Journal of Accounting and Economics 51 (2011) 314–338

Contents lists available at ScienceDirect

Journal of Accounting and Economics

journal homepage: www.elsevier.com/locate/jae

Does board gender diversity improve the informativeness

of stock prices?$
Ferdinand A. Gul a,1, Bin Srinidhi b,n, Anthony C. Ng c,2
a
School of Business, Monash University, Sunway Campus, Selangor, Malaysia
b
Department of Accountancy, City University of Hong Kong, 83 Tat Chee Avenue, Kowloon Tong, Hong Kong
c
School of Accounting and Finance, Li Ka Shing Tower, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

a r t i c l e in f o abstract

Article history: We show that stock prices of firms with gender-diverse boards reflect more firm-
Received 4 November 2009 specific information after controlling for corporate governance, earnings quality,
Received in revised form institutional ownership and acquisition activity. Further, we show that the relationship
25 January 2011
is stronger for firms with weak corporate governance suggesting that gender-diverse
Accepted 28 January 2011
Available online 23 February 2011
boards could act as a substitute mechanism for corporate governance that would be
otherwise weak. The results are robust to alternative specifications of informativeness
JEL classification: and gender diversity and to sensitivity tests controlling for time-invariant firm
G11 characteristics and alternative measures of stock price informativeness. We also find
G14
that gender diversity improves stock price informativeness through the mechanism of
G34
increased public disclosure in large firms and by encouraging private information
collection in small firms.
Keywords:
Idiosyncratic volatility & 2011 Elsevier B.V. All rights reserved.
Female director
Diversity
Earnings quality
Governance
Transparency

1. Introduction

In this study we examine whether gender-diverse boards in U.S. listed companies make them more transparent and
encourage the incorporation of more firm-specific information into stock prices.3 We define transparency as having two
channels: the public disclosure of more firm-specific information by managers; and greater incentives for the collection of
private firm-specific information by investors. Consistent with these two channels of transparency, our study addresses

$
We are thankful to the reviewer, Prof. Li Jin and to the editor, Prof. S.P. Kothari, for their invaluable and constructive suggestions. We gratefully
acknowledge the comments and suggestions received at presentations of this paper at University of Houston and the Hong Kong Polytechnic University.
The paper has also benefitted from the comments received on a related paper at the Annual Accounting Conference at Indian School of Business and the
Accounting and Finance Association of Australia and New Zealand (AFAANZ) Conference in Adelaide. We thank the discussant at the conference at Indian
School of Business, Sanjeev Bhojraj. Further, the paper has benefitted from the comments given by Paul Zarowin, Nancy Su, Wilson Tong, Wayne Yu,
Steven Wei and others who have read earlier versions of the paper. We also acknowledge the support given by the Internal Competitive Research Grant at
the Hong Kong Polytechnic University.
n
Corresponding author. Tel.: + 852 3422 8725; fax: + 852 3442 0349.
E-mail addresses: ferdinand.gul@buseco.monash.edu.my (F.A. Gul), bin.srinidhi@gmail.com (B. Srinidhi), afang@inet.polyu.edu.hk (A.C. Ng).
1
Tel.: + 60 3 5514 4997.
2
Tel.: + 852 2766 4073.
3
We use the term ‘‘gender-diverse’’ to denote either the number or the presence of female directors on corporate boards. In our sample composed of
U.S. corporations, female directors constitute about 14% of directors, although a majority of the corporations have at least one female director on the board.

0165-4101/$ - see front matter & 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.jacceco.2011.01.005
 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 315

the potential role of female directors in increasing the disclosure of firm-specific information and in improving the
incentives for the collection of private information.
Board gender diversity could improve the quality of board discussions and increase the ability of the board to provide
better oversight of firm’s disclosures and reports. It could also reduce board effectiveness by increasing internal
divisiveness and constraining its ability to act. Current literature supports the first effect. It finds that gender diverse
boards are associated with higher quality board deliberations and discussion of tough issues that are often considered
unpalatable by all-male boards (Stephenson, 2004; Clarke, 2005; Huse and Solberg, 2006; McInerney-Lacombe et al., 2008)
as well as more effective board communication (Joy, 2008), which facilitates a greater diffusion of information from the
board to investors. In addition, the current literature also suggests that female directors provide greater oversight and
monitoring of managers’ actions and reports (Hillman et al., 2007; Adams and Ferreira, 2009) through promoting better
board attendance, assuming monitoring positions on audit, nominating, and corporate governance committees, and
demanding greater accountability from managers for poor performance.
Gender-diverse boards improve the quality of public disclosure through better monitoring. Increased public disclosure
price-protects uninformed investors and is likely to increase confidence and encourage ownership by uninformed
investors. Increased uninformed investor ownership also increases the marginal benefit of collecting and deploying private
firm-specific information for informed investors. This benefit is particularly high in small firms that are not as exposed to
investors’ and regulators’ scrutiny as large firms. In effect, gender diversity could affect stock price informativeness
through two improvements in board governance: by increasing the oversight over the managers which makes them more
transparent and by changing the nature and dynamics of board deliberations that make board members pay greater
attention to the consequences of their decisions.4
At one level, this openness at the board level encourages greater public disclosure by managers by curtailing their
exploitation of private information to their own advantage. At another level, the richer information environment
encourages investors to collect more firm-specific private information by reducing the cost of doing so. Both these effects
improve stock price informativeness.
Price-relevant public disclosures are directly incorporated into stock prices whereas private information collected by
informed investors gets incorporated through trading. Morck et al. (2000) argue that idiosyncratic stock price movements
reflect the incorporation of firm-specific information into stock prices and Jiang et al. (2009) argue that idiosyncratic
volatility (IV) contains information about future earnings. We therefore use IV as a measure of stock price informativeness
(Morck et al., 2000; Ferreira and Laux, 2007; Jin and Myers, 2006; Durnev et al., 2003). In additional tests, we augment this
measure with the future earnings incremental explanatory power (FINC) measure developed by Durnev et al. (2003).
Our study is important and timely since recent evidence suggests that over the last ten years, U.S. firms have increased
the number of female directors on their corporate boards (Rose, 2007) and currently, the majority of firms in most
industries have female directors and female non-executive directors.5 In addition, proponents of board reform worldwide
have argued that gender diversity improves board effectiveness and have therefore called for more female directors to be
appointed to boards (Higgs, 2003; Tyson, 2003). Several European countries such as Sweden, Norway and Spain have
imposed legal requirements for board seats to be allocated to women.6 Understanding the effect of board gender diversity
on stock prices is essential in evaluating the desirability of similar legislation in the U.S. and elsewhere. If gender diversity
increases investor value, firms will voluntarily increase gender diversity without recourse to legislation whereas if gender
diversity does not increase investor value but public interest demands it, such legislation might be warranted.7 No study to
date has examined (or considered) the role of female directors in improving stock price informativeness.8
In this study, we find positive association between gender diversity and stock price informativeness after considering
endogeneity; controlling for other variables such as governance, earnings quality and institutional ownership; using
different methods such the firm-fixed-effects model that controls for time-invariant firm characteristics; and using
different measures of stock informativeness such as idiosyncratic volatility (IV) and the FINC measure (Durnev et al., 2003).
In additional tests, we control for board governance effectiveness and find that the positive association between gender
diversity and IV continues, suggesting that the effect of gender diversity on IV is not captured by the existing measures of
board governance.
Additionally, we explore the two channels through which gender diversity affects stock price informativeness—public
disclosure or private information collection. We use voluntary continuous disclosure of ‘‘other’’ events in 8-K reports as the
measure of public information disclosure. We find that gender diversity is associated with higher IV in both large
and small firms. However, we find that gender diversity is associated with more 8-K disclosures only in large firms.

4
The structural indicators available to external observers might not completely capture the complex dynamics of board governance which include
unobservable practices in the firm (Larcker et al., 2007, footnote 3). Although gender diversity works through board governance, it does not mean that its
effect is captured by the currently used structural variables. Gender diversity itself is an observable structural variable that captures a part of the board
dynamics not captured by the extant variables such as board independence, attendance, expertise and CEO duality.
5
See Fig. 1 later in the paper.
6
Sweden has proposed a legal requirement that 25% of board seats be allocated to female directors, Norway required 40% female representation by
the end of 2008 and Spain requires 40% female representation by the end of 2015.
7
It is possible to view regulation as a leading vehicle for economic change. Under such a view, even if there are some current economic advantages to
female board representation, the full advantage can be realized faster if regulation mandates greater representation.
8
We treat a female director presence as equivalent to gender diversity, because there is no all-female board in our sample.
316 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

Further, after controlling for 8-K disclosures (which shows a positive association with IV), gender diversity measures are
uniformly significant in explaining IV only in small firms. In conjunction, these three findings imply that gender diversity
improves transparency in large firms primarily by encouraging more public firm-specific disclosures but in small firms
mainly by facilitating more private information collection.
Section 2 provides definitions of the variables we use and background information for this analysis. The tests are described
and the results given in Section 3. Additional test results are given in Section 4 and we conclude the paper in Section 5.

2. Background and research questions

2.1. Stock price informativeness (idiosyncratic volatility)

The volatility of a stock’s return comprises systematic risk and idiosyncratic volatility. IV is the component that can be
diversified away and is given by the variance of ei,d, as shown below
ri,d ¼ ai þ bi rm,d þ ei,d ð1Þ
where ri,d is the daily excess stock return for firm i and rm,d is the daily excess return of the market portfolio, when we use
the Capital Asset Pricing Model (CAPM) as the model of market equilibrium. Both ai and bi are estimated using regression
analysis for each fiscal year. This model assumes that beta (bi) captures all systematic risk.9
Model (1) is commonly estimated using OLS regression with the assumption that E(ei,d)= Cov(rm,d, ei,d)= 0. Denoting the
variance of the residual term by Var(ei,d), the variance of the stock return Varðri,d Þ is the sum of the two variances:
2
Varðri,d Þ ¼ bi Varðrm,d Þ þ Varðei,d Þ ð2Þ
By definition, bi ¼ si,m,d =s2m,d , where si,m,d = Cov(ri,m,d, rm,d) and s2m,d ¼ Varðrm,d Þ. The first part of (2) reflects the systematic
2
risk and the second term is the idiosyncratic variance (si,e,d), which can be formally expressed as
s2i,m,d
s2i,e,d  s2i,d  ; s2i,d  Varðri,d Þ ð3Þ
s2m,d
The ratio of idiosyncratic variance to total volatility ðs2i,e,t =s2i,t Þ for each firm-year t reflects the proportion of volatility that
is not explained by systematic components and equals ð1R2i,t Þ from regression (1). Since ð1R2i,t Þ is skewed (Durnev et al.,
2004), we measure IV by logistic transformation of the ratio ð1R2i,t Þ=R2i,t , as suggested by Theil (1971, Chapter 12).
Formally, idiosyncratic volatility Ci,t is defined as
! !
1R2i,t s2i,e,t
Ci,t ¼ Ln ¼ Ln ð4Þ
R2i,t s2i,t s2i,e,t
This transformation maps 1R2i,t 2 ½0,1 to Ci,t 2 R.

2.2. Gender diversity and stock price informativeness

Previous literature on gender diversity in teams of decision makers shows that diversity could either improve the
quality of decisions by bringing in new perspectives and enriching the information set available to the team or could
hinder effective team performance by increasing divisiveness and conflict (Gilbert and Ivancevich, 2000; Richard et al.,
2002; Kravitz, 2003; Carson et al., 2004; Mannix and Neale, 2005; Ray, 2005; Boone and Hendriks, 2009).10 Kravitz (2003)
suggests that gender diversity is beneficial when the team’s task is creative and complex but could hamper performance if
the task is simple, structured and does not call for diversity of perspectives and information. Board decisions are typically
unstructured and call for diverse persepectives to enable the board to better assess the consequences of their decisions.
Therefore, they are likely to be helped by gender diversity. Ray (2005) argues that in a diverse corporate board, directors
are more likely to: critically examine each others’ viewpoints because they bring different and sometimes conflicting
perspectives; consider counter-arguments and resolve differences by discussion rather than by consensus; exhibit less
overconfidence and are less likely to take extreme positions; contribute to firm’s conscience with regard to ethics and
social responsibility; focus on how value is created; and display increased sensitivity to opportunities and threats to the
firm from external environment.
Literature on the traits of female leaders suggests that they deploy a leadership style characterized by trust rather than
command and compliance style (Cohen et al., 1998; Klenke, 2003; Trinidad and Normore, 2005). This style is based more
on cooperation than on competition, favored by men (Niederle and Vesterlund, 2007). Gender-diverse boards are likely to

9
We have also computed idiosyncratic volatility measures using the Fama-French three-factor model and industry-controlled model. The results are
similar and are given in the section on additional tests.
10
Gilbert and Ivancevich (2000) present two case studies in one of which diversity improved performance but damaged it in the other. Mannix and
Neale (2005) discuss both the pessimistic view of diversity postulated by the similarity-attraction paradigm which posits greater cohesion among similar
people but conflict among dissimilar people and the optimistic view of diversity that the increase in perspectives and approaches and greater
opportunities of knowledge sharing make diversity valuable.
 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 317

tilt towards such a leadership style but developing the trust and cooperation requires greater information exchange among
directors and between directors and employees, which in turn is aided by more informed and extensive discussions of
issues in board meetings. Literature also points to female directors being less overconfident than their male counterparts
(Lenney, 1977; Barber and Odean, 2001), which makes them more likely to institute higher standards of verification of
managers’ reports to satisfy themselves.11 These actions make disclosures more informative. The above arguments suggest
that a gender-diverse board is more likely than an all-male board to create a richer information environment in which the
cost of collecting private firm-specific information is reduced. Recent studies in accounting also document higher audit
effort (Gul et al., 2008) and higher earnings quality (Srinidhi et al., forthcoming) in firms with gender-diverse boards,
providing further support for an association between gender diversity and more informativeness.

