Adding Women to Corporate Boards Tends to Reduce Merger and Acquisition Activity

In 2005, women held about 15 percent of all the seats on the board of directors of America’s largest corporations. Now women hold 20 percent of these seats. A study by researchers at two universities in Singapore and the University of Notre Dame in Indiana finds that boards that have a higher percentage of women are less likely than boards with a lower percentage of women to engage in extensive merger and acquisition activity.

Craig Crossland, a professor of management at the University of Notre Dame, notes that “this effect existed even if we looked at firms with a single female director on the board. A change in female board representation from low to high levels was associated with an 18 percent decrease in acquisitiveness, a 12 percent decrease in acquisition size, and a reduction of $97.2 million in merger and acquisition spending in a given year.”

The question that arises is why does the presence of women on corporate boards reduce the level of merger and acquisition activity? “Groups comprised of distinct categories of people operate differently than groups where everyone shares similar characteristics,” Professor Crossland said. “Diverse groups tend to engage in discussions that are more thorough, more contentious and more likely to identify problems with the topic at hand. Mergers and acquisitions can be beneficial for firms, but at least as often, they can destroy value. We think the boards with higher female representation are more likely to identify these challenges in a given deal, increasing the likelihood that it will be delayed or shelved entirely.”

The study, “Female Board Representation and Corporate Acquisition Intensity,” was published in Strategic Management Journal. It may be accessed here.