Advance Accounting
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Based on research, the report has stated and discussed that board gender diversity has the capability to improve the efficiency of decision-making and monitoring. It also brings positive effects on several aspects including skill improvement, diverse experience, and ideas generation as they are all crucial elements for a firm to consider in order to make decisions with the highest quality. However, diverse gender also has limitation and constraints that can result in negative impact on firms. One of most significant drawbacks is that increase in gender diversity on boards lead to the decrease in share price and pressure from institutional investors (Adams& Ferreira, 2009). Start with the decrease of share price, the recent study has shown that women on boards often have the negative impact on that in terms of they are subjectively when they measuring the firm performance and quality of the financial report, such as share price, which is initiated via the behavior of share market institutional investors, but not measured the share price objectively, for instance, based on the profitability which calculated by using accounting standards (Campbell& Minguez-Vera, 2008). Thus result in setting up share price is lower when women on boards than man on boards (Adams& Ferreira, 2009). Rose (2007) pointed out that even the female board members do not agree with more women on boards. Rose (2007) also highlighted that relation to the investment area, females show relatively are risk-aversion than male which leads to the lower level of firm financial performance, stock price and stakeholder’s wealth in the share market.
Furthermore, for the firms which appoint women on boards, the !9.7% of institutional investors wants to sell or transfer the stocks (Eagly, 2007). Interestingly, it is not because of decrease in share price and profits suffer, instead because of widespread gender biases. Eagly (2007) indicated that the institutional investors have badly response to increase women on board as they though female lacked operation experience. Based on Institution theory which is called “institutional bias”. Institution theory is a theory which list how rules, norms, cultural values as the authoritative guideline for social behavior and how these elements are created (Diaconescu, 2012). In addition, agency theory willing that the well relationship between principal and agent lead to firm can be better generate profits in order to attract investment and increase share price, but institution investors believe that mix gender groups may cause group conflict, impede communication among groups and hinder with cooperation, therefore, lead to lowering financial performance and the quality of financial report. Diaconescu (2012) also notes that heterogeneous team (diverse gender board) may cause more conflict and consume more time to make decision, diminishing group consensus which result in an increase of employee turnover, limit their decision-making capacity and decreasing the quality and performance as the firm only pay attention to diversity without considering the performance of human resources.