2.3. Shareholder protection and stock price informativeness

Several studies show that better shareholder protection can improve transparency (Gompers et al., 2003; Cremers and Nair,
2005) which, in turn, increases the stock price informativeness (e.g. Morck et al., 2000; Jin and Myers, 2006; Ferreira and Laux,
2007). Ferreira and Laux (2007) provide evidence on the association between shareholder protection and stock price
informativeness. Having fewer anti-takeover restrictions motivates investors to collect private firm-specific information to
assess the potential of a takeover.12 Further, exposure to market forces disciplines managers’ reporting and protects
uninformed investors. This attracts more uninformed investors making informed trading even more rewarding for resourceful
investors. Trading by informed investors allows private information to flow into the stock price at an early stage and thereby
increases stock price informativeness. Therefore, we control for shareholder protection as measured (inversely) by the G-index
developed by Gompers et al. (2003). Further, in separate tests, we examine whether the link between gender diversified boards
and stock price informativeness is different for firms with high and low G-index.

2.4. Earnings quality and stock price informativeness

Higher quality earnings provide more reliable public information about the firm. Literature suggests that the net effect
of earnings quality on private information collection effort by informed investors is determined by a tradeoff between the
‘‘encouragement’’ and ‘‘crowding out’’ effects.
Support for the ‘‘encouragement effect’’ view comes from Durnev et al. (2004), who suggest that higher earnings quality
reduces the cost of information collection and encourages private information collection, which, in turn, results in more informed
trading. Morck et al. (2000) provide evidence of higher idiosyncratic firm-specific price variation in countries with better
accounting information. If higher quality earnings also encourage more private information collection, its effect on firm-specific
information available from public and private sources will be additive. More firm-specific information allows investors to rely
less on market movements in pricing the stock, and decreases R2 in the market model (Jin and Myers, 2006), which is equivalent
to an increase in IV. Consistent with their theoretical model, Jin and Myers (2006) report negative relation between R2 and several
measures of transparency using stock returns from 40 markets around the world from 1990 to 2001. Based on these arguments
and evidence, the encouragement effect should result in a positive association between earnings quality and IV.
An alternative view of the effect of earnings quality is that as more information is channeled into public reporting,
it crowds out private information. Public accounting reports are periodic (quarterly and annual) and less frequent than
disclosures reflected in daily returns, thus reducing the firm-specific idiosyncratic price variation. Under this view, higher
quality earnings increase public information but decrease private information and therefore, its effect on IV is ambiguous.
We control for earnings quality by employing the accruals quality measure (Francis et al., 2004, 2005) but do not posit
any directional relationship between earnings quality and IV.13 In addition, we explore whether earnings quality affects IV
in conjunction with gender diversity.

2.5. Institutional trading and stock price informativeness

Typically, institutional investors have greater resources than individual investors to collect and trade on private firm-
specific information (Hartzell and Starks, 2003) that is incorporated into stock prices through trading. The trading link
hypothesis suggests that increased institutional trading allows for faster incorporation of privately collected firm-specific
information into stock prices. The average absolute change in number of shares held by each institution is reported in

11
Gul et al. (2008) show that particularly audit committees with female directors and more generally gender-diverse boards choose specialist
auditors and demand more audit effort, a finding that supports the contention that female directors demand greater verification in reporting. Adams and
Ferreira (2009) document an association between board gender diversity and other observable changes in board working such as increased attendance
and demand for more accountability by managers. Further, they also show that female directors self-select into monitoring positions on audit and
nominating committees. These actions could be attributed at least partially to the greater need felt by female directors than their male counterparts to
satisfy themselves of the veracity of operations and reporting by managers.
12
However, fewer takeover restrictions could also diminish the bargaining power of managers (Comment and Schwert, 1995) and allow investors to
jockey for quick control of the firm.
13
High quality or transparent accounting information is also defined as more timely and conservative information (see Ball et al., 2000).
318 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

Thomson Reuters database (13F) Institutional Holdings S34 master file as a fraction of annual trading volume better
reflects the trading intensity. We use this variable to control for institutional trading and explore the effect of its
interaction with gender diversity.14

3. Tests and results

3.1. Sample descriptions and graphical presentations

Table 1 gives the definitions of the variables used in the analysis in six panels (A–F). Panels A to C define the stock price
informativeness variables, 8-K continuous disclosure items and gender diversity variables respectively. We define gender
diversity variables in two ways: (i) the number of female directors and female independent non-executive directors; and
(ii) the percentage of female directors out of all directors and the percentage of female non-executive directors out of all
non-executive directors. We supplement these variables with indicator variables for the presence of at least one female
director on the board, and the CEO or the chairman being female. Further, we define indicator variables for the CEO and
chairman being the same person and for that person being female. We also use an indicator variable for boards with five or
more female directors to address tokenism. The choice of five female directors as the separating point is based on Fig. 2
which shows a significant difference in the average IV of firms that have between four and five female directors. Panel D
defines governance variables. Panel E defines the control variables and Panel F defines the variables used in models to
predict gender diversity.
Panel A of Table 2 describes sample selection. The initial sample of 12,435 firm-year observations on board
characteristics including directors’ gender data was drawn from the Corporate Library database over 2001–2006.15 At
each stage of sample selection, this table gives the sample in total and for each of the years. After excluding firms in the
utilities (SIC code between 4900 and 4999) and financials (SIC code between 6000 and 6999), we are left with a sample of
7,597 firm-years for which we have the board characteristic data for every year. After merging with the Compustat
database and removing observations with missing control variables, our full sample is reduced to 6,610 firm-years. We
draw our data on investor protection rights (the G-index) from the IRRC dataset that further reduces our full sample by
1,121 due to non-availability of data from IRRC. This results in a sample with 5,489 observations. We compute
idiosyncratic volatility using returns from 2002–2007 (our regressions use one-year lagged independent variables). This
results in a further loss of 468 firm-years, resulting in a final sample of 5,021 firm-years. Following Ferreira and Laux
(2007), we estimate annual IV using daily returns for all 5,021 firm-years during the sample period.16 Our sample would be
further reduced if we exclude all missing values for institutional trading (from Thomson’s institutional ownership
database complied from SEC 13F filings) and variables needed to compute earnings quality (available from the S&P
Compustat database). Instead, we treat the missing values of changes in institutional ownership and earnings quality
variables as zero in our analyses.17
The data for disclosure frequency is taken from the DirectEdgar search engine. When the above sample is merged with
the DirectEdgar data, 4,084 firm-years remain.
The distribution of female directors across different industries (untabulated) reveals that industries that provide
services (e.g., railroad transportation) or supply products that are sold directly to consumers (e.g., grocery stores) are more
likely to have female directors on their boards. The large variation in the presence of female directors across different
industries suggests the need for controlling for industries in our analysis. Accordingly, our reported estimates are based on
industry fixed effects regressions.
Table 3 gives the means and medians for the independent variables for the full sample and for samples with gender-
diverse and all-male boards. Out of an average of 9.985 directors on each board, just one is likely to be a female director.
Female CEOs and chairpersons are found in only 1.7% and less than 1.3% of firms, respectively. Although we present the
results for female chairpersons and female CEOs in succeeding tables, our ability to draw inferences from those results is
admittedly limited given the small percentage of firms in which women occupy these positions. The differences between
the mean values for gender-diverse and all-male boards justify using these measures as independent variables in our
regressions.
Fig. 1 depicts the upward trends in both the average number of female board directors and the number of firms with
female directors among U.S. corporations over time. Fig. 2 shows a near-monotonic increase in IV with the number of
female directors.

14
Ferreira and Laux (2007) use the absolute value of change in institutional shareholding as a measure of the extent of trading. However, extensive
trading could occur between institutions without significantly changing the total institutional holdings.
15
Although IRRC database also provides data on directors, we can increase our sample size by using the corporate library database for director
characteristics.
16
Considering the attrition in the sample from 12,435 to 5,021, we conducted tests on differences in mean size (Ln MVE) and performance (ROE)
between the initial and final samples. We do not find significant differences in either variable.
17
We thank the reviewer for suggesting this. We also perform the analysis after deleting all the missing variables, and find qualitatively similar
results.

Table 1
Definitions of variables.
(A) Stock price informativeness and disclosure variables
Logistic relative C =
idiosyncratic volatility
Future earnings incremental FINC
explanatory power
(B) Disclosure of 8-K items
Category 1
Category 2
Category 3
Category 4
Category 5
Category 6
Category 7
Category 8
Category 9
(C) Gender diversity variables (GDIV)
Number of female directors
Number of female
independent non-
executive directors
Number of directors
Number of independent
non-executive directors
Percent of female directors
Percent of female non-
executive directors
Female CEO
Female chairman
CEO-duality
Female CEO-duality
Existence of
female directors
Existence of five or more
female directors
(D) Governance variables (GOV)
Governance index
Governance index dummy
Institutional trading
Earnings quality
F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 319
Annual logistic transformed relative idiosyncratic volatility estimated from the market model
= Increase in the coefficient of determination (R2) from the annual regression on each two-digit SIC
P P
code industry with at least 10 firms: ri,t ¼ bb0 þ bb1 DEi,t þ 3t ¼ 1 bb2, t DEi,t þ t þ 3t ¼ 1 bb3, t Dri,t þ t þ ebi,t
relative to the regression ri,t ¼ bc0 þ bc1 DEi,t þ eci,t , where ri,t is the annual stock return calculated as
the fiscal year-end share price plus dividends adjusted by stock splits and distributions
(COMPUSTAT annual item #199/#27 plus #199/#26), and DEi,t is the annual change in earnings
before interest, tax, depreciation, and amortization (annual item #13) scaled by previous fiscal
year-end market capitalization (annual items #199 times #25)
F1 = Natural logarithm of number of items related to registrant’s business and operations, including
agreement or termination of material agreements, or initiation of bankruptcy plus one
F2 = Natural logarithm of number of items related to financial information, including acquisitions or
dispositions, operations, direct or off-balance sheet obligations and their triggering events, exit
or disposal events, and material impairments plus one
F3 = Natural logarithm of number of items related to securities and trading market, including listing/
delisting, unregistered equity sales, or modifications of rights of security holders plus one
F4 = Natural logarithm of number of items related to matters related to accountants and financial
statements, including auditor change and decisions by directors or auditors not to rely on
previous financial statements plus one
F5 = Natural logarithm of number of items related to corporate governance and management,
including changes in the board or principal officers, amendments of charter/bylaws, pension
plan blackout periods, and code of ethics changes plus one
F6 = Natural logarithm of number of items related to asset-backed securities (ABS), including change
in servicer or trustee, change in credit enhancement, and failure to make distributions plus one
F7 = Natural logarithm of number of items related to regulation FD
F8 = Natural logarithm of number of ‘‘other’’ items disclosed voluntarily in 8-K filings plus one
F9 = Natural logarithm of number of items related to financial statements and exhibits plus one
FDIR = Number of female directors on board
LFDIR = Natural log of number of female directors on board plus one
FINED = Number of female independent non-executive directors on board
LFINED = Natural log of number of female independent non-executive directors on board plus one
DIR = Number of directors on board
LDIR = Natural log of number of directors on board
NEDIR = Number of independent non-executive directors on board
LNEDIR = Natural log of number of independent non-executive directors on board
FDIR% = Female directors as a percent of all directors on board
FNEDIR% = Female independent non-executive directors as a percent of non-executive directors on board
FCEO = Dummy variable: 1 if CEO is female; 0 otherwise
FCHAIR = Dummy variable: 1 if Chairman of the board is female; 0 otherwise
CEODUAL = Dummy variable: 1 if CEO and Chairman of the board are the same person; 0 otherwise
FCEODUAL = Dummy variable: 1 if CEO and Chairman of the board are the same person and that person is
female; 0 otherwise
FD = Dummy variable: 1 if there is at least one female director on board; 0 otherwise
FD5 = Dummy variable: 1 if there are five or more female directors on board; 0 otherwise
G = IRRC-Gompers et al. (2003), governance index, which is based on 24 anti-takeover provisions
GD = 1 if the Gomper index is greater than or equal to 11 (closed portfolio), 0 if the index is less than
or equal to 7 (open portfolio)
INST = Average absolute change in number shares held by each institution as reported in 13 F filings as
a fraction of annual trading volume in percentage
EQ = Annual absolute value of firm-specific residuals from a two-digit SIC code annual industry
regression of total accruals (change in (D) current asset (COMPUSTAT #4) minus Dcurrent
liabilities (COMPUSTAT #5) plus the Ddebt in current liabilities (COMPUSTAT #34) minus the
Dcash (COMPUSTAT #1), minus depreciation and amortization (COMPUSTAT #14)) on lagged,
contemporaneous, and leading cash flow from operations, all variable scaled by lagged total
assets
320 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

