The Impact of the Proportion of Female Directors on Firm Performance: An Approach to Achieve Gender Equality

Abstract

Sri Lanka is well known as a country that ended a 30-year civil war of which the scars have not yet healed. The end of this brutal civil war was also a beginning of a new era of peace and development. Sri Lanka can only achieve sustainable development via long-term investments in economic, human and environmental capital. The inclusion of a focus on gender equality as the 5th goal within the Sustainable Development Goals (SDGs) illustrates the importance of women’s contribution to the economic growth. Both empowering women and ending gender based disparities are essential for sustainable development. More vigorous efforts will be required in order to achieve gender equality in terms of women’s empowerment even though it is evident that there are changes in the stereotypes that prevailed in the past. If a country makes better utilization of its female population, it would pave the way to increase economic growth, reduce poverty levels and enhance the wellbeing and living standards of its citizens. In order to close the gender related gaps, the governments have the responsibility to take into account the gender dimensions while implementing policies so that it can ensure that it doesn’t fail to make complete utilization of human capital resources (OECD, 2008). The focus and concern for women representation in business management has increased specially after the financial crises and corporate scandals such as Lehman Brothers and Enron. Many countries in Europe have adopted regulations in the form of legislative gender quotas for corporate boards. The main aim of implementing such gender quotas is to break the glass ceiling and provide an equal chance for both males and females in reaching top positions of companies. However, the underpresentation of women in senior positions in Sri Lankan firms indicates that they do not play a dominant role in the labour force as do females in developed economies. This is mainly due to women in developing economies such as Sri Lanka being typically confined to family and domestic roles and therefore tending to have invisible barriers in climbing up the corporate ladder and representing themselves on boards. Therefore, the Labour Force Participation Rate (LFPR) is low in Sri Lanka mainly due to the low contribution of women to the LFPR (CBSL, 2014). The issue of underrepresentation of women in corporate boards has gained substantial attention in today’s corporate world. There is a significant amount of evidence supporting this research issue in the developed countries. “In an attempt to address this question, many scholars in the recent years have studied the effect of women directors on firm performance. However, the empirical evidence of the extant literature inconclusive and most studies focus on firms in the U.S. and a few other developed economies” (Liu, Wei and Xie, 2014, p.170). Thus, investigating this research gap in a Sri Lankan context will be important to identify the extent to which women directors in the listed firms of Sri Lanka have the power to make strategic decisions and enhance firm financial performance. The role of public listed companies is important since they have the ability to boost the performance of an economy by contributing to the growth of financial institutions, creating employment opportunities and developing infrastructure facilities. If board gender diversity can trigger profitability and performance of the listed firms, then it will also be a determinant for economic growth.