ABSTRACT

Further recognition of women’s social value and the gradual improvement of women’s economic status have made the proportion of female independent directors on board rise year by year, which has received high attention from academia. Using data of A-share listed companies in Shanghai and Shenzhen stock markets form 2000-2014 in China, this paper investigates the relation among gender diversity, earnings quality and stock price informativeness. As a result, the larger the proportion of female independent directors is, the more firm-specific information the stock price contains. In the meantime, earnings quality of listed companies significantly impact on stock price informativeness, which means that stock prices of companies with higher earnings quality contain more firm-specific information while having other factors controlled. Further studies show that the relation between board gender diversity and stock price informativeness is not simply direct; board gender diversity could raise the stock price informativeness through enhancing earnings quality.

Keywords:

Stock Price Informativeness, Idiosyncratic Volatility, Board Gender Diversity, Earnings Quality

1. Introduction

Information disclosure is very important for the rational allocation of scarce economic resources and the healthy operation of the whole economic society in the present economic environment. Because the widespread existence of information asymmetry and uncertainty, people are eager for real and reliable information to make the optimal investment decision. The information displayed by stock price is very important for investors to make decisions, especially the company level information contained in stock price, which is the main basis for investors to identify each company’s value. As a result, more and more people have changed their research direction on the information content of stock prices. The more information contained in the stock price, the stock price is much closer to the actual value of the enterprise. In that case, the money of investors will transfer form low utilization enterprises to high utilization enterprises.

In China, the economic development is faster and faster and capital market is on the right track after the reform and opening up. The investors in the market make the investment decision according to the information published in the financial statements of the company. If the stock price contains a lot of information at the company level, investors make more effectively decisions based on the volatility of the stock price. But the disclosure of financial statements may be interfered by the management of the company under the condition that the ownership of the company is separated from the management right. Management is motivated to manage earnings in order to control earnings quality for their own interests or other related interests. What is the relationship between the quality of the company’s earnings and the information content of the stock price?

More and more female staffs have gained social identity and participate in business activities with the opening of the people’s thought after the reform and opening up [1] . Daily, Certo and Dalton [2] concluded that the percentage of women’s independent directors has increased significantly in the past ten years through the empirical research on the situation of women directors in the world’s top 500 enterprises in 1987 and 1996, which proves that the “glass ceiling” phenomenon for women is gradually being evaded in the workplace. Although the identity of women in the occupational market is still lower than that of men, there is no doubt that the degree and participation of women are increasing. At the same time, public media also pay more attention to female leaders [3] . Whether the participation of female directors in the board will affect the quality of earnings? Whether it will affect the information content of the stock price? At last, will the increase of the proportion of female directors affect the company’s earnings management, thereby affecting the company’s stock price information content?

Adams and Ferreira [4] believed that the participation of female directors greatly improves the business performance of the company. Because men tend to have overconfidence in the information bias in the board of directors [5] , when women join the decision-making group, the female character is complementary with men. Besides women will have some new ideas when making decisions, so that the company’s management decision-making system is more perfect, and the company’s performance goes up, so as to improve the company’s earnings quality [6] . Huang Jicheng and Sheng Mingquan [7] think that executives’ background characteristics have significant information content. The existence of gender differences in the board of directors can indeed increase the information content of stock prices. The correctness of the conclusion can be improved by analyzing the earnings information when the quality of earnings is improved. All in all, three hypothesis are presented in this paper: 1) The degree of gender diversification of directors can improve the information content of stock prices. 2) The earnings quality of the last phase can improve the information content of the stock price in this period. 3) The gender diversity of the board of directors will improve the information content of the stock price by improving the quality of the earnings.

As a result, the larger the proportion of female independent directors is，the more firm-specific information the stock price contains. In the meantime, earnings quality of listed companies significantly impact on stock price informativeness, which means that stock prices of companies with higher earnings quality contain more firm-specific information while having other factors controlled. Further studies show that the relation between board gender diversity and stock price informativeness is not simply direct; board gender diversity could raise the stock price informativeness through enhancing earnings quality.