Table 1. (continued )

(E) Control variables

Return on equity ROE = Return on equity calculated as earnings before extraordinary items (COMPUSTAT #18) divided
by book value of equity (COMPUSTAT #60) by the end of prior year
Volatility of return VROE = Sample variance of annual ROE over the last 3 years
on equity
Leverage LEV = The ratio of long-term debt (COMPUSTAT #10) to total assets (COMPUSTAT #6)
Market-to-book MB = Log of the market-to-book ratio (COMPUSTAT #25  COMPUSTAT #199)/ (COMPUSTAT #60)
Market capitalization SIZE = Annual Market capitalization (COMPUSTAT #25  COMPUSTAT #199)
Dividend dummy DD = Annual dividend dummy, which equals 1 if the firms pays dividends, and 0 otherwise
(COMPUSTAT #201 40)
Firm age AGE = Log age defined as the number of years since the stock was included in the CRSP database
Diversification dummy DIVER = Annual dummy variable that equals 1 when a firm operates in multiple segments, and 0
otherwise
Merger dummy MERGER = Dummy variable which equals 1 if Compustat item AFTNT1 = ‘AA’, ‘AB’, ‘AR’, ‘AS’, ‘FA’, ‘FB’, ‘FC’,
‘FD’, ‘FE’, ‘FF’, or ‘FE’, and 0 otherwise

(F) Female directorship prediction model variables

Expected number of EXP (FDIR) = Expected number of female directors on board

female directors
EXP (LFDIR) = Natural log of expected number of female directors on board
EXP (FDIR%) = Expected Percentage of female directors on board

Residual number of RESID (FDIR) = Residual number of female directors on board

female directors
RESID (LFDIR) = Natural log of residual number of female directors on board
RESID (FDIR%) = Residual percentage of female directors on board

Return on assets ROA = Return on assets calculated as earnings before extraordinary items (COMPUSTAT #18) divided
by total assets (COMPUSTAT #6) by the end of prior year
Total assets LOGTA = Log of total asset (COMPUSTAT #6)
Firm age FIRMAGE = Log age defined as the number of years since the stock was included in the CRSP database
Sales growth SALESGROWTH = Average Sales growth over prior three fiscal year
Directorships DIRECTORSHIPS = Average number of outside directorships for non-executive directors
P
Total diversification DT = Computed as i ¼ 1 Pi lnð1=Pi Þ where Pi is the share of the ith industry segment in the total sales of
the firm (Palepu, 1985). Industries are classified according to four-digit SIC code in which the
firm operates.
Total risk TOTALRISK = Standard deviation in daily returns over fiscal year (standardized to mean of 0 and standard
deviation of 1)
Tobin’s Q TOBINSQ = Ratio of total assets (COMPUSTAT #6) minus book value of equity (COMPUSTAT #60) plus
market value to total (COMPUSTAT #6)
Return RET = Annual stock return during fiscal year
Value-weighted VWRETD = Value-weighted annual market return during fiscal year
market return

Table 2
Panel A: Sample selection.

All 2001 2002 2003 2004 2005 2006

years

Number of observations with board characteristics in year t (year 2001–2006) 12,435 1509 1804 2009 2005 2074 3034
( ) financials institution (SIC code between 6000 and 6999) and utilities  4838  588  773  886  743  744  1104
(SIC code 4900 between 4999)
Initial sample 7597 921 1031 1123 1262 1330 1930
( ) observations without control variables in year t  987  107  129  148  160  180  263
Number of observations with board characteristics and control variables 6610 814 902 975 1102 1150 1667
( ) observations without Gompers index in year t  1121  92  177  46  121  55  630
Number of observations with board characteristics and control variables and Gompers index 5489 722 725 929 981 1095 1037
( ) observations without annual idiosyncratic volatility at year t + 1 and lagged control  468  89 65  112  42  203  87
variables

Final sample 5021 633 790 817 939 892 950

3.2. Number of female directors and stock price informativeness—model and results

Regression (5) uses the number of female directors to measure gender diversity. The dependent variable is idiosyncratic
volatility (C). In this regression analysis, we control for investor rights (GOV), which is shown in Ferreira and Laux (2007)
 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 321

Table 3
Descriptive statistics for independent variables.

Panel A: Descriptive statistics for full sample (N =5021)

Full sample With female directors Without female directors
(N =5021) (N =3261) (N =1760)

Mean Median Mean Median Mean Median

FDIRt 1 1 1.54 1 0 0
LFDIRt 0.579 0.693 0.892 0.693 0 0
DIRt 9.985 9 10.934 10 8.227 8
LDIRt 2.251 2.197 2.349 2.303 2.071 2.079
NEDIRt 7.774 7 8.646 8 6.157 6
LNEDIRt 1.984 1.946 2.105 2.079 1.759 1.792
FINEDt 0.914 1 1.408 1 0 0
LFINEDt 0.54 0.693 0.831 0.693 0 0
FDIR%t 0.094 0.1 0.145 0.125 0 0
FNEDIR%t 0.109 0.111 0.167 0.143 0 0
FCEOt 0.017 0 0.027 0 0 0
FCHAIRt 0.013 0 0.02 0 0 0
CEODUALt 0.589 1 0.606 1 0.559 1
FCEODUALt 0.009 0 0.014 0 0 0
FDt 0.649 1
FD5t 0.005 0 0.008 0 0 0
Gt 9.11 9 9.53 9 8.331 8
GDa 0.521 1 0.62 1 0.332 0
ROEt 0.112 0.123 0.132 0.133 0.076 0.098
VROEt 0.188 0.004 0.188 0.003 0.187 0.005
LEVt 0.171 0.16 0.182 0.176 0.15 0.115
MBt 0.945 0.898 0.987 0.934 0.868 0.819
SIZEt 7.585 7.428 7.921 7.804 6.962 6.903
DDt 0.523 1 0.598 1 0.385 0
AGEt 2.885 2.857 2.997 3.02 2.678 2.633
DIVERt 0.631 1 0.67 1 0.56 1
MERGERt 0.241 0 0.237 0 0.249 0
EQt 0.085 0.059 0.077 0.056 0.099 0.069
INSTt 0.164 0.119 0.148 0.111 0.194 0.141

FDIR: number of female directors on board; LFDIR: natural log of number of female directors on board plus one; DIR: number of directors on board; LDIR:
natural log of number of directors on board; NEDIR: number of independent non-executive directors on board; LNEDIR: natural log of number of
independent non-executive directors on board; FINED: number of female independent non-executive directors on board; LFINED: natural log of number
of female independent non-executive directors on board plus one; FDIR%: percent of female directors on board; FNEDIR%: percentage of female non-
executive directors on board; FCEO: Dummy variable: 1 if CEO is female; 0 otherwise ; FCHAIR: Dummy variable: 1 if Chairman of the board is female; 0
otherwise; CEODUAL: Dummy variable: 1 if CEO and Chairman of the board are the same person, 0 otherwise; FCEODUAL: Dummy variable: 1 if CEO and
Chairman of the board are the same person and that person is female, 0 otherwise; FD: 1 if there is at least 1 female director on board, 0 otherwise; FD5: 1
if there is 5 or more female director on board, 0 otherwise; G: IRRC-Gompers et al. (2003), governance index, which is based on 24 anti-takeover
provisions; GD: 1 if the Gomper index is greater than or equal to 14 (closed portfolio), 0 if the index is less than or equal to 7 (open portfolio); ROE: Return
on equity calculated as most recent quarterly earnings before extraordinary items; VROE: Sample variance of quarterly ROE over the last 3 years; LEV:
Leverage defined as the ratio of long-term debt to total assets; MB: Log of the market-to-book ratio; SIZE: Log of market capitalization; DD: Dividend
dummy which equals 1 if the firms pays dividends, and 0 otherwise; AGE: Log age defined as the number of years since the stock’s inclusion in the CRSP
database; DIVER: Dummy variable that equals 1 when the firm operates in multiple segments, and 0 otherwise; MERGER: Dummy variable that equals 1 if
the firm is engaged in a merger or acquisition (as reported in AFTNT1 of Compustat), and 0 otherwise; INST: Average absolute change in number shares
held by each institution as reported in S34 as a fraction of annual trading volume in percent; EQ: Annual absolute value of firm specific residuals from a
two-digit SIC code annual industry regression of total accruals on lagged, contemporaneous, and leading cash flow from operations, variable scaled by
lagged total assets.
a
Sample size for variable GD is 2878.

to be a significant determinant of IV. Our hypothesis is tested by b1.

Ci,t ¼ a þ b1 GDIVi,t1 þ b2 LDIRi,t1 þ b3 LNEDIRi,t1 þ g1 GOVi,t1 þ g2 ROEi,t1

þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDi,t1 þ g8 AGEi,t1

X X
þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummies þ Year dummies þ ei,t ð5Þ

where i and t denote the indexes for firm and year, respectively. Gender diversity is measured by GDIV. Several measures of
gender diversity are employed: LFDIR, the natural logarithm of the number of female directors plus 1 (so that LFDIR=0 when
there are no female directors on the board); FDIR%, the percentage of female directors on the board; and FNEDIR%, the percentage
of non-executive female directors out of non-executive directors on the board. Control variables include LDIR, the natural
logarithm of the number of directors; LNEDIR, the natural logarithm of non-executive directors on the board; and the corporate
322 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

Trend in Gender Diveristy

1.7

1.5 Avg (FDIR)

Avg (FD)
1.3

1.1

0.9

0.7

0.5

0.3
2001 2002 2003 2004 2005 2006
Year

Fig. 1. Average number of female directors over time. Avg(FD) =average value of dummy variable FD for the year, which equals 1 if there is at least one
female director on the board, and 0 otherwise; Avg (FDIR) = average number of female directors on the board for all companies during the year.

Logistic Relative Idiosyncratic Volatility

2.1
2
1.9
1.8
Avg (Ψ)

1.7
1.6
1.5
1.4
1.3
1 2 3 4 5 6 7
Number of Female Directors on Board

Fig. 2. Graphical representation of relative idiosyncratic volatility. Measured by number of female directors for firms with female directors. C =logistic
relative idiosyncratic volatility, which is defined as Ci,t ¼ Lnðð1R2i,t Þ=R2i,t Þ, where R2i,t is the R2 value of the regression ri,d ¼ ai þ bi rm,d þ ei,d , ri,d is the daily
excess return for stock i, and rm,d is the daily excess return of the market portfolio. Avg.(C) is the mean value of all firm years from 2001 to 2006 with the
specified number of female directors on the board.

governance measure, GOV, measured as either the G-index (Gompers et al., 2003) or a dummy variable GD that is coded as zero
if the G-index is less than or equal to seven (representing a portfolio open to takeover activity) and as one if the index is greater
than or equal to 11 (indicating a closed portfolio). These measures of governance and the rest of the control variables are similar
to those used by Ferreira and Laux (2007).18 Table 4 presents the results of these regressions.19
Columns (1), (2), (7), and (8) replicate Ferreira and Laux (2007) for our sample from 2001 to 2006. Consistent with their
results, we find that strong corporate governance (a low G-index or GD = 0) is associated with higher IV. Columns (3)–(6)
[(9)–(12)] show the results of regressions (5) when the governance variable GOV=the G-index [GD]. Column (3) [(9)]
gives the results when gender diversity is measured by the number of female directors, with governance measured by
G-index [GD], after controlling for the number of directors on the board. Column (4) [(10)] gives the results when gender
diversity is measured by the number of female directors, with governance measured by G-index [GD], after controlling
for the number of non-executive directors on the board. Columns (5) and (6) [(11) and (12)] give the results when
gender diversity is measured by the percentage of female directors or female non-executive directors respectively
with governance measured by G-index [GD]. Gender diversity exhibits significant positive association with IV in all eight
regressions supporting our hypothesis.

