
4.29 |
7.26 |
8.80 |
2.00 |
0.26 |
2.68 |
2009 |
|
4.24 |
7.21 |
9.00 |
2.00 |
0.17 |
2.58 |
2010 |
|
4.10 |
7.86 |
8.40 |
2.00 |
0.19 |
2.60 |
2011 |
|
4.12 |
8.17 |
8.60 |
2.00 |
0.33 |
2.79 |
2012 |
|
4.21 |
7.95 |
8.80 |
1.00 |
0.25 |
2.78 |
2013 |
|
4.18 |
7.13 |
8.50 |
0.00 |
0.00 |
2.28 |
2014 |
|
4.07 |
9.89 |
8.80 |
0.00 |
0.32 |
2.83 |
2015 |
|
4.07 |
11.17 |
9.10 |
0.00 |
0.32 |
2.92 |
2016 |
|
4.11 |
11.04 |
9.00 |
1.00 |
0.21 |
2.82 |