OSU Studies Link between Women Board Members and Profitability

Article excerpt

Can having women board members improve a company's profits?

"That's the $64,000 question," said David A. Carter, associate professor of finance at Oklahoma State University's Spears School of Business. "It seems like a straightforward proposition. But in practice, it's very difficult."

Hoping to get beyond the loaded politics behind that diversity question, a trio of OSU professors sought to quantify that answer statistically by studying earnings of the Standard & Poor's 1,500 Index companies. But that answer proved as elusive as the economy's recovery.

"The statistical analysis, depending on how you do it, will give you different answers," said Gary Simpson, a professor of finance and the Oklahoma Bankers Association chair of Commercial Bank Management. "The results are not robust to the methodology."

As the Enron scandal heightened public scrutiny on corporate boards of directors, Carter joined with Simpson and Betty Simkins to study the impact women directors had on 2003 corporate financial results. They approached this by statistically factoring out time- sensitive issues, such as the lingering 9/11 recession and natural gas trading scandal, and differences separating the economic sectors of these S&P companies, such as banking and manufacturing.

That provided a constant for comparing base earnings to board composition, all without trying to judge the value of women directors, their different insights or their decision-making processes.

"We don't actually trace it through everything that happens," said Simpson, explaining how the study didn't analyze individual board actions. "We just look at the number of women on the board and what is the result."

Their first paper, covering 2003 financial results, found a definitive correlation between rising corporate profits and the percentage of women on the board. Simpson said that positive result drew their study widespread attention and numerous research and corporate citings.

Their second study, which added data through 2007, proved far less conclusive.

"Normally when you have a really nice positive relationship, the methodology will often be robust," said Carter. "That this is not, it tells me that the relationship is sort of at the margin.

"I guess the bottom line is that there's still no definitive answer," he said. "The results are still very sensitive to the methodology used."

That led Simpson to a bottom-line contingency view.

"That is the way of a lot of things in the world," he said. "Unfortunately for anybody who wants a good clean result, basically it depends on the company. …

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