18
Ferreira and Laux (2007) define GD = 0 when G r 5 and GD= 1 when G Z 14. We modify this measure to reflect overall improvements in corporate
governance from the mid-nineties, the time period for the Ferreira and Laux sample, to the early 2000s, the time period for our sample.
19
Results in this table have been controlled for firms clustering. Results for firm clustering and non-firm clustering are similar. For this reason,
we only report White-adjusted results for possible heterogeneity in error terms in the rest of the paper.
Table 4
Effect of number of female directors on stock price informativeness (firm clustering).
Ci,t ¼ a þ b1 GDIVi,t1 þ b2 LDIRi,t1 þ b3 LNEDIRi,t1 þ g1 GOVi,t1 þ g2 ROEi,t1 þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDi,t1
X X
þ g8 AGEi,t1 þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummies þ Year dummies þ ei,t

Variable (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)

Intercept 1.531*** 3.013*** 2.918*** 2.998*** 2.822*** 2.937*** 1.369*** 2.808*** 2.639*** 2.743*** 2.553*** 2.693***
(18.57) (21.58) (14.96) (19.22) (15.20) (19.32) (18.63) (16.85) (11.05) (14.22) (11.07) (14.16)
GDIV = LFDIR 0.102** 0.105** 0.092* 0.095*
(2.42) (2.52) (1.71) (1.77)

F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

GDIV = FDIR% 0.569*** 0.605**
(2.63) (2.18)
GDIV = FNEDIR% 0.401** 0.425*
(2.25) (1.86)
LDIR 0.07 0.114* 0.102 0.14
(0.96) (1.68) (1.10) (1.64)
LNEDIR 0.039 0.075 0.067 0.098
(0.68) (1.38) (0.91) (1.42)
GOV = G  0.032***  0.011  0.015**  0.015**  0.015**  0.014**
( 4.56) ( 1.57) ( 2.06) ( 2.04) ( 2.06) ( 2.01)
GOV = GD  0.233***  0.121***  0.145***  0.146***  0.148***  0.147***
( 5.03) (  2.66) (  3.20) (  3.14) (  3.25) (  3.14)
ROE  0.148***  0.145**  0.145**  0.145***  0.145**  0.185*  0.177*  0.179*  0.18*  0.181*
( 2.62) ( 2.56) ( 2.56) ( 2.59) ( 2.58) (  1.83) (  1.76) (  1.77) (  1.80) (  1.80)
VROE 0.02** 0.018* 0.018* 0.017* 0.018* 0.019 0.017 0.017 0.016 0.017
(2.03) (1.88) (1.88) (1.85) (1.91) (1.56) (1.45) (1.44) (1.41) (1.44)
LEV  0.05  0.083  0.082  0.085  0.089 0.067 0.035 0.027 0.029 0.017
( 0.45) ( 0.76) (  0.76) (  0.79) (  0.83) (0.44) (0.24) (0.19) (0.19) (0.11)
MB  0.066**  0.054  0.055*  0.053  0.056*  0.134***  0.12**  0.123**  0.12**  0.123**
( 2.02) ( 1.64) ( 1.70) ( 1.63) ( 1.72) (  2.73) (  2.39) (  2.47) (  2.39) (  2.50)
SIZE  0.163***  0.18***  0.179***  0.18***  0.177***  0.138***  0.158***  0.156***  0.159***  0.156***
( 10.53) ( 10.88) ( 10.86) ( 10.95) ( 10.85) (  7.10) (  7.72) (  7.77) (  7.82) (  7.82)
DD  0.113***  0.123***  0.122***  0.123***  0.122***  0.103**  0.113**  0.112**  0.113**  0.113**
( 2.99) ( 3.23) ( 3.23) ( 3.25) ( 3.22) (  2.15) (  2.34) (  2.33) (  2.35) (  2.36)
AGE  0.058**  0.064**  0.064**  0.064**  0.062**  0.046  0.055  0.054  0.053  0.052
( 2.10) ( 2.35) ( 2.32) ( 2.32) ( 2.25) (  1.37) (  1.63) (  1.60) (  1.59) (  1.54)
DIVER  0.058*  0.064*  0.063*  0.065*  0.063*  0.07  0.077*  0.076*  0.079*  0.076*
( 1.69) ( 1.87) ( 1.84) ( 1.90) ( 1.82) (  1.58) (  1.73) (  1.70) (  1.77) (  1.71)
MERGER  0.046  0.04  0.04  0.041  0.041  0.08**  0.075**  0.076**  0.076**  0.076**
( 1.60) ( 1.41) (  1.42) ( 1.44) ( 1.44) (  2.19) (  2.04) (  2.06) (  2.08) (  2.07)

Adj. R2 0.14 0.2622 0.2651 0.265 0.2658 0.2648 0.1881 0.2932 0.2961 0.2959 0.2974 0.2964
N 5021 5021 5021 5021 5021 5021 2878 2878 2878 2878 2878 2878

Note: Industries are based on two-digit SIC and fiscal years are controlled for by using dummy variables but not reported. Refer to Table 1 for variable definitions. ***, ** and * indicate significance at a p-value of
less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level (2-tailed), respectively.

323
324 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

3.3. Other measures of gender diversity

Table 5 gives the results when gender diversity is measured using other variables. Column (1) shows the results of regression
(5) when we measure gender diversity by the (natural log of) number of female non-executive directors. The results show that
after controlling for G, the number of female non-executive directors is positively related to IV.
The relationship between gender diversity and informativeness is likely to be non-linear when the first woman is
appointed to the board (first non-executive woman is appointed or when a female director becomes the CEO or
chairperson). We address potential non-linearity by using indicator variables to measure gender diversity. Columns (2)–(4)
give the results when we measure gender diversity by the female CEO and female chairperson indicators. Column (5)
includes these indicators and the number of female non-executive directors. The coefficients for the female CEO are
significant, but not for FCHAIR. Columns (6)–(8) give the results when gender diversity is measured by the presence of
female directors or the presence of 5 or more female directors (based on Fig. 2 that shows a significant increase in IV when
there are 5 or more female directors), i.e., GDIV= FD or FD5. The inclusion of FD5 addresses the issue of ‘‘tokenism’’ where
only a few female directors are appointed as a token gesture (Branson, 2006; Bourez, 2005). Tokenism seems to be a valid
concern because FD5 coefficient is much larger and more significant than for FD.

3.4. Endogeneity

We address the possibility that the associations in Eq. (5) might be driven by firms with high IV opting to have boards
with greater gender diversity in two different ways.20

3.4.1. Exogenous change in gender diversity: Norwegian case

Our first test is to identify cases where gender diversity is exogenous. We select the case of Norway where the change in
the proportion of women on boards was legislated and therefore, the subsequent change in the number of female directors
was not a voluntary self-selection by firms. Norwegian Parliament passed legislation in November 2003 requiring all listed
firms to achieve 40% female board representation by the end of 2008.21 For public limited companies, the legislation would
become mandatory only if it was not voluntarily achieved till 2005. The proportion of firms in compliance with the quota
law increased from 17% in 2005 to 29.6% in 2006, 60% by July 1, 2007 and 77.3% by Dec. 1, 2007 (Hoel, 2008). Therefore, the
‘‘forced’’ exogenous change for most firms came about in the period from 2005 to 2009.
We collected the data on stock returns, female directors and board size from 2005 to 2009 on 271 listed Norwegian
firms.22 We ran the following change models from 2005 to 2009:
C2009 C2005 ¼ a þ b1 ðFDIR%2009 FDIR%2005 Þ þ e ð6aÞ

C2009 C2005 ¼ a þ b1 ðFDIR%2009 FDIR%2005 Þ þ b2 LDIR2009 þ e ð6bÞ

In these regressions (results not tabulated), b1 is positive and significant at 1% and 5% levels, respectively. b2 is negative
and significant at the 1% level. We repeated the above analysis for the change from 2006 to 2009 and obtained significant
b1’s at 1% level.23

20
The use of leading IV variable and lagging control variables partially addresses the problem of reverse causality but does not fully resolve the
problem of endogeneity.
21
The legislation in Norway required the following female representations on the board: On boards with 2–3 members, both sexes are to be
represented; on boards with 4–5 members, each sex is to be represented by at least 2 members; on boards with 6-8 members, each sex is to be
represented by 3 members; on boards with 9 members, each sex is to be represented by 4 members; on boards with more than 9 members, at least 40%
representation of each sex is required. In effect, for most firms, at least 40% and sometimes 50% representation is mandated.
22
Even though we collected data for 271 firms, the requirement of having data for every year from 2005 to 2009 reduced the number of usable
observations to 75. For the sample from 2006 to 2009, the number of usable observations was 95. Requiring data on control variables reduced the sample
sizes further to unacceptably low levels.
23
The 2005–2009 regression gives the following estimates:
   
0:0396 4:38
C2009 C2005 ¼ þ ðFDIR%2009 FDIR%2005 Þ þ e, N ¼ 75; Adj: R2 ¼ 0:0784
t ¼ 0:12 t ¼ 2:70
and
     
3:46 3:51 0:505
C2009 C2005 ¼ þ ðFDIR%2009 FDIR%2005 Þ ðDIR2009 Þ þ e; N ¼ 75; Adj: R2 ¼ 0:1875
t ¼ 3:19 t ¼ 2:27 t ¼ 3:29

The 2006–2009 regression gives the following estimates:

   
0:02 3:06
C2009 C2006 ¼ þ ðFDIR%2009 FDIR%2006 Þþ e, N ¼ 96; Adj: R2 ¼ 0:0456
t ¼ 0:07 t ¼ 2:35
and
     
2:84 2:58 0:427
C2009 C2006 ¼ þ ðFDIR%2009 FDIR%2005 Þ ðDIR2009 Þþ e, N ¼ 96; Adj: R2 ¼ 0:1271
t ¼ 2:98 t ¼ 2:06 t ¼ 3:13
 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 325

Table 5
Effect of other gender diversity variables on idiosyncratic volatility (N = 5021).
Ci,t ¼ a þ b1 GDIVi,t1 þ b2 LDIRi,t1 þ g1 Gi,t1 þ g2 ROEi,t1 þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDi,t1 þ g8 AGEi,t1 þ g9 DIVERi,t1
X X
þ g10 MERGERi,t1 þ Industriy dummies þ Year dummiesþ ei,t

(1) (2) (3) (4) (5) (6) (7) (8)

Intercept 2.914*** 2.768*** 2.779*** 2.767*** 2.899*** 3.02*** 2.79*** 3.012***

(20.499) (21.098) (21.136) (21.103) (20.391) (31.657) (21.222) (31.642)
GDIV = LFNEDIR 0.095*** 0.094***
(3.162) (3.123)
GDIV = FCEO 0.185** 0.223* 0.225*
(2.071) (1.859) (1.867)
GDIV = FCHAIR 0.077  0.075  0.093
(0.827) (  0.591) (  0.731)
GDIV = FD 0.05*
(1.906)
GDIV = FD5 0.364*** 0.38***
(3.032) (3.198)
LDIR 0.079 0.133*** 0.133*** 0.132*** 0.081 0.127**
(1.493) (2.700) (2.687) (2.685) (1.511) (2.562)
G  0.015***  0.013***  0.013***  0.013***  0.015***  0.012***  0.013***  0.011**
( 3.163) (  2.813) ( 2.841) ( 2.799) (  3.124) ( 2.644) ( 2.844) (  2.436)
ROE  0.144***  0.145***  0.146***  0.145***  0.142***  0.148***  0.148***  0.15***
( 3.032) (  3.049) ( 3.077) ( 3.049) (  2.998) ( 3.132) ( 3.126) (  3.173)
VROE 0.018* 0.018* 0.018* 0.017* 0.017* 0.019** 0.018* 0.02**
(1.925) (1.845) (1.927) (1.830) (1.822) (2.003) (1.938) (2.032)
LEV  0.089  0.07  0.074  0.071  0.084  0.058  0.08  0.054
( 1.120) (  0.874) ( 0.932) (  0.888) (  1.047) ( 0.734) ( 1.006) ( 0.677)
MB  0.054**  0.056**  0.057**  0.056**  0.053**  0.062***  0.056**  0.064***
( 2.240) (  2.325) ( 2.345) ( 2.325) (  2.216) ( 2.638) ( 2.314) (  2.715)
SIZE  0.18***  0.173***  0.173***  0.173***  0.18***  0.168***  0.173***  0.164***
( 16.030) (  15.700) (  15.689) ( 15.698) (  16.039) (  15.852) ( 15.724) (  15.924)
DD  0.123***  0.118***  0.119***  0.118***  0.122***  0.115***  0.119***  0.114***
( 4.753) (  4.533) ( 4.564) ( 4.516) (  4.712) ( 4.448) ( 4.578) (  4.399)
AGE  0.065***  0.064***  0.064***  0.063***  0.065***  0.059***  0.064***  0.058***
( 3.537) (  3.464) ( 3.466) ( 3.456) (  3.533) ( 3.194) ( 3.495) (  3.186)
DIVER  0.063***  0.063***  0.063**  0.063***  0.064***  0.06**  0.063**  0.058**
(  2.594) (  2.584) ( 2.567) ( 2.591) (  2.615) ( 2.463) ( 2.561) (  2.381)
MERGER  0.04  0.043*  0.043*  0.043*  0.041  0.044*  0.043*  0.046*
( 1.616) (  1.742) ( 1.729) ( 1.746) (  1.632) ( 1.754) ( 1.735) (  1.836)

Adj. R2 0.2559 0.2551 0.2544 0.255 0.2564 0.254 0.2552 0.2544

F-stat 29.778*** 29.65*** 29.551*** 29.168*** 28.922*** 29.965*** 29.672*** 30.026***

Note: Industries are based on two-digit SIC and fiscal years are controlled for by using dummy variables but not reported. Refer to Table 1 for variable
definitions. ***, ** and * indicate significance at a p-value of less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level (2-tailed), respectively.

