Want to do well in a takeover? Appoint more women to your board

New research shows more women on boards leads to more advice-seeking and potentially better decisions
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Corporate boards that include women are more likely to ask for advice than boards with less female representation, and that can lead to better business decisions.

“Every women you add roughly is about a 7% increase in the use of advisors,” said Maurice Levi, one of the authors of a new study from the University of British Columbia's Sauder School of Business

The research follows an early study by Levi and Sauder finance professor Kai Li that found that companies with women on their boards pay less for acquisitions.

That study found the bid premium on an acquisition – the difference between the final offer price and the stock price of the target firms before the acquisitions were finalized – is 15.4% lower for each female director on a company's board. In addition, for every female board member, the number of a company's attempted takeover bids decreased by 7.6%.

The results reflect the fact that women are less interested in pursuing risky acquisitions and require a higher return on investment, the researchers said. 

When the researchers looked into the effect of asking for advice, they found gender representation on boards made little difference for overall mergers and acquisitions. But it did make an impact when a company was a target of a bid rather than the bidder.

“The type of information you need depends on whether you’re the bidder or the target. The bidder is interested in, if I’m the buyer of this company will it involve in engaging in synergies… will it improve my operations and are there efficiency gains,” Levi said.

“But when you’re a target company, the information you need to know is how much is my company worth.”

Previous studies by other researchers have found that women ask for advice, such as driving directions, much sooner than men. Levi and Li decided to take a look at whether this also happens in corporate environments.

Seeking advice is important, especially for a company that is the object of a takeover, because making the wrong decision can lead to litigation from shareholders, Levi said.

The Sauder research is further proof that female representation on boards makes a material difference in how companies do business.

 “It’s support for having more board diversity,” he said. “Males have run the country for a long time and it’s about time that women brought to bear fully on the corporate direction of the country.”

jstdenis@biv.com

@jenstden

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