Does Breaking the Glass Ceiling Raise the Ethical Floor? The Conditional Effects of
Executive and Board Gender on Corporate Ethics
Allison Leigh Evansa
Sean Hannahb
Andrea Seaton Keltonb*
Ya-wen Yangb
*Corresponding author
a
Cameron School of Business, University of North Carolina, Wilmington
b School
of Business, Wake Forest University
July 2016
All authors contributed equally to this article. We thank Anna Cianci, Sherri Moss, John
Sumanth, George Violette, and participants at the WFU School of Business research workshop
series for helpful comments and suggestions. We thank Vicki Bridges, Adrian Cole, Andrew
Malone, and Arjun Som Sekhar for research assistance. We acknowledge the generous funding
provided by the PwC INQuires Program. Professors Kelton and Yang acknowledge financial
support from the Wake Forest School of Business.
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Does Breaking the Glass Ceiling Raise the Ethical Floor? The Conditional Effects of
Executive and Board Gender on Corporate Ethics
Abstract
We contribute to the research on corporate ethical decision making and governance by
examining the gender-related dynamics between corporate executives and boards of directors
and resulting impact on corporate ethical actions. Integrating theories on gender-based
differences in ethical sensitivity and risk tolerance, we develop a theoretical model specifying
that the association between firm-level incentives for unethical behavior and firms’ unethical
actions is moderated by executive gender, with female executives less likely to make unethical
choices. Further, our model specifies that female executives’ influence on firm ethics will
depend on their ability to influence other corporate decision-makers, specifically, a typically
male-dominated board of directors. We draw from signaling and contact theories to predict that
the effects of executive gender will depend on having gender diversity (i.e., females present) on
the board. Using corporate tax evasion as a lens to examine firms’ unethical actions, we find
empirical evidence to support our hypotheses. This study provides insights into the sociallysituated nature of corporate ethical decision making and the importance of gender diversity
simultaneously in executive and governance positions within firms, and thus should be of interest
to researchers as well as regulators, boards of directors, and those making executive hiring
decisions.
Keywords: board gender diversity; executive gender; corporate ethics; ethical behavior
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Does Breaking the Glass Ceiling Raise the Ethical Floor? The Conditional Effects of
Executive and Board Gender on Corporate Ethics
“If Lehman Brothers had been Lehman Sisters, run by women instead of men, would the credit
crunch have happened?” (Sunderland, 2009)
Corporate decision-makers must serve numerous stakeholders and are thus frequently
confronted with ethical dilemmas as they seek to meet their various responsibilities while also
responding to self-interest motives. Despite improvements in corporate governance resulting
from the Sarbanes-Oxley Act of 2002 (SOX) and other regulations and laws, firms continue to
engage in unethical behavior, largely due to incentives for such behavior. For example, in order
to help their company survive an economic downturn, corporate executives admit a willingness
to intentionally misstate corporate financial performance, offer personal gifts or cash payments
to win or retain business, introduce more flexible product return policies, backdate contracts, and
extend their monthly reporting period in order to meet financial targets (EY, 2014). The
association between firm-level incentives and corporate unethical behavior is also well
documented in the academic literature. For example, decisions to misstate earnings are
associated with pressure to meet analyst forecasts, executive incentive structures, poor financial
performance, and the need for external financing (Hogan, Razaee, Riley, & Velury, 2008).
Corporate executives also have incentives to behave ethically to establish and protect
their reputations as ethical leaders and to avoid negatively impacting firm stakeholders. Yet
financial and other incentives also tempt executives towards unethical decisions. Firms’ financial
performance impacts perceptions about executives’ abilities, creating incentives to manipulate
financial reporting so that the firm and the executive are viewed positively. Executive
compensation is also often tied to firm performance, creating incentives for unethical behaviors,
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such as earnings management (e.g., Zhang, Bartol, Smith, Pfarrer, & Khanin, 2008) and fraud
(e.g., O’Connor, Priem, Coombs, & Gilley, 2006).
While there have been numerous studies seeking to identify the characteristics of firms
that are more or less likely to succumb to firm-level incentives to engage in unethical behavior
(e.g., Armstrong, Blouin & Larcker, 2012; Graham, Hanlon, Shevlin, & Shroff, 2013; Rego &
Wilson, 2012), less research has sought to identify the characteristics of those key executive
decision-makers that are able to assuage such unethical activities. Identifying these
characteristics is the critical needed first step to inform the selection of senior leaders for
corporate executive and governance positions. In this study, we contribute to the research on
corporate governance, gender, and executive ethical decision making by investigating two issues.