3.4.2. Change model

We examine the change in IV subsequent to a change in the number of female directors.24 We separate our sample into
two sub-samples of firm-years with increasing and decreasing numbers of female directors. For each sub-sample, we
regress idiosyncratic volatility C on post-event (negative-event) indicator variables IDFDIR þ ðIDFDIR Þ that are coded 1 in the
year after an increase or decrease in the number of female directors, respectively, in the two sub-samples (or on the
change in the number of female directors DFDIR þ ðDFDIR Þ). In each regression, we include firm-years one year before and
one year after the change in the number of female directors.25 The coefficients of the indicators capture the difference in IV
from one year before to one year after the change in the number of female directors.
Consistent with the trend of an increasing number of female directors, the firm-years in the ‘‘increase’’ sub-sample
is significantly higher than that in the ‘‘decrease’’ sub-sample. Estimates of changes in IV reported in Table 6 show
significant results only for the increase sub-sample, perhaps because the decrease sub-sample is smaller in size
(588 observations) than the increase sub-sample (1,845 observations). The increase sub-sample shows that an increased
female director presence results in a positive change in IV, which suggests that reverse causality is not likely to be driving
our results.

24
Endogeneity can be addressed also by a two stage regression method but its success depends on the correctness of the first stage model.
We believe that the change model is more appropriate in the current situation.
25
We include only one year before and one year after the change in the number of female directors, since the number of female directors can change
every year in our case. Compare this with Ferreira and Laux’s (2007) study, where the G-index does not change every year and they need to address this
issue by examining one year, two years and three years before and after the change in the G-index.
326 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

Table 6
Change in idiosyncratic volatility following change in number of female directors.
This table provides estimates of event study regressions for C, the logistically transformed relative idiosyncratic volatility, on changes in the number of
female directors. The event window includes, alternatively, the 1-year period before and after the year of the event. We run separate regressions for
positive and negative changes in the number of female directors, using only data within the window. In each case, the regressor is one of the several post-
event dummy variables. IDFIR þ is a dummy variable that takes the value of one for the years that fall on and after a positive change in the number of
female directors, and zero for the years that fall before the increase. IDFIR is a dummy variable that takes the value of one for the years that fall on and
after a negative change in the number of female directors, and zero for the years that fall before the decrease. The sample period is from January 2001 to
December 2006. Financial and utilities industries are omitted (firms with SIC codes of 6000–6999 and 4900–4999). All variables are winsorized at the
bottom and top 1% levels (other than variables related to the number of female directors). t-Statistics are in parentheses.

(1) (2)

IDFDIR þ 0.1** 0.099**

(2.248) (2.424)
DFDIR + 0.127*** 0.107***
(4.517) (4.233)
Number of events 1845
IDFDIR 0 0
( 0.000) (  0.000)
DFDIR   0.009  0.019
( 0.164) (  0.388)
Number of events 588
Industry dummies No Yes

Refer to Table 1 for variable definitions. ***, ** and * indicate significance at a p-value of less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level
(2-tailed), respectively.

3.5. Unexplained gender diversity and stock price informativeness

We further address the question of whether higher gender diversity results in better stock price informativeness by (i) building
a prediction model for the number and percentage of female directors on the board and (ii) examining the association between
the unexplained number or percentage of female directors and stock price informativeness. The rationale is that by construction,
the predicted female director number/percentage is a linear combination of firm characteristics. If firm characteristics used to
predict female directorship also explain most of the variation in stock price informativeness, female directorship simply acts as an
aggregate proxy for those firm characteristics. On the other hand, if the unexplained part of female directorship explains most of
the variation in stock price informativeness, it is more likely to be causally linked to female directorship.
Our prediction model for female directors on the boards is based on the model developed by Hillman et al. (2007) who
argue that firms that benefit from extensive linkage with other organizations, advice and counsel from board members,
legitimacy of organizational practices and more communication are more likely to have female directors. Female director
presence is predicted for larger and more visible firms that are under pressure to conform to societal expectations
(Demsetz and Lehn, 1985) and are scrutinized more by stakeholders and for older and more profitable firms that are also
more visible. It is also predicted for diversified firms that are in greater need for diverse perspectives. Firms that are
networked with other firms that have female directors are also likely to have more female directors. Consistent
with Hillman et al. (2007), we used the total assets as a measure of organizational size and included several performance
variables that measure accounting performance (ROA) and market performance (Tobin’s Q, firm’s stock returns, value
weighted market returns, and total risk). Further, we included firm age, sales growth, number of directorships (to proxy for
networking) and diversification (the total diversification measure in Palepu, 1985) in the prediction model. Industry
dummies are included in the regression because female participation on the board is more in some industries relative to
others. The model is given in (7). The full definitions of the variables are provided in Table 1 Panel F
GDIV ¼ c0 þc1 ROA þ c2 LOGTA þ c3 Firm Age þ c4 Sales Growthþ c5 Directorships þ c6 DT þc7 Total Risk þ c8 TobinsQ þ c9 Ret
X
þ c10 Vwretd þ Industry dummies þ e ð7Þ

where the dependent variable, GDIV denotes either the number of female directors or the percentage of female directors on
the board. Panel A of Table 7 reports the results of estimating (7). The residual, e gives the unexplained component of
gender diversity. The results of the second stage regression with unexplained gender diversity are reported in Panel B
of Table 7. They show significant positive associations for both the number and percentage of female directors with stock
price informativeness.

3.6. Exploratory analysis of the channels through which gender diversity affects informativeness:
firm size, disclosure frequency and idiosyncratic volatility

Board gender diversity could impact stock price informativeness through two (admittedly interrelated) channels—
disclosure of more public information and creating an information environment that encourages private firm-specific
 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 327

Table 7

Panel A: Female directorship prediction model

Model 1: predicting number of female directors
FDIR ¼ c0 þ c1 ROA þ c2 LOGTA þ c3 FIRMAGEþ c4 SALESGROWTH þ c5 DIRECTORSHIPS þ c6 DT þ c7 TOTALRISK þ c8 TOBINSQ þ c9 RET þ c10 VWRETD
X
þ Industry dummiesþ e

Variable Coef t-Stat

Intercept  1.031*** ( 6.25)

ROA  0.275** ( 2.42)
LOGTA 0.235*** (27.71)
FIRMAGE 0.092*** (6.58)
SALESGROWTH  0.449*** ( 8.88)
DIRECTORSHIPS  0.024** ( 2.34)
DT  0.047*** ( 7.20)
TOTALRISK  0.04 ( 1.34)
TOBINSQ 0.065*** (6.29)
RET  0.055** ( 2.23)
VWRETD 0.466** (2.29)

Adj. R2 0.3066
F stat 71.89***
N 9942

Model 2: Predicting percentage of female directors

FDIR% ¼ d0 þ d1 ROAþ d2 LOGTA þ d3 FIRMAGEþ d4 SALESGROWTH þ d5 DIRECTORSHIPS þ d6 DT þ d7 TOTALRISK þ d8 TOBINSQ þ d9 RET þ d10 VWRETD
X
þ Industry dummies þ e

Variable Coef t-Stat

Intercept  0.034** ( 2.26)

ROA  0.006 (  0.63)
LOGTA 0.011*** (15.02)
FIRMAGE 0.004*** (3.41)
SALESGROWTH  0.03*** ( 6.67)
DIRECTORSHIPS 0.002 (1.64)
DT  0.004*** ( 6.71)
TOTALRISK  0.002 (  0.60)
TOBINSQ 0.004*** (4.82)
RET  0.006** ( 2.47)
VWRETD 0.048*** (2.63)

Adj. R2 0.1908
F stat 38.81***
N 9942

Note: Industries based on Fama-French 48-industry classification and fiscal year are controlled for by using dummies but not reported. Refer
to Table 1 for variable definitions. ***, ** and * indicate significance at a p-value of less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level
(2-tailed), respectively.

Panel B: Association between unexplained female directorship and stock price informativeness (N= 4494)
Ci,t ¼ a þ b1 RESIDðLFDIRi,t1 Þ þ b2 RESIDðFDIR%i,t1 Þ þ b3 LDIRi,t1 þ g1 Gi,t1 þ g2 ROEi,t1 þ g3 VROEi,t1
þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDit1 þ g8 AGEi,t1 þ g9 DIVERi,t1 þ g10 MERGERi,t1
X X
þ Industry dummies þ Year dummiesþ ei,t

(1) (2)

Intercept 2.868*** 3.087***

(19.65) (30.25)
RESID (LFDIR) 0.027*
(1.94)
RESID (FDIR%) 0.487***
(2.77)
LDIR 0.124**
(2.26)
G  0.012**  0.01**
(  2.36) (  2.01)
ROE  0.132**  0.132***
(  2.56) (  2.59)
VROE 0.034*** 0.036***
(3.49) (3.66)
328 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

Table 7 (continued )

Panel B: Association between unexplained female directorship and stock price informativeness (N= 4494)
Ci,t ¼ a þ b1 RESIDðLFDIRi,t1 Þþ b2 RESIDðFDIR%i,t1 Þþ b3 LDIRi,t1 þ g1 Gi,t1 þ g2 ROEi,t1 þ g3 VROEi,t1
þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDit1 þ g8 AGEi,t1 þ g9 DIVERi,t1 þ g10 MERGERi,t1
X X
þ Industry dummies þ Year dummies þ ei,t

(1) (2)

LEV  0.057  0.038

( 0.68) (  0.46)
MB  0.067***  0.073***
(  2.61) (  2.94)
SIZE  0.179***  0.172***
(  14.85) (  15.42)
DD  0.091***  0.085***
(  3.30) (  3.12)
AGE  0.06***  0.053***
(  3.06) (  2.72)
DIVER  0.059**  0.055**
(  2.27) (  2.12)
MERGER  0.026  0.028
( 0.98) (  1.08)

Adj. R2 0.2586 0.2584

F-stat 27.125*** 27.54***

Note: Industries are based on two-digit SIC and fiscal years are controlled for by using dummy variables but not reported. Refer to Table 1 for variable
definitions. ***, ** and * indicate significance at a p-value of less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level (2-tailed), respectively.

information collection by investors. We examine the relative strength of each channel in large and small firms in two
stages. First, we examine the effect of gender diversity on public disclosures separately in large and small firms. Second, we
additionally control for public disclosure and re-examine the effect of gender diversity on stock price informativeness, also
separately for large and small firms. Together, these tests provide some insight as to how gender diversity affects stock
price informativeness.
Firms produce and disclose information in different ways, which makes the development of a comprehensive disclosure
measure difficult. Consistent with the prior literature, we examine continuous disclosures through Form 8-K filings
(Pastena, 1979; Carter and Soo, 1999). The SEC introduced 8-K filings in 1970 to encourage continuous reporting (called
current reports) and required listed firms to disclose all information deemed material to investors. In 1977, these filings
were restructured into 8 categories, of which 7 were mandatory disclosures. Category #5 covered ‘‘other disclosures’’,
under which managers could disclose whatever they judged material to investors. Materiality was never defined (Rahman
and Ganesh, 2008). This gave managers the discretion to disclose what they deemed fit. The current 8-K filing system,
which was re-categorized in 2004, retains the ‘‘other events’’ category as category #8. We use the frequency of ‘‘other
events’’ category disclosures as a proxy for voluntary disclosures and denote the log of this frequency as F8.
Disclosures can be induced not only by the pressure exerted by the board, but also by other activities and events such as
merger or acquisition. We control for MERGER that identifies merger or acquisition activity at a firm. Further, several activities
relating to material definitive agreements, reorganization under bankruptcy, acquisitions and dispositions, material impair-
ments, listing and delisting events, changes in auditors, directors and principal officers, asset-backed securities, FD-related
disclosures, and financial statements of acquired entities require mandatory 8-K filings with the SEC. These events can also
trigger additional voluntary disclosures under category 8, because they provide information explaining other mandatory
disclosures. We aggregate the mandatory filings under 8-K for each category other than #8 for each firm-month and use these
eight mandatory disclosure frequencies as additional control variables. The other independent variables we use in the
regression are the same as in (5). Panels A and B of Table 8 give the results of this analysis for firms above and below the
median size respectively. The following model (8) is used to examine the effect of board gender diversity on F8

F8,i,t ¼ a þ l1,i GDIVi,t1 þ l2 LDIRi,t1 þ m1 Gi,t1 þ m2 ROEi,t1 þ m3 VROEi,t1 þ m4 LEVi,t1