2. Empirical Study

2.1. Model Design

The following models are used to investigate the relation among gender diversity, earnings quality and stock price informativeness, this model is used by Gul, Srinidhi and Ng in 2011 [8] :

$\begin{array}{l}{\text{IV}}_{i,t}={\beta }_0+{\beta }_1{\text{FIDIR}}_{i,t-1}+{\beta }_2{\text{EQ}}_{i,t-1}+{\beta }_3{\text{EQ}}_{i,t-1}\times {\text{FIDIR}}_{i,t-1}\\ +{\beta }_4{\text{ROE}}_{i,t-1}+{\beta }_5{\text{LEV}}_{i,t-1}+{\beta }_6{\text{MtoB}}_{i,t-1}\times {\beta }_7{\text{IDIR}}_{i,t-1}\\ +\sum \text{Industry}+{\epsilon }_t\end{array}$

2.2. Variable Definition

According to the study of this paper, this article investigates the relation among gender diversity, earnings quality and stock price informativeness. So this paper designs the above model based on the hypothesis. Besides, IV represents the heterogeneous fluctuation of stock price; FIDIR represents the number of independent female directors; EQ represents earnings quality calculated by Model DD; ROE represents the rate of return on capital equity; LEV represents financial leverage of the company; MtoB represents the market value ratio; IDIR represents the number of independent directors of the board of directors. Table 1 gives the definition of the variables involved in this article.

2.3. Sample Selection

This article selects data of A-share listed companies in Shanghai and Shenzhen stock markets form 2000-2014 in china, the data from CSMAR database. Table 2 shows the sample selection process. First, we eliminated the data of companies from the SME and GEM. Second, we eliminated the data of companies from Financial industry because for its particularity. Table 3 shows the industry distribution of the sample. The samples are divided into 12 industries according to the classification standards of the SFC.

Remarks: The data from CSMAR database.

Remarks: The data from Wind database.

3. Analysis of Empirical Results

This paper investigates the relation among gender diversity, earnings quality and stock price informativeness using the least square method. Table 4 shows the empirical results.

Model (1) first verifies whether there is a direct relationship between FIDIR, a female independent director, and heterogeneous fluctuation of stock price (IV). The results show that without any control of other variables, the larger the number of female directors in the board, the stronger the heterogeneous fluctua-

***stands for a significant level of 1%.

tion of the company’s stock price, and the more information contained in the stock price. Model (2) adding control variables such as ROE, LEV, MtoB, IDIR, industry dummy variable on the basis of model (1), results show that there is no change in the relation between the number of independent female directors FIDIR and heterogeneous fluctuation of stock price. The correlation coefficient is 0.0473, and it is significant at the level of 1%.

The model (3) verifies whether the earnings quality directly affects the heterogeneous fluctuation of stock price, and finds that the higher the earnings quality, the stronger the heterogeneous fluctuation of the company’s stock price. Model (4) uses heterogeneous fluctuation of stock price as the Interpreted variable, and the explanatory variable introduces the earnings quality EQ and the control variables ROE, LEV, MtoB, IDIR and industry dummy variable ΣIndustry, and the results are consistent with Model (3).

The model (5) takes the number of independent female directors FIDIR; earnings quality EQ and the multiplication of FIDIR and EQ EQ × FIDIR as explanatory variables, the heterogeneous volatility of information content in stock prices IV as interpreted variable. The results show that the regression coefficients of FIDIR and earnings quality EQ are 0.4550 and 0.0667, and they are all significant at the level of 1%. But, the multiplication of FIDIR and EQ EQ × FIDIR is not significant. All variables (including control variables) are put in the equation in the Model (6), and the regression coefficients of FIDIR, EQ and EQ*FIDIR are all positive, and all of them pass the Test T.

4. Conclusion

The influence of female directors on the information content of stock prices has been studied by many people, but is there any other intermediary variable in the relationship between female director and stock price informativeness? This paper is based on the previous studies on the relation between gender diversity in the board and stock price informativeness, further study the relation among gender diversity in the board, earnings quality and stock price informativeness. Using data of A-share listed companies in Shanghai and Shenzhen stock markets form 2000-2014 in China, this paper investigates the relation among gender diversity, earnings quality and stock price informativeness. As a result, the larger the proportion of female independent directors is, the more firm-specific information the stock price contains. In the meantime, earnings quality of listed companies significantly impact on stock price informativeness, which means that stock prices of companies with higher earnings quality contain more firm- specific information while having other factors controlled. Further studies show that the relation between board gender diversity and stock price informativeness is not simply direct; board gender diversity could raise the stock price informativeness through enhancing earnings quality.

Cite this paper

Gao, Y. (2018) Board Gender Diversity, Earnings Quality and Stock Price Informativeness. American Journal of Industrial and Business Management, 8, 306-312. https://doi.org/10.4236/ajibm.2018.82018

References