First, relying on theories of gender-based differences in ethicality and risk aversion (Byrnes,
Miller, & Schafer, 1999; Mason & Mudrack, 1996), we theorize and test whether female
executives buffer (reduce) the association between firm-level incentives for unethical behavior
and firms’ unethical actions. Second, drawing from signaling (Connelly, Certo, Ireland, &
Reutzel, 2011) and contact theories (e.g., Pettigrew & Tropp, 2006), we theorize and test whether
the gender diversity of the board of directors further moderates that effect. Specifically, we
investigate whether the presence of female directors on the board influences female executives’
level of impact on corporate ethics. We thus propose and test a theoretical model that considers
the socially-situated nature of corporate ethical decision making and the gender-related dynamics
that occur between female executives and typically male-dominated boards of directors.
Gender socialization and occupational socialization theories offer competing views for
the role of gender in influencing corporate ethical behavior. On one hand, gender socialization
suggests that women and men possess differing values and traits, developed from gender role
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stereotypes, resulting in gender differences in ethical sensitivity. For example, research shows
women are generally more likely than their male counterparts to speak out against illegal acts
(Kaplan, Pany, Samuels, & Zhang, 2009; Rothschild & Miethe, 1999), and are less likely to
commit corporate fraud (Steffensmeier, Schwartz, & Roche, 2013). On the other hand,
occupational socialization argues that occupational roles and experiences should have a more
prominent impact on ethicality, and thus gender differences in ethicality should be less
pronounced in the workplace. Indeed, research findings on gender differences in ethicality are
mixed (Craft, 2013; Loe, Ferrell, & Mansfield, 2000) suggesting that gender influences may be
situation-contingent. We examine one such contingency we believe may moderate the impact of
executive gender on the association between firm-level incentives for unethical behavior and
corporate unethical outcomes - the gender diversity of the board of directors. The theoretical
model in Figure 1 depicts this theorized three-way interaction between firm incentives for
unethical behavior, executive gender, and board gender diversity, in predicting firm unethical
decisions.
[Insert Figure 1 about Here]
The role of boards in monitoring management and influencing firm outcomes is well
documented (e.g., Beasley, 1996; Fama & Jensen, 1983; Klein, 2002). Although an effective
board should assuage questionable acts by corporate executives and enforce ethics, like their
corporate officer counterparts, boards face incentives which may limit their willingness to
monitor management. For example, well compensated directors have been found less likely to be
effective monitors of management (Rose, Mazza, Norman, & Rose, 2013). Studies have sought
to determine what board characteristics influence corporate outcomes and board diversity, and
specifically gender diversity, has been positively associated with board monitoring functions
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(Abbott, Parker, & Presley, 2012; Adams & Ferreira, 2009; Srinidhi, Gul, & Tsui, 2011),
including corporate ethical outcomes. For example, the presence of female board members is
associated with a lower likelihood of financial restatement (Abbott et al., 2012), SEC violations
(Kim, Roden, & Cox, 2013), and securities fraud (Cummings, Leung, & Rui, 2015).
Research has not considered to our knowledge a more complex model (Figure 1) wherein
ethical decisions at the firm level are socially situated (e.g., Brass, Butterfield, & Skaggs, 1998)
and a function of both the gender of the board of directors and corporate executives. This is
important, as corporate governance is a function of both the preferences, recommendations, and
decisions of firm executives and oversight processes of the board. To address this gap in the
literature, we assess the extent to which gender diversity of the board affects female executives’
abilities to assuage corporate unethical actions. Indeed, scholars have suggested that the
influence of female corporate leaders is dependent upon contextual features that impact whether
or not their skills and opinions influence firm outcomes (Hoobler, Masterson, Nkomo, & Michel,
2016). Thus, we first ask whether female executives do in fact restrain their firms from unethical
behaviors more than male executives when incentives are present to act otherwise, and if so,
whether their ability to influence firm ethicality depends on the presence of female directors on
the board.
We develop arguments proposing that the presence of female directors on the board will
have both symbolic and instrumental effects on other board members which enhance female
executives’ abilities to influence firms’ actions regarding corporate ethics. For the symbolic
effect, we draw from signaling theory (Connelly et al., 2011) to suggest that appointing female
directors signals to other board members that female executives’ voices concerning firm ethics
and other matters are important and should be heard. We also suggest it signals to female
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executives themselves that they have greater power and raises their willingness to voice their
thoughts and opinions about ethics to the board. For the instrumental effect, we draw on contact
theory to suggest that gender heterogeneity among board members will mitigate gender-based ingroup and out-group differences and male majority influence, making the board more open to
female executives’ opinions and recommendations (Bugeja, Matolcsy, & Spiropoulos, 2015;
Daily & Dalton, 2003), in this case, related to the firm’s ethics. In sum, we propose that the
symbolic and instrumental effects of board gender diversity will influence the extent that female
executives positively impact firm ethics.