þ m5 MBi,t1 þ m6 SIZEi,t1 þ m7 DDi,t1 þ m8 AGEi,t1 þ m9 DIVERi,t1 þ m10 MERGERi,t1
X 7 X X
þ m11 YEARDUMi,t þ Fy,i,t þ F9,i,t þ Industry dummies þ Year dummies þ e ð8Þ
y¼1

Table 8 shows that female directorship as captured by LFDIR and FDIR% has significant positive associations with
disclosure frequency for large firms, but not for small firms. These results indicate that gender diversity affects voluntary
public disclosure differently for firms with different sizes.
 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 329

Table 8
Effect of gender diversity on continuous disclosure of ‘‘Other’’ 8-K items.
F8,i,t ¼ a þ l1i GDIVi,t1 þ l2 LDIRit1 þ m1 Gi,t1 þ m2 ROEi,t1 þ m3 VROEi,t1 þ m4 LEVi,t1 þ m5 MBi,t1 þ m6 SIZEi,t1 þ m7 DDi,t1 þ m8 AGEi,t1
X
7 X X
þ m9 DIVERi,t1 þ m10 MERGERi,t1 þ m11 YEARDUMi,t þ Fy,i,t þ F9,i,t þ Industry dummiesþ Year dummies þ e
y¼1

All firms Large size Small size

Intercept  0.429***  0.477***  0.223  0.41  0.163  0.149

(  2.65) (  3.02) (  0.60) ( 1.14) ( 0.54) ( 0.49)
GDIV = LFDIR 0.045 0.164***  0.038
(1.48) (2.72) ( 0.69)
GDIV = FDIR% 0.148 0.677***  0.266
(1.04) (2.62) (  1.06)
LDIR  0.024  0.003 0.02 0.112  0.023  0.032
( 0.44) (  0.05) (0.20) (1.18) ( 0.27) ( 0.38)
G  0.008*  0.008*  0.011  0.011  0.003  0.003
(  1.78) (  1.73) ( 1.22) ( 1.19) ( 0.34) ( 0.32)
ROE  0.182***  0.182***  0.294***  0.294***  0.069  0.068
(  3.73) (  3.73) ( 2.91) ( 2.91) ( 0.81) ( 0.80)
VROE 0.017 0.017  0.003  0.006  0.001  0.001
(0.99) (0.99) (  0.11) ( 0.21) ( 0.03) ( 0.03)
LEV 0.518*** 0.521*** 0.592*** 0.597*** 0.64*** 0.642***
(7.80) (7.86) (4.37) (4.42) (5.29) (5.31)
MB  0.051**   0.052**  0.022  0.022  0.069  0.07
(  2.19) (  2.22) (  0.50) ( 0.50) (  1.61) (  1.64)
SIZE 0.086*** 0.088*** 0.087*** 0.089*** 0.004 0.004
(8.20) (8.34) (3.22) (3.30) (0.10) (0.12)
DD  0.08***  0.08***  0.009  0.01  0.201***  0.202***
(  3.02) (  3.00) (  0.16) ( 0.18) (  4.30) (  4.33)
AGE 0.023 0.023 0.004 0.007 0.035 0.034
(1.32) (1.34) (0.13) (0.22) (1.00) (0.97)
DIVER 0.007 0.007 0.044 0.044 0.05 0.05
(0.28) (0.28) (0.86) (0.85) (1.18) (1.19)
MERGER  0.043*  0.044*  0.079*  0.082* 0.023 0.022
(  1.71) (  1.74) ( 1.80) ( 1.87) (0.47) (0.45)

Adj. R2 0.2818 0.2816 0.3374 0.337 0.3247 0.3251

N 4086 4086 1226 1226 1226 1226
F-stat 22.953*** 22.932*** 9.787*** 9.772*** 9.792*** 9.806***

Note: Large (small) size firms are defined as firms with market value above (below) median market value. Control variables F1, F2, F3, F4, F5, F6, F7, F9,
industry dummies that based on two-digit SIC and year dummies based on fiscal years are included in the regression but not reported. Refer to Table 1 for
variable definitions. ***, ** and * indicate significance at a p-value of less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level (2-tailed),
respectively.

Table 9 shows the effect of the number of female directors and female director percentage on stock price informative-
ness after controlling for voluntary 8K disclosures. The disclosure itself is significant in all the regressions, which implies
that public disclosure is significantly positively associated with stock price informativeness. The two gender diversity
variables are both significant and positive in a sample of all firms but this is driven primarily by the small firms. In large
firms, gender diversity variables are either insignificant or marginally significant.
The implication of this finding is that in large firms, gender diversity seems to improve stock price informativeness
primarily by inducing mangers to increase firm-specific public voluntary information disclosures. In small firms, the effect
of gender diversity on disclosures is not significant but its effect on stock price informativeness is still significant after
controlling for disclosures. This finding suggests that in small firms, the gender diversity affects stock price informative-
ness, not by increasing public voluntary disclosure but by facilitating private information collection.
We run tests with F1  F7 and F9 as additional control variables and we obtain similar results. Use of unexplained
gender diversity as the explanatory variable does not alter the results given in Tables 8 and 9.

3.7. Corporate governance and board gender diversity as substitutes

We examine the differential effects of board gender diversity on stock price informativeness in firms with strong and
weak governance by separating the sample at the median value of G-index (G =9). The results in Table 10 show that the
effect of gender diversity on stock price informativeness is only significant for firms with weaker corporate governance.
The results of Chow (1960) test confirm that the coefficient of LFDIR is significantly higher for firms with weak corporate
governance compared to those with strong governance. These results support a substitutive relation between firm-level
330 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

Table 9
Effect of firm size on stock price informativeness after controlling for 8 K voluntary disclosures.
Ci,t ¼ a þ b1 GDIVi,t1 þ b2 LDIRi,t1 þ b3 F8,i,t1 þ g1 Gi,t1 þ g2 ROEi,t1 þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1
X X
þ g7 DDi,t1 þ g8 AGEi,t1 þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummies þ Year dummiesþ ei,t

All firms Large size Small size

Intercept 2.304*** 2.336*** 1.152*** 1.206*** 5.976*** 6.006***

(12.51) (15.66) (4.71) (5.87) (18.20) (20.51)
GDIV= LFDIR 0.102*** 0.061 0.095**
(2.95) (1.30) (2.23)
GDIV= FDIR% 0.52*** 0.401* 0.523**
(3.06) (1.91) (2.36)
LDIR 0.043 0.046 0.033
(0.69) (0.59) (0.45)
F8 0.083*** 0.083*** 0.094*** 0.094*** 0.053** 0.053**
(5.40) (5.41) (4.99) (4.96) (2.54) (2.55)
G  0.012**  0.011**  0.007  0.006  0.005  0.005
(  2.38) (  2.14) (  0.99) (  0.86) ( 0.79) ( 0.67)
ROE  0.103*  0.101*  0.068  0.063 0.029 0.029
(  1.75) (  1.72) (  0.82) (  0.77) (0.37) (0.38)
VROE 0.032* 0.033* 0.009 0.011  0.003  0.004
(1.74) (1.80) (0.33) (0.41) ( 0.12) ( 0.14)
LEV 0.033 0.057  0.137  0.121 0.133 0.15
(0.44) (0.78) (  1.41) (  1.28) (1.34) (1.53)
MB  0.042  0.049* 0.003  0.004 0.088** 0.083**
(  1.57) (  1.87) (0.07) (  0.11) (2.50) (2.40)
SIZE  0.172***  0.166***  0.065***  0.059***  0.708***  0.705***
( 13.71) (  14.07) (  3.87) (  3.77) (  23.44) (  23.42)
DD  0.136***  0.133***  0.115***  0.114***  0.1***  0.096**
(  4.70) (  4.62) (  3.06) (  3.05) (  2.61) ( 2.52)
AGE  0.057***  0.053***  0.104***  0.103***  0.111***  0.108***
(  2.87) (  2.69) (  4.12) (  4.09) (  3.97) ( 3.88)
DIVER  0.069**  0.067**  0.008  0.006  0.05  0.049
(  2.52) (  2.46) (  0.24) (  0.17) (  1.44) ( 1.42)
MERGER  0.041  0.044 0.007 0.005 0.008 0.007
(  1.51) (  1.60) (0.19) (0.13) (0.23) (0.19)

Adj. R2 0.2595 0.2596 0.3493 0.35 0.4166 0.4171

N 4084 4084 2042 2042 2042 2042
F-stat 22.358*** 22.691*** 17.35*** 17.653*** 23.426*** 23.821***

Note: Large (small) size firms are defined as firms with market value above (below) median market value. Industries are based on two-digit SIC and fiscal
years are controlled for by using dummy variables but not reported. Refer to Table 1 for variable definitions. ***, ** and * indicate significance at a p-value
of less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level (2-tailed), respectively.

corporate governance and board gender diversity and suggest that firms with weak governance could partially correct for
it by appointing female directors.

4. Additional tests

In this section, we summarize the results of additional tests on the effects of earnings quality and institutional trading
(Section A) and several sensitivity tests (Sections B–E) with alternative methodological choices and additional variables.

4.1. Earnings quality and institutional holding tests

Prior literature shows that earnings quality (Kim and Verrecchia, 1991) and institutional trading (Piotroski and Roulstone,
2004; Hartzell and Starks, 2003) also promote transparency. In this section, we show that our findings are robust to additional
controls for these two variables. We conduct robustness tests using two measures of gender diversity: (natural log of) the
number of female directors, LFDIR, and the indicator for the presence of at least one female director, FD.26

26
Our robustness tests require data to measure earnings quality. This requirement and the availability of data on institutional investors reduce the
overall sample size. Further, the proportion of female CEOs and chairpersons are of the order of 1%. Given the smaller sample size and the low incidence
of other gender diversity variables, we choose to focus on the main variables, FDIR and FD.
 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 331

Table 10
Differential effect of number of female directors on stock price informativeness in firms with different corporate governance strengths.
C ¼ a þ b1 GDIVi,t1 þ b2 LDIRi,t1 þ g1 Gi,t1 þ g2 ROEi,t1 þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDi,t1 þ g8 AGEi,t1
X X
þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummies þ Year dummies þ e

Strong CG Weak CG Chow test

Intercept 3.071*** 2.778*** 2.92***

(13.51) (14.06) (23.27)
GIV = LFDIR 0.041 0.143*** 0.106***
(0.84) (3.79) (3.71)
LDIR 0.04 0.066 0.064
(0.48) (0.95) (1.24)
G  0.008  0.013  0.015***
(  0.52) ( 1.61) (  3.25)
ROE  0.208***  0.121*  0.144***
(  2.87) ( 1.95) (  3.45)
VROE 0.01 0.024** 0.018**
(0.86) (2.17) (2.11)
LEV  0.114  0.031  0.089
(  0.94) (  0.30) (  1.13)
MB  0.061  0.031  0.052**
(  1.52) ( 1.07) (  2.38)
SIZE  0.217***  0.154***  0.18***
(  12.15) ( 10.62) ( 17.77)
DD  0.142***  0.122***  0.122***
(  3.54) ( 3.50) (  4.74)
AGE  0.004  0.094***  0.063***
(  0.13) ( 4.14) (  3.74)
DIVER  0.031  0.073**  0.063***
(  0.86) ( 2.21) (  2.60)
MERGER  0.115*** 0.009  0.039
(  2.93) (0.28) (  1.54)

Adj. R2 0.2855 0.2417 0.2643

N 2082 2939 5021
F-stat 16.122*** 17.147*** 2.69***

Values are total R2 for Chow test.

Note: Industries are based on two-digit SIC and fiscal years are controlled for using dummy variables but not reported. Refer to Table 1 for variable
definitions.
Firms with G-index less than the median (9) are categorized as firms with strong corporate governance and those with G-index greater than or equal to
median are categorized as ones with weak corporate governance. ***, ** and * indicate significance at a p-value of less than the 1% level (2-tailed), 5% level
(2-tailed), and 10% level (2-tailed), respectively.

4.1.1. Earnings quality tests

We measure earnings quality (EQ) by the absolute value of a firm-specific residual from a cross-sectional two-digit SIC
code annual industry regression of total accruals on lagged, contemporaneous, and leading cash flows from operations, all
scaled by lagged total assets (Dechow and Dichev, 2002; Francis et al., 2005).27 We choose this measure of earnings quality
based on the claim of Dechow and Dichev (2002) that among all the available measures, this measure is most closely
linked to information risk, which is priced by investors. We estimate two regressions. In the first regression, we control for
board size, LDIR, and measure gender diversity by the number of female directors. In the second regression, we measure
gender diversity by an indicator variable for female director presence.
Columns (1) and (4) in Table 11 show that both the number of female directors and female directorship presence
variables are significantly positively associated with stock price informativeness after controlling for earnings quality.
EQ itself is not significant in any of the tests and therefore, does not help in discriminating between the encouragement
and crowding-out hypotheses. Better shareholder protection, as measured by a low G-index, is significantly positively
associated with IV after controlling for earnings quality in all cases. Columns (2)–(3) and (5)–(6) include the interaction
between earnings quality and gender diversity variables. Of these, Columns (3) and (6) also include the interaction term
between G and EQ. The interaction terms between both the gender diversity variables and earnings quality are significantly
positive in all these four regressions. When the interaction term is included, the main effect of female director presence,
FD, remains positive, but is not significant.

27
Although Francis et al. (2005) use the standard deviation of five firm-specific residuals from (t  4) to t as the measure of earnings quality,
an alternative measure is the absolute value of the residual. This is indicated in footnote 6 of Dechow and Dichev (2002).
332 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

Table 11
Effect of number of female directors on idiosyncratic volatility: controlling for earnings quality (N = 5021).
Ci,t ¼ a þ b1 LFDIRi,t1 þ b2 EQ i,t1 þ b3 LFDIRi,t1  EQi,t1 þ b4 Gi,t1  EQi,t1 þ b5 LDIRi,t1
þ g1 Gi,t1 þ g2 ROEi,t1 þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MB þ g6 SIZEi,t1 þ g7 DDi,t1
X X
þ g8 AGEi,t1 þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummiesþ Year dummies þ e

Ci,t ¼ a þ b1 FDi,t1 þ b2 EQ i,t1 þ b3 FDi,t1  EQi,t1 þ b4 Gi,t1  EQi,t1 þ g1 Gi,t1 þ g2 ROEi,t1

þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDi,t1 þ g8 AGEi,t1
X X
þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummies þ Year dummiesþ e

(1) (2) (3) (4) (5) (6)

Intercept 2.868*** 2.886*** 2.878*** 2.971*** 2.987*** 2.982***

(20.37) (20.43) (19.82) (31.46) (31.44) (30.28)
LFDIR 0.114*** 0.078** 0.077**
(3.81) (2.31) (2.29)
FD 0.061** 0.027 0.026
(2.31) (0.87) (0.86)
EQ 0.008  0.169  0.076 0.004  0.177  0.113
(0.08) (  1.37) ( 0.18) (0.04) (  1.42) ( 0.27)
LFDIR  EQ 0.439** 0.448**
(2.15) (2.20)
FD  EQ 0.37** 0.374**
(2.01) (2.03)
G  EQ  0.011  0.007
( 0.25) ( 0.17)
LDIR 0.072 0.072 0.073
(1.34) (1.33) (1.34)
G  0.014***  0.014***  0.013**  0.012**  0.012**  0.011*
( 3.01) (  2.98) ( 2.27) ( 2.49) (  2.46) ( 1.88)
ROE  0.15***  0.153***  0.153***  0.156***  0.158***  0.158***
( 3.14) (  3.19) ( 3.19) ( 3.26) (  3.31) ( 3.30)
VROE 0.02** 0.02** 0.02** 0.021** 0.021** 0.021**
(2.04) (2.08) (2.08) (2.13) (2.17) (2.16)
LEV  0.133*  0.131*  0.132*  0.111  0.109  0.109
( 1.69) (  1.67) ( 1.67) ( 1.41) (  1.38) ( 1.38)
MB  0.043*  0.044*  0.044*  0.051**  0.052**  0.052**
( 1.81) (  1.85) ( 1.86) ( 2.17) (  2.21) ( 2.22)
SIZE  0.182***  0.182***  0.182***  0.17***  0.169***  0.169***
( 16.34) ( 16.31) (  16.30) ( 16.04) (  16.00) (  16.00)
DD  0.127***  0.126***  0.126***  0.119***  0.118***  0.118***
( 4.90) (  4.87) ( 4.87) ( 4.61) (  4.58) ( 4.58)
AGE  0.063***  0.062***  0.062***  0.056***  0.056***  0.056***
( 3.39) (  3.39) ( 3.39) ( 3.05) (  3.05) ( 3.05)
DIVER  0.07***  0.071***  0.071***  0.067***  0.067***  0.067***
( 2.89) (  2.91) ( 2.91) ( 2.75) (  2.76) ( 2.76)
MERGER  0.035  0.036  0.037  0.039  0.04  0.04
( 1.41) (  1.46) ( 1.46) ( 1.54) (  1.59) ( 1.59)

Adj. R2 0.2516 0.2521 0.2519 0.249 0.2494 0.2492

F-stat 30.615*** 30.171*** 29.655*** 30.718*** 30.257*** 29.73***

Note: Industries are based on two-digit SIC and fiscal years are controlled for by using dummy variables but not reported. Refer to Table 1 for variable
definitions. ** and * indicate significance at a p-value of less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level (2-tailed), respectively.

4.1.2. Institutional trading: the trading link hypothesis

Information flows into stock prices through the trading activities of informed traders (Piotroski and Roulstone, 2004).
We use INST to denote the average absolute change in the number of a firm’s shares held by institutional investors as a
percentage of annual trading volume as reported in 13F filings. Similar to the earnings quality test, we estimate the two
regressions, one with the number of female directors (controlling for board size) and the other with indicator variable for
female director presence respectively as measures of gender diversity.
In addition to the main variable INST, we include two interaction terms (G  INST and LFDIR  INST or FD  INST) to test
for substitutive or complementary interaction between institutional trading and gender diversity. The results are given in
Table 12. The regressions in columns (1)–(3) measure gender diversity by (natural log) the number of female directors,
while the regressions is columns (4)–(6) measure the same variable by the presence of female directors. The coefficients
for gender diversity and institutional trading are significantly positive in all six regressions. The results show that
institutional trading improves IV when the G-index is controlled for, consistent with the hypothesis that institutional
trading accelerates the incorporation of firm-specific information into stock prices and increases IV. The results shown in
columns (2), (3), (5), and (6) show negative coefficients for gender diversity interactions with institutional trading,
signifying a substitutive interaction between them in increasing IV.
 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 333

Table 12
Effect of number of female directors on idiosyncratic volatility: controlling for institutional ownership (N = 5021).
Ci,t ¼ a þ b1 LFDIRi,t1 þ b2 INSTi,t1 þ b3 LFDIRi,t1  INSTi,t1 þ b4 Gi,t1  INSTi,t1 þ b5 LDIRi,t1
þ g1 Gi,t1 þ g2 ROEi,t1 þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDi,t1
X X
þ g8 AGEi,t1 þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummies þ Year dummies þ e

Ci,t ¼ a þ b1 FDi,t1 þ b2 INSTi,t1 þ b3 FDi,t1  INSTi,t1 þ b4 Gi,t1  INSTi,t1 þ g1 Gi,t1 þ g2 ROEi,t1

þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDi,t1 þ g8 AGEi,t1
X X
þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummies þ Year dummies þ e

(1) (2) (3) (4) (5) (6)

Intercept 2.461*** 2.487*** 2.436*** 2.546*** 2.546*** 2.496***

(16.84) (16.91) (15.55) (22.72) (22.54) (19.92)
LFDIR 0.1*** 0.19*** 0.183***
(3.37) (4.32) (4.13)
FD 0.049* 0.116*** 0.108***
(1.89) (2.81) (2.60)
INST 0.792*** 0.996*** 1.335*** 0.797*** 0.963*** 1.334***
(6.32) (6.02) (3.32) (6.33) (5.60) (3.32)
LFDIR  INST  0.545**  0.499**
( 2.34) (  2.11)
FD  INST  0.364*  0.317
( 1.73) (  1.48)
G  INST  0.043  0.047
(  1.03) (  1.14)
LDIR 0.061 0.053 0.056
(1.15) (0.99) (1.04)
G  0.011**  0.011**  0.003  0.009**  0.009**  0.001
(  2.44) ( 2.33) ( 0.48) (  1.98) ( 1.96) ( 0.13)
ROE  0.185***  0.184***  0.185***  0.188***  0.188***  0.19***
(  3.83) ( 3.80) (  3.82) (  3.90) ( 3.90) (  3.92)
VROE 0.02** 0.02** 0.02** 0.021** 0.021** 0.021**
(2.07) (2.07) (2.04) (2.14) (2.14) (2.11)
LEV  0.067  0.068  0.071  0.045  0.05  0.053
( 0.85) (  0.87) ( 0.91) (  0.57) ( 0.63) ( 0.67)
MB  0.042*  0.042*  0.04*  0.05**  0.049**  0.047**
(  1.78) ( 1.76) (  1.67) (  2.15) ( 2.11) (  2.01)
SIZE  0.128***  0.134***  0.136***  0.116***  0.121***  0.123***
(  9.88) ( 10.08) (  10.32) (  9.49) ( 9.71) (  9.96)
DD  0.159***  0.161***  0.161***  0.152***  0.153***  0.153***
(  6.20) ( 6.26) (  6.27) (  5.94) ( 5.98) (  5.99)
AGE  0.073***  0.075***  0.075***  0.068***  0.069***  0.069***
(  4.01) ( 4.12) (  4.16) (  3.72) ( 3.80) (  3.82)
DIVER  0.077***  0.078***  0.077***  0.073***  0.074***  0.072***
(  3.17) ( 3.20) (  3.15) (  3.02) ( 3.04) (  2.98)
MERGER  0.028  0.027  0.027  0.031  0.03  0.029
(  1.14) ( 1.09) (  1.08) (  1.27) ( 1.20) (  1.18)

Adj. R2 0.2714 0.2735 0.2737 0.2694 0.2704 0.2707

F-stat 31.656*** 31.474*** 31.026*** 31.845*** 31.503*** 31.058***

Note: Industries are based on two-digit SIC and fiscal years are controlled for by using dummy variables but not reported. Refer to Table 1 for variable
definitions. ***, ** and * indicate significance at a p-value of less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level (2-tailed), respectively.

Panel A of Table 13 gives the results on the effect of the number of female directors on IV when both earnings quality
and institutional ownership (and their interactions) are controlled for. In all the regressions, the coefficient of gender
diversity and institutional trading variables are consistently positive and significant. However, the earnings quality
variable is not significant. Both earnings quality and institutional ownership interact in a substitutive way with the
number of female directors as can be seen from the coefficients of the interaction terms, LFDIR  EQ and LFDIR  INST. The
three-way interaction reported in column (6) shows that female directors substitute for the combined effect of
institutional ownership and earnings quality.
The results in Panel B of Table 13 are derived from an analysis that is similar to the one reported in Panel A, but uses FD
as the gender diversity variable. The results are similar to those reported in Panel A. In addition to the above tests, we add
other governance variables such as CEO duality as controls and obtain similar (untabulated) results for gender diversity.

4.2. Controlling for firm characteristics and firm-level board governance

We estimate IV models with firm fixed effects to control for the possibility that time-invariant omitted firm characteristics
might be driving our results. We control for firm-level board governance by two variables that are used as regressors in addition
334 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

Table 13

Panel A: Effect of female directors on idiosyncratic volatility: controlling for earnings quality and institutional ownership (N= 5021)
Ci,t ¼ a þ b1 LFDIRi,t1 þ b2 EQi,t1 þ b3 INSTi,t1 þ b4 LFDIRi,t1 EQi,t1 þ b5 LFDIRi,t1  INSTi,t1
þ b6 EQ i,t1 INSTi,t1 þ b7 LFDIRi,t1  EQi,t1  INSTi,t1 þ b8 LDIRi,t1 þ g1 Gi,t1 þ g2 ROEi,t1
þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDi,t1 þ g8 AGEi,t1
X X
þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummiesþ Year dummies þ e

(1) (2) (3) (4) (5) (6)

Intercept 2.401*** 2.418*** 2.428*** 2.444*** 2.449*** 2.432***

(16.52) (16.63) (16.60) (16.70) (16.64) (16.73)
LFDIR 0.11*** 0.077** 0.202*** 0.17*** 0.168*** 0.222***
(3.75) (2.32) (4.60) (3.61) (3.48) (4.41)
EQ 0.033  0.127 0.032  0.12  0.164  0.143
(0.32) (  1.03) (0.31) ( 0.97) ( 0.89) (  1.16)
INST 0.814*** 0.811*** 1.021*** 1.017*** 0.988*** 1.014***
(6.48) (6.48) (6.15) (6.14) (5.11) (6.15)
LFDIR  EQ 0.398* 0.377* 0.389*  0.314
(1.95) (1.85) (1.85) (  0.91)
LFDIR  INST  0.555**  0.549**  0.541**  1.026***
(  2.38) ( 2.36) (  2.27) (  3.52)
EQ  INST 0.284
(0.27)
LFDIR  EQ  INST 6.289**
(2.25)
LDIR 0.064 0.064 0.056 0.055 0.056 0.056
(1.19) (1.19) (1.03) (1.03) (1.03) (1.05)
G  0.011**  0.01**  0.01**  0.01**  0.01**  0.01**
(  2.32) (  2.30) (  2.22) ( 2.20) (  2.21) (  2.28)
ROE  0.188***  0.19***  0.187***  0.189***  0.19***  0.189***
(  3.85) (  3.90) (  3.82) ( 3.86) (  3.87) (  3.88)
VROE 0.022** 0.022** 0.022** 0.022** 0.022** 0.02**
(2.17) (2.21) (2.17) (2.21) (2.21) (2.10)
LEV  0.112  0.11  0.112  0.11  0.11  0.099
(  1.43) (  1.41) (  1.44) ( 1.42) (  1.42) (  1.27)
MB  0.033  0.034  0.033  0.034  0.034  0.032
(  1.41) (  1.45) (  1.40) ( 1.44) (  1.44) (  1.37)
SIZE  0.128***  0.128***  0.135***  0.135***  0.135***  0.133***
(  9.90) (  9.87) (  10.11) ( 10.08) (  10.08) (  10.06)
DD  0.164***  0.163***  0.165***  0.164***  0.164***  0.165***
(  6.39) (  6.36) (  6.45) ( 6.41) (  6.40) (  6.47)
AGE  0.071***  0.071***  0.074***  0.073***  0.073***  0.073***
(  3.91) (  3.90) (  4.02) ( 4.02) (  4.02) (  4.02)
DIVER  0.083***  0.083***  0.084***  0.084***  0.084***  0.084***
(  3.42) (  3.43) (  3.45) ( 3.46) (  3.45) (  3.47)
MERGER  0.024  0.025  0.023  0.024  0.024  0.024
( 0.96) (  1.00) (  0.91) ( 0.95) ( 0.95) (  0.98)

Adj. R2 0.2678 0.2681 0.2699 0.2702 0.2701 0.2729

F-stat 32.65*** 32.166*** 32.452*** 31.973*** 31.448*** 31.884***

Note: Industries are based on two-digit SIC and fiscal years are controlled for by using dummy variables but not reported. Refer to Table 1 for variable
definitions. ***, ** and * indicate significance at a p-value of less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level (2-tailed), respectively.