Understanding how the dynamics between men and women in governance and executive
positions affects firms’ ethics is important for corporate executives, regulators, shareholders,
board nominating committees, and other stakeholders. Gender diversity in executive positions
and boards has received increased attention from not only academics and the business
community, but regulators. For example, the Chairman of the SEC indicated that board diversity
is a priority of the agency in 2016, and that the agency is likely to require publicly traded
companies to provide more detailed disclosures on board diversity (Ackerman, 2016). This study
can inform such discussions on gender diversity in executive and governance positions through
discovering whether gender diversity in executive positions is sufficient to impact corporate
ethics or if raising the glass ceiling in both executive and governance positions is needed to
positively impact firms’ ethical actions.
THEORY AND HYPOTHESES
Executive Gender and Corporate Ethical Decision Making
We consider two theoretical perspectives for our first hypothesis stating that executive
gender moderates the association between firm-level incentives for unethical behavior and
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corporate unethical actions. First, we draw from theories on gender differences in ethicality to
predict that female executives are more sensitive to and inclined against corporate unethical
behavior than their male counterparts. Second, we employ theories on gender differences in risktaking to predict female executives will be less willing to accept the risks associated with
unethical behavior than male executives.
Gender socialization theory posits that men and women possess psychological and
cognitive differences in morals and values leading to exhibited differences in ethical sensitivities
(Mason & Mudrack, 1996). These differences have been attributed to gender identity and
masculine and feminine personalities developed during childhood and influenced by social
norms and gender stereotypes. According to Mason & Mudrack (1996), women are typically
socialized into more communal values resulting in a greater concern for others. Consequently,
women are more interested in relationships and helping others and are more likely to speak out
against unethical behaviors, as they are often harmful to others. These authors propose that men,
however, are typically more interested in success than in relationships and concern for others and
are thus comparatively more influenced by the potential economic benefits of a decision (i.e.,
incentives) and less so by the methods used to reap those benefits. Consequently, males may be
generally more likely than females to approve of breaking or stretching the rules in order to
achieve success and be less sensitive to ethical dilemmas (Betz, O’Connell, & Shepard, 1989).
The predictions of gender socialization are consistent with the social role theory of
gender differences in social behavior. According to social role theory, men and women engage in
activities and behaviors consistent with gender role stereotypes (Eagly, 1987). In general, women
are viewed as possessing “communal” traits, such as compassion and supportiveness, while men
are viewed as possessing “agentic” traits, such as dominance and competitiveness (Eagly, 1987;
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Eagly, Karau, & Makhijani, 1995). Together, these theories suggest corporate executives will
exhibit gender-based differences in ethical sensitivity, morals, and values. We suggest these
differences will limit the extent female, as compared to male, executives succumb to unethical
behavior in the presence of firm-level incentives to engage in such behaviors.
Studies find support for gender socialization with evidence that men and women use
different decision strategies when making ethical judgments. For example, Galbraith &
Stephenson (1993) report evidence that when evaluating ethical dilemmas, females most often
use utilitarianism decision rules (i.e., decision criteria based on the greatest good for the greatest
number) while males more often use egoist decision rules (i.e., criteria based on maximization of
self-interest). Studies also find that women are more concerned about ethical issues in general,
tend to apply stricter ethical standards to decision making, and are more likely than men to view
questionable acts as being unethical (e.g., Franke, Crown, & Spake, 1997; Pan & Sparks, 2012).
Accordingly, women are generally less tolerant of unethical behavior than their male
counterparts (e.g., Vermeir & Van Kenhove, 2008) and are thus more likely to become internal
whistleblowers (Kaplan et al., 2009; Rothschild & Miethe, 1999). In summary, these studies
support the notion that female executives will be more likely to resist or speak out against
unethical behavior than male executives and, thus, executive gender will influence the extent to
which firm-level incentives lead to corporate unethical actions.
In addition to the predictions of gender socialization theory, we also consider compatible
logic from theories of gender-based differences in risk tolerance. According to Byrnes et al.
(1999: 367), “risk taking involves the implementation of options that could lead to negative
consequences.” Research demonstrates that women are generally more risk averse than men.
Women are more likely to take action to avoid negative consequences and, thus, are less likely to
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engage in risky behavior (Byrnes et al., 1999; Schubert, 2006). Similar results have been shown
in the context of corporate executives. For example, female executives are more cautious than
male executives (Huang & Kisgen, 2013) and adopt less risky corporate strategies (Ho, Li, Tam,
& Zhang, 2015; Peni & Vahamaa, 2010). Research also shows that female executives make less
risky decisions regarding corporate financial reporting (Barua, Davidson, Rama, & Thiruvadi,
2010; Ho et al., 2015). For example, Francis, Hasan, Park, and Wu (2015) find for firms with
high risks of litigation and loan default and high systemic risk, female CFOs are more
conservative in their financial reporting choices than male CFOs.