Panel B: Effect of presence of female directors on idiosyncratic volatility: controlling for earnings quality and institutional ownership
(N= 5021)
Ci,t ¼ a þ b1 FDi,t1 þ b2 EQi,t1 þ b3 INSTi,t1 þ b4 FDi,t1  EQi,t1 þ b5 FDi,t1  INSTi,t1 þ b6 EQi,t1  INSTi,t1 þ b7 FDi,t1  EQi,t1  INSTi,t1
þ g1 Gi,t1 þ g2 ROEi,t1 þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDi,t1
X X
þ g8 AGEi,t1 þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummies þ Year dummiesþ e

(1) (2) (3) (4) (5) (6)

Intercept 2.485*** 2.501*** 2.486*** 2.501*** 2.506*** 2.484***

(22.37) (22.52) (22.19) (22.33) (22.35) (22.21)
FD 0.058** 0.028 0.127*** 0.098** 0.095** 0.152***
(2.24) (0.92) (3.08) (2.15) (2.01) (3.27)
EQ 0.03  0.131 0.029  0.118  0.17  0.115
(0.29) (  1.05) (0.28) ( 0.94) ( 0.89) ( 0.91)
INST 0.82*** 0.817*** 0.992*** 0.985*** 0.95*** 0.992***
(6.50) (6.50) (5.73) (5.71) (4.64) (5.75)
FD  EQ 0.327* 0.3 0.31  0.369
(1.78) (1.62) (1.62) (  1.22)
 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 335

Table 13 (continued )

Panel B: Effect of presence of female directors on idiosyncratic volatility: controlling for earnings quality and institutional ownership
(N =5021)
Ci,t ¼ a þ b1 FDi,t1 þ b2 EQi,t1 þ b3 INSTi,t1 þ b4 FDi,t1  EQi,t1 þ b5 FDi,t1  INSTi,t1 þ b6 EQi,t1  INSTi,t1 þ b7 FDi,t1  EQi,t1  INSTi,t1
þ g1 Gi,t1 þ g2 ROEi,t1 þ g3 VROEi,t1 þ g4 LEVi,t1 þ g5 MBi,t1 þ g6 SIZEi,t1 þ g7 DDi,t1
X X
þ g8 AGEi,t1 þ g9 DIVERi,t1 þ g10 MERGERi,t1 þ Industry dummies þ Year dummies þ e

(1) (2) (3) (4) (5) (6)

FD  INST  0.375*  0.366*  0.357  0.791***

(  1.78) (  1.73) (  1.64) (  3.19)
EQ  INST 0.336
(0.32)
FD  EQ  INST 5.336**
(2.31)
G  0.008*  0.008*  0.008*  0.008*  0.008*  0.008*
(  1.83) (  1.80) (  1.81) (  1.79) (  1.80) (  1.85)
ROE  0.193***  0.196***  0.193***  0.195***  0.196***  0.195***
(  3.97) (  4.01) (  3.96) (  4.00) (  4.00) (  4.00)
VROE 0.023** 0.023** 0.023** 0.023** 0.023** 0.021**
(2.25) (2.28) (2.25) (2.28) (2.28) (2.18)
LEV  0.092  0.089  0.096  0.094  0.094  0.081
(  1.17) (  1.15) (  1.23) (  1.20) (  1.20) (  1.04)
MB  0.04*  0.041*  0.04*  0.041*  0.041*  0.039*
(  1.74) (  1.78) (  1.71) (  1.74) (  1.74) (  1.67)
SIZE  0.116***  0.116***  0.121***  0.121***  0.121***  0.119***
(  9.46) (  9.42) (  9.71) (  9.65) (  9.65) (  9.59)
DD  0.156***  0.156***  0.158***  0.157***  0.157***  0.158***
(  6.12) (  6.09) (  6.16) (  6.13) (  6.12) (  6.21)
AGE  0.066***  0.066***  0.067***  0.067***  0.067***  0.067***
(  3.59) (  3.59) (  3.67) (  3.67) (  3.67) (  3.67)
DIVER  0.08***  0.08***  0.08***  0.08***  0.08***  0.08***
(  3.29) (  3.30) (  3.30) (  3.31) (  3.30) (  3.31)
MERGER  0.027  0.028  0.025  0.026  0.026  0.026
(  1.07) (  1.12) (  1.01) (  1.05) (  1.04) (  1.05)

Adj. R2 0.2654 0.2656 0.2665 0.2667 0.2666 0.2699

F-stat 32.812*** 32.308*** 32.446*** 31.946*** 31.415*** 31.932***

Note: Industries are based on two-digit SIC and fiscal years are controlled for by using dummy variables but not reported. Refer to Table 1 for variable
definitions. ***, ** and * indicate significance at a p-value of less than the 1% level (2-tailed), 5% level (2-tailed), and 10% level (2-tailed), respectively.

to all the other control variables in (5): CEO duality and the principal component of board governance variables identified
in Larcker et al. (2007).28 The gender diversity variable is positive and significant in all cases.

4.3. Other measures of stock price informativeness

4.3.1. Alternative measures of idiosyncratic volatility

We measure IV using the Fama-French 3-factor model (Fama and French, 1993, 1995, 1996) and industry-adjusted
models instead of the one-factor model (1). The results (untabulated) using these different measures of IV are essentially
the same as those reported for the one-factor model.

4.3.2. Future earnings incremental explanatory power (FINC)

Following Durnev et al. (2003) and Ferreira and Laux (2007), we also use FINC as a third measure of stock price
informativeness. FINC captures how well current stock prices predict future earnings, and is defined as the increase in the
R2 of the annual regression on each two-digit SIC code industry, with at least ten firms used for regression (9) relative to

28
The CGBoard variable (first eigenvector of principal component analysis) is computed as the following linear combination: CGBoard =0.6085 
fraction of independent directors on the board + 0.5053  (1  fraction of affiliated nonexecutive directors who are outside related)  0.0353  fraction of
outstanding shares held by insiders  0.1563  avg. number of years of active directors above the age of 70  0.0429  fraction of directors older than 70 with no
shareholding in the firm +0.1372  # of full board meetings+ 0.0419  fraction of directors who have attended over 75% of meetings + 0.2154  total number of
board directors+ 0.1847  # of directors on audit committee + 0.2171  fraction of independent directors who serve on 4 or more board  0.2486  fraction of
affiliated nonexecutive directors who serve on 4 or more boards  0.0786  fraction of insider directors who serve on 4 or more other boards + 0.0836  Indicator
variable for big4 auditor.
336 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338

regression (10) below:

X
3 X
3
ri,t ¼ bb0 þ bb1 DEi,t þ bb2, t DEi,t þ t þ bb3, t Dri,t þ t þ ebi,t ð9Þ
t¼1 t¼1

ri,t ¼ bc0 þ bc1 DEi,t þ eci,t ð10Þ

where ri,t is the annual stock return calculated as the fiscal year-end share price plus dividends adjusted by stock splits and
distributions (COMPUSTAT annual item #199/#27 plus #199/#26), and DEi,t is the annual change in earnings before
interest, tax, depreciation, and amortization (annual item #13) scaled by previous fiscal year-end market capitalization
(annual items #199 times #25). Consistent with the arguments of Collins et al. (1994), future returns are included in (9) to
mitigate the errors-in-variable problem caused by using realized earnings rather than (unobservable) changes in expected
earnings. Given that our sample period spans only six years, the need to obtain three future period returns and earnings
severely restricts the size of our sample for this test.29 We use the following regression model to examine the effect of the
number of female directors on FINC:
FINCk,t ¼ a þ b1 LFDIRk,t1 þ b2 LDIRk,t1 þ g1 GOVk,t1 þ g2 ROEk,t1
þ g3 VROEk,t1 þ g4 LEVk,t1 þ g5 MBk,t1 þ g6 SIZEk,t1 þ g7 DDk,t1
þ g8 AGEk,t1 þ g9 DIVERk,t1 þ g10 MERGERk,t1 þ e ð11Þ
where FINCk,t is the annual future earnings incremental explanatory power for industry k at time t. Other regressors are
two-digit SIC code industry averages of the same regressors used for IV in Eq. (5). Consistent with our results on IV, we find
that the coefficient for LFDIR is positive and significant at the 10% level (results not tabulated).

4.4. Controlling for time-series and cross-sectional error structure correlations

We conduct tests to control for the possible correlation in the time-series and cross-sectional error structure.
We estimate yearly regressions of (5) and compute the Fama and MacBeth (1973) statistics as well as using the
methodology discussed in Petersen (2009) to control for clustered standard errors. The results (untabulated) are
qualitatively similar to those we report in Table 4.

4.5. Controlling for acquisition/competitive activity and other activities

Firms may increase disclosures if there is increased activity of relevance to shareholders such as acquisition activity.
To control for this possibility, we included merger and acquisition activity in our original regressions reported earlier.
However, in addition, we also split the sample into firms with merger activity and those without merger activity and
repeat the regressions reported in Table 4 (without control for merger activity). Our results (untabulated) for both samples
are consistent with our main results thus ruling out the possibility that merger activity could be driving our results.
As additional tests, we also included the Herfindahl index of the firm’s primary business (measure of industry level
concentration) in all our regression reported in Table 4, and our results (untabulated) still hold. When we split our sample by the
median Herfindahl index, and repeated the tests, the tenor of our results (untabulated) remains unchanged. These tests rule out
the possibility that stock price informativeness is driven by acquisition activity or by level of industrial concentration.

5. Concluding remarks

This study provides insight into two broad areas: the links between board quality, shareholder rights, disclosures and
stock price informativeness; and the socially important issue of whether board gender diversity impacts transparency and
thereby affects stock price informativeness. In addition to the diversity of incentives (board independence), diverse
exposure (directorships) and diversity of knowledge (board expertise), we introduce board gender diversity which could
reflect either innate or acquired socialization diversity between male and female directors. We also explore the
mechanism of how gender diversity affects stock price informativeness in this paper.
We find a positive link between gender diversity in the corporate board and stock price informativeness. Our
exploratory analysis suggests that gender diversity improves stock price informativeness by increasing voluntary public
disclosures in large firms and increasing the incentives for private information collection in small firms.
Consistent with prior literature, we find that earnings quality and institutional trading are associated with higher stock
price informativeness. However, gender diversity exhibits a significant positive association with IV after controlling for
these factors. Further, we find that the association between female directors and IV is weaker for firms with higher
earnings quality and greater institutional ownership. This finding suggests that the gender diversity facilitates private
information collection even in firms that exhibit poor earnings quality. Similarly, gender diversity increases the firm-
specific information collected by traders in firms with low institutional ownership. These findings suggest that earnings

29
It is for this reason that we present the FINC analysis as an additional test, rather than as a main test.
 F.A. Gul et al. / Journal of Accounting and Economics 51 (2011) 314–338 337

quality, institutional ownership, and gender diversity act as substitutes in motivating traders to collect private
information.
This study is arguably the first one to examine the effect of board gender diversity on stock price informativeness.
However, we urge caution in generalizing the results and encourage further research on this and related issues because of
two reasons. First, we use the shareholder rights index as the sole governance variable (and CEO duality in additional tests)
rather than using some of the many possible additional controls. Second, due to the non-availability of female directorship
data in prior periods, our sample period is limited to 2001–2007.

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