In sum, theories on gender socialization and gender-based differences in risk tolerance
lead us to predict that female executives will be more sensitive to corporate unethical behavior
and less willing to accept the risks associated with such behavior than male counterparts. Given
their communal values and proclivity to make decisions based on concern for others (e.g.,
shareholders, employees, etc.), female executives should be more likely to resist temptation or
speak out and take action to influence the ethicality of their firms in the presence of firm-level
incentives to engage in unethical outcomes. Accordingly, we predict that the association between
firm-level incentives to engage in unethical behavior and corporate unethical decisions will be
weaker for firms with female executives than for firms with male executives.
Hypothesis 1: The presence of a female executive will reduce (moderate) the effect of
firm-level incentives for unethical behavior on unethical corporate actions.
While gender socialization and gender-based differences in risk tolerance provide general
support for Hypothesis 1, proponents of occupational socialization argue that gender differences
due to early socialization and gender expectations may be partially or fully overridden by
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occupational roles and experiences. In corporate settings, individuals develop expectations about
the attitudes and behaviors of leaders, and some argue that these occupational role expectations
will strongly determine managers’ behaviors (Eagly et al., 1995; Phillips & Lord, 1982) such that
men and women will respond similarly to ethical situations based on role expectations (Betz et
al., 1989; Mason & Mudrack, 1996). For example, Ge, Matsumoto, and Zhang (2011) found no
association between CFO gender and the quality of firms’ financial reports. These findings are
counter to the body of research evidencing the effects of executive gender on firm ethicality
described further above. To explain such mixed findings, some researchers conclude that gender
effects are issue or context contingent (Craft, 2013; O’Fallon & Butterfield, 2005) and call for
future research to better understand gender differences in corporate settings (Joshi, Neely,
Emrich, Griffiths, & George, 2015). This study attempts to answer this call in part by examining
whether the moderated effect of executive gender on the relationship between firm-level
incentives for unethical behavior and such behavior is contingent on board gender diversity,
representing a three-way interaction as depicted in Figure 1.
The Role of Board Gender Diversity
As described above, ethical decisions at the firm level are socially situated (Brass et al.,
1998). Thus, while senior female executives may in general be more likely than males to
promote ethicality in corporate governance (Hypothesis 1), whether they can actually positively
sway firm-level ethical decisions and actions will depend in part on the extent to which they are
heard by and influence others’ decisions, primarily boards of directors which are commonly
comprised entirely or in majority by males. We offer these dynamics as a partial explanation for
the mixed findings in prior research on gender-based differences in ethics. Considering both the
symbolic and instrumental effects of the presence of female directors on the board, we propose
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that female executives’ abilities to influence corporate ethical decision making will depend on
the gender diversity of the board of directors. Based on signaling theory (Connelly et al., 2011),
the presence of female directors signals to other board members that females’ expertise and
voices are important in corporate governance, thus making it more likely for female executives
to impact firm ethics. Additionally, as contact theory (e.g., Pettigrew & Tropp, 2006) suggests,
members of gender diverse boards will gain familiarity with and exposure to competent female
board members, leading to more positive attitudes and beliefs about female executives, and thus
limit in/out-group delineations. Therefore, greater contact should make a gender diverse board
more open to a female executive’s opinions and views than more than a male-dominated board,
and more likely to advocate to ensure a female executive’s voice on firm ethics is more fully
considered.
Symbolic effects of board diversity on the board. From a symbolic standpoint, the
presence of female directors signals to others in executive and governance positions that women
are valued as corporate decision-makers. According to signaling theory, in the presence of
asymmetric information, firms convey important information through observable signals. These
signals achieve a desired strategic effect on receivers of the signal that those receivers may not
otherwise consider (Connelly, Certo, Ireland, & Reutzel, 2011). The appointment of females on
the board signals that the firm values females’ thoughts and opinions and supports their inclusion
in the firm’s governance process. Thus, a gender diverse board signals expectations and norms
toward integrating female senior leaders’ views in corporate decisions more fully, whether
ethics-related or otherwise. In support of this notion, Bilimoria (2006) finds that women are more
likely to be promoted to top executive positions when there is a female presence on the board.
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Without female presence on the board, however, female executives may more likely be viewed
as a token (Kanter, 1977).
Empirical research on gender diversity suggests gender effects will often only be evident
when the number of females reaches a certain threshold of representation (i.e., female inclusion
is considered to be more than a token). For example, Torchia, Calabro, and Huse (2011)
examined the impact of board gender diversity on firm innovation and found positive effects
occurred only when there were at least three females on the board. Similarly, Joecks, Pull, and
Vetter (2013) found that the effects of board gender diversity are curvilinear, negatively
impacting firm performance at lower levels, then positively effecting performance once a critical
mass of approximately thirty percent females on the board is attained. This research suggests that
female influence on firm decision making is amplified when there is strength of numbers. This
logic suggests that without females on the board itself, the firm signals that women do not have a
place at the ‘governance table’, and thus, female corporate executives may be more likely to be
seen as a token by board members and less able to influence the board’s governance process and
corporate outcomes.
Symbolic effects of board diversity on female executives. It is also important to recognize
that this signaling effect would likely also be ‘received’ by the (non-board) female executives in
the firm. When a female CFO presents the firm’s recommended tax strategy to the board, for
example, female presence on the board would signal to the CFO greater support for female
voice. Morrison (2011: 375) defines voice as “discretionary communication of ideas,
suggestions, concerns, or opinions about work-related issues with the intent to improve
organizational or unity functioning.” A key assumption in the voice literature is that motivations
for voice are largely prosocial – individuals use their voices to make positive changes in the
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organization. Voice can either be promotive, where one seeks to improve current processes to
benefit the organization, or prohibitive, to express concern about problems or behaviors that may
be harmful to the organization (Liang, Farh, & Farn, 2012), such as unethical decisions. Voice,
however, involves risk as one’s ideas, opinions, or concerns may contradict the status quo and
upset those in power in an organization.
The literature identifies two primary factors underlying individuals’ voice decisions: the
perceived costs of voice and level of voice efficacy (Morrison 2011, 2014). Board gender
diversity signals that the board is open to female voice and would thus tend to reduce the
perceived risk of voice. This occurs in part through reducing perceived power differentials.
Keltner, Gruenfeld, & Anderson (2003: 265) define power as “an individual’s relative capacity
to modify others’ states by providing or withholding resources or administering punishments.”
Power is a social construct and alters individuals’ perceived abilities to influence the opinions
and behaviors of others. One factor shown to influence perceptions of power is one’s similarity
to others in the group. As the number of women on the board increases, female executives would
be more likely to perceive a greater sense of power, and thus greater voice efficacy (Morrison,
See, & Pan, 2015). This increased belief that one’s voice will be heard and can impact corporate
outcomes should increase the chance a female executive will enact robust voice (Detert & Burris,
2007; Morrison et al., 2015). In sum, the signaling associated with appointing females to the
board of directors should not only promote female executives to voice their thoughts concerning
firm ethics and other matters, but also increase the level of receptivity of the board to ‘hear’ and
thoughtfully consider the voiced information and recommendations those females’ offer.
Instrumental effects of board diversity. Beyond these symbolic/signaling effects, it is
important to also consider the instrumental effects of female presence on the board, supported by
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the predictions of contact theory. Contact theory posits that contact between in-group and outgroup members can reduce intergroup bias and conflict and improve group performance
outcomes (e.g., Pettigrew & Tropp, 2006). Individuals create social categories and social
identities based on perceived similarities and differences with others in the group, resulting in ingroup and out-group distinctions (Tajfel, 1978; Tajfel & Turner, 1985). In-group members
typically attempt to impose majority influence over group decision making, seeking to impose
their shared ideas and opinions on the minority during decision making.
Although minority members have the ability to encourage divergent thinking and
attenuate group-think, minorities face potential social barriers to exerting influence over the
majority. Out-group members are commonly perceived as less competent and trustworthy and
their opinions are often ignored as minority opinions, making them less able to influence the
majority (Wood, Lundgren, Ouellette, Busceme, & Blackstone, 1994). Ideas from out-group
members are also often perceived as less relevant and/or credible than the same ideas from ingroup members (Erb, Bohner, Schmilzle, & Rank, 1998), and are thus often ignored. In-group
and out-group distinctions also lead to conflict, distrust, and reduced communication between the
majority and minority (e.g., Li & Hambrick, 2005).
Contact theory maintains that these group stereotypes and conflicts can, however, be
reduced via intergroup contact. Exposure to members of a different group enhances familiarity
with, and reduces uncertainty related to that group, and thereby reduces intergroup prejudice
(Pettigrew & Tropp, 2006). Further, contact with out-group members tends to create counterfactual experiences that break down inaccurate stereotypes and social categorizations (Dividio,
Gaertner, & Kawakami, 2003). This is because counterfactual experiences create cognitive
disequilibrium and force individuals to consider the adequacy of their schemas and beliefs and
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make adjustments as needed. Whether selecting a male or female, firms commonly appoint
highly accomplished and competent individuals to their boards. The tenets of contact theory
support that interacting with such capable female directors will lead male directors to reduce
their level of uncertainty concerning female senior leaders and promote them to refine their
stereotypes and social categorizations to more closely match the observed female model(s). This
should reduce out-group categorization and increase male directors’ willingness to more closely
consider and value the opinions of females’ inputs into the governance process. Individuals apply
their social schemas to other similar actors. Thus, as their social categorizations related to senior
female leaders are altered, this receptivity should extend to other senior female executives (e.g.,
CEO and CFO) seeking to influence the board.
In sum, we consider the social dynamics between male and female corporate executives
and directors on firm ethicality. We do so by investigating the interactive influence of board
gender diversity and executive gender on the association between firm-level incentives for
unethical behavior and corporate ethical decisions. In Hypothesis 1, grounded in gender-based
differences in ethicality and risk tolerance, we supported that female executives will be more
likely than males to support or acquiesce to ethical transgressions in the face of incentives to do
so. Based on signaling and contact theories, in Hypothesis 2 we further predict that a gender
diverse board of directors will increase both the likelihood those female executives voice their
thoughts and the extent their voices are able to influence the board’s decisions. This
multiplicative effect should attenuate the association between corporate incentives for unethical
behavior and actual unethical corporate actions. Therefore, our final hypothesis follows:
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Hypothesis 2: The moderating effect of female executives in curtailing the association
between firm-level incentives for unethical behavior and unethical corporate actions will
increase as the percentage of females on the board of directors increases.
METHODS
Study Overview
We use a common ethical dilemma all firms face to test our theoretical model: the
decision of whether to evade corporate taxes. The ambiguity in US tax laws, coupled with the
fact that the legality of many tax decisions will only be adjudicated if a firm’s tax strategy is
subsequently challenged by regulators, presents a great opportunity for firms to evade taxes
(Hanlon & Heitzman, 2010). Tax decisions thus provide a unique context to examine a firm’s
ethical decision making. Indeed, conflicting incentives related to tax evasion provide an
interesting ethical dilemma for firms. Though an evasive tax strategy may reduce corporate tax
payments and increase after-tax earnings, it carries a social stigma that less aggressive tax
strategies do not. Many believe paying taxes is part of a societal and moral obligation. For
example, Johnson & Johnson’s 2013 Citizenship & Sustainability Report states, “We are called
to be good citizens, supporting good works and charities, bearing our fair share of taxes,
encouraging civic improvements…” 1 In support of this notion, studies have found firms that
evade taxes are viewed as socially irresponsible (Dowling, 2013) or “poor corporate citizens”
(Hanlon & Slemrod, 2009: 127). There is evidence that some firms have even paid taxes in
excess of the required US federal corporate tax rate (i.e., 35% of pre-tax income) over a ten-year
period (Dyreng, Hanlon, & Maydew, 2010), presumably to avoid this stigma. However,
1
http://www.jnj.com/sites/default/files/pdf/cs/2013-JNJ-Citizenship-Sustainability-Report-FINAL061914.pdf
17
significant economic incentives exist for firms to engage in tax evasive behaviors. Minimizing
the corporate tax levy improves cash flows, the firm’s bottom line, and overall firm value for
shareholders. A recent survey reports that approximately 57% of executives of publicly traded
firms consider it important for a firm’s tax strategy to increase earnings per share (Graham et al.,
2013).
Given that tax evasion is the focal dependent variable, we focus on CFOs as they are the
executive in firms primarily responsible for managing corporate financial risks and decisions
regarding corporate taxes and financial reporting (Armstrong et al., 2012; Crocker & Slemrod,
2005). Although studies find that the CEO has a prominent influence over ethical financial
reporting decisions (e.g., accounting manipulations; Feng, Ge, Luo & Shevlin, 2011), the CFO is
considered the primary tax decision maker. 2 Further, the Sarbanes-Oxley Act of 2002 requires
the CFO (in addition to the CEO) to personally certify to the material accuracy and completeness
of the financial information disclosed by a firm. This legislation holds the CFO personally
accountable and liable for the quality of the financial reports, including information regarding
corporate taxes. Thus, while we simultaneously empirically test for the effects of CEO gender on
the firm’s tax evasion, we focus operationalization of the model on assessing whether the
relationship between a firm’s incentives to evade taxes and actual evasion is reduced when the
CFO is female, and whether that moderating effect is further increased when there are also
females on the board. Given the board’s role in monitoring management and helping align
shareholders’ and managers’ interests, the CFO must influence the board regarding corporate tax
decisions
2
The CEO is also often a member of the board of directors themselves and, thus may not share the same concerns
and managerial risk-taking incentives as the CFO. However, we control for characteristics of the CEO in our
analyses and we also consider the role of the CEO in impacting firm ethics in supplementary analyses.
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We use cash holding, calculated as cash and cash equivalents divided by total assets, to
operationalize firm-level incentives to evade taxes. Agency theory suggests that firms and CFOs
strongly prefer to accumulate cash for their own purposes (e.g., grow the firm, increase power,
flexibly make investments, etc.) rather than distribute it to others (Jensen 1986), such as taxing
authorities. Firms with larger cash holdings thus have greater incentives to evade taxes. Indeed,
empirical evidence supports that cash holdings are positively and significantly associated with
corporate tax avoidance (Kim & Zhang, 2016).
Data and Sample Selection
The sample for this study is comprised of all firms reporting necessary demographic data
for CEO and CFO for the period of 1992-2011 in ExecuComp. ExecuComp contains
demographic and compensation data collected from the annual proxy statements large publicly
traded companies, mostly the S&P 1500, file with the SEC. We obtained CFOs’ and CEOs’
gender and age data from the ExecuComp database and manually collected missing executive
information from sample firms’ proxy statements. Our initial sample contains 6,680 firm-year
observations. We obtained corporate financial data from Compustat, corporate governance index
and board independence data from RiskMetrics, and percentage of employees who are female in
the same industry from the Bureau of Labor and Statistics. Financial institutions and utility firms
were excluded from our primary analyses as these firms are subject to regulatory monitoring, and
this increased oversight may limit firms’ inclinations and opportunities to engage in unethical
behavior compared to firms in other industries. 3 This exclusion reduced our sample size by 377
observations. Missing financial data triggered the elimination of 2,006 observations, leaving
3
Financial firms have SIC codes between 6000 and 7000; utility firms have SIC codes between 4900 and 5000.
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4,297 observations. Our final sample was further reduced to 3,186 observations when we limit it
to firms with non-missing corporate governance index and board independence data.
Of the final sample, 6.6% had female CFOs during the sample period while 1.9% had
female CEOs. The number of female CEOs and CFOs generally increased from 1992 to 2004,
but fluctuated in number during 2005-2011. 12.9% of sample firms in the wholesale and retail
industry had a female CFO, followed by 9.2% in the services industry, and 6.0% in the
manufacturing industry. 4.6% of sample firms in the services industry had a female CEO,
followed by 2.2% in the transportation, communications, electric, gas and sanitary services
industry, and 1.9% in the manufacturing industry. None of the sample firms in the agriculture,
forestry and fishing industry or the public administration industry had either a female CFO or
CEO during 1992-2011. 83.2% of the sample firms had at least one female director on their
boards, and the average percentage of board members who were females was 13.2%.
Measures
Dependent variables. Our proxy for corporate unethical actions is tax evasion. We define
tax evasion broadly as any means used to intentionally reduce or avoid the taxes owed
legitimately. Tax evasion is typically estimated through proxies as corporate tax returns and any
disclosures therein are confidential records. In addition, due to the complexities and ambiguities
in tax laws, the ultimate legality of tax decisions can only be determined with certainty if the tax
strategy is subsequently challenged (Hanlon & Heitzman, 2010). Due to these challenges,
Wilson (2009) created a variable that measures the likelihood that a particular corporation evades
taxes based on a detailed examination of a set of corporations that have been formally accused of
tax shelter activity. This measure has been used in several studies (e.g., Hoi, Wu, & Zhang,
2013; Kim, Li, & Zhang, 2011; Rego & Wilson, 2012) and is considered a robust measure to
20
capture the more egregious tax evading behaviors (Lisowsky, Robinson, & Schmidt, 2013). We
construct this variable, estimated tax sheltering, to test our theoretical model and, specifically,
the relationship between firm-level incentives, CFO gender, board gender diversity, and this
dependent variable using the equation shown in the below footnote. 4
In addition to estimated tax sheltering, we also assess total book-tax difference as
calculated by Wilson (2009) as a second proxy for corporate tax evasion. Total book-tax
difference is a less direct measure of tax evasion because it includes anything that would give
rise to a difference in book and taxable income, including aggressive financial reporting, legal
but highly aggressive tax planning, and actual evasion (Frank, Lynch, & Rego, 2009; Hanlon,
2005; Phillips, Pincus, & Rego, 2003). Research has found this construct to be significantly
related to actual tax shelter activity (Desai, 2003; Lisowsky, 2010; Wilson, 2009).
Independent variables. The three independent variables are cash holding, Female CFO,
and % of board that consists of females. As described above, we use cash holding, calculated as
cash and cash equivalents divided by total assets, as the measure to operationalize firm-level
incentives to evade taxes. We code executive gender with an indicator of 1 if a firm’s CFO is
female and 0 if male. We measured the gender diversity on the board of directors by the
percentage of the board that consists of female directors.
Control Variables. We includ a number of control variables in attempt to isolate the
effects of the hypothesized variables. First, we includ CFO’s age to control for the experience
level of the CFO. Research shows that CFO experience is associated with the quality of a firm’s
4
Based on the model described in Rego and Wilson (2012), estimated tax sheltering is calculated as -4.30 + 6.63 *
book income less taxable income divided by beginning of year total assets - 1.72 * long-term debt divided by
beginning of year total assets + 0.66 * the natural logarithm of total assets + 2.26 * pre-tax earnings divided by
beginning of year total assets + 1.62 * an indicator variable set equal to 1 for firm observations reporting foreign
income, and set to 0 for all other observations + 1.56 * R&D divided by beginning of year total assets.
21
financial reports (Aier, Comprix, Gunlock, & Lee, 2005). More experienced CFOs may also be
more likely to voice their opinions (Morrison, 2011) and have greater status, regardless of their
gender. Since prior research has found that CEOs may also have a significant effect on a firm’s
tax decisions (e.g., Dyreng, Hanlon, & Maydew, 2010; Law & Mills, 2015), we control for the
age and gender of the CEO (1 = female, 0 = male). In addition, we control for board
independence (the percentage of board members that are independent directors) and the strength
of the firm’s shareholder rights (corporate governance index computed by Gompers, Ishii &
Metrick (2003)) 5. Prior studies have showed, consistent with the tenants of agency theory, that
director independence and strong shareholder rights are effective corporate governance
mechanisms that minimize corporate unethical and illegal behaviors (Beasley, 1996; Bebchuk,
Cohen, & Ferrell, 2009; Klein, 2002).
A firm’s tax position is determined by a variety of firm-level factors, including its taxable
income from the prior year’s economic activities. To isolate the hypothesized effects of
executive gender and board gender diversity, we control for a set of variables that prior research
has shown to be significantly related to a firm’s tax decisions (Dyreng et al., 2010; Rego, 2003),
such as an indicator variable for whether the firm has a net operating loss (NOL), annual sales
growth (in percentage), and the capital expenditures to property, plant, and equipment ratio. Tax
evasion may have negative reputational effects, thus firms that are more in the public eye and/or
deal more directly with consumers may suffer greater reputational penalties for tax evasion than
other firms, such as those conducting solely business-to-business sales or services. To control for
possible reputational effects, we include the advertising expenses to sales ratio as a proxy for the
5
This index provides the number of shareholder rights-decreasing provisions a firm has. The index ranges from a
feasible low of 0 to a high of 24; a high (low) score is associated with weak (strong) shareholder rights, representing
weak (strong) corporate governance.
22
extent to which the firm is in the consumer spotlight (Hanlon & Slemrod, 2009). In the models
where total book-tax difference is the dependent variable, we control for additional measures
shown in prior research (e.g., Frank et al., 2009) to influence tax differences, including R&D
expenses to sales ratio, leverage (long-term debt to total assets ratio), an indicator for whether the
firm has foreign operations, and firm size (natural logarithm of total assets). We do not include
these variables in models where estimated tax sheltering is the dependent variable because these
effects are accounted for in the equation estimating corporate sheltering activities. Finally, we
include industry dummy codes and year dummy codes in all models to account for potential
industry and time effects.
RESULTS
We tested our hypotheses using ordinary least squares (OLS) models relating continuous
dependent variables (i.e., estimated tax sheltering and total book-tax difference) to independent
variables. Following the procedures recommended by Cohen, Cohen, West and Aiken (2003), we
mean-centered all non-dichotomous independent variables in the regression analyses. To assess
the robustness of our findings and address concerns with potential endogeneity, we conducted
additional analyses adopting an instrumental variable approach and estimating a two-stage least
squares model (Gul, Srinidhi, & Ng, 2011; Srinidhi et al., 2011). As further tests for robustness,
we examined whether our results hold if we include in our sample highly regulated industries,
such as financial institutions and utility firms. We also examined whether the gender of other key
executives, such as the CEO, also impacts corporate ethics. Our findings remain unchanged in all
these additional tests.
Table 1 reports descriptive statistics and bivariate correlations for the study variables.
Table 2 reports results from the OLS regressions on corporate tax evasion. Models 1-4 and
23
Models 5-8 were estimated using tax sheltering and total book-tax differences as the dependent
variables, respectively. We mainly discuss the findings based on Models 1-4 as the findings from
the alternative dependent variable are generally consistent. Model 1 of Table 2 contains the
control variables while Model 2 contains the independent and control variables. Consistent with
prior research (e.g., Ho et al., 2015), the significantly negative coefficient of Female CFO in
Model 2 indicates that firms employing female CFOs exhibit less tax sheltering than those with
male CFOs. Hypothesis 1 asserts that the presence of a female executive will reduce the effect of
firm-level incentives for unethical behavior on unethical corporate actions. As shown in Model
3, the interaction between female CFO and cash holding is negative and significant (β = -6.401, p
< .01), indicating that the presence of a female CFO curtails the link between corporate
incentives to evade taxes (i.e., cash holdings) and tax evasive behaviors. The result provides
support for Hypothesis 1. Figure 2 provides a graphic representation of this two-way interaction.
Specifically, we used the unstandardized regression coefficients and constant from Model 3 to
plot the relationship between CFO gender, cash holding, and estimated tax sheltering. Following
convention, we defined high and low levels of cash holding as 1 standard deviation above and
below the mean, respectively. As displayed in Figure 1, the simple slopes for the relationships
between cash holding and estimated tax sheltering are negative and significantly different from 0
for firms with female CFOs (β = -5.767, p < .01) and positive and significantly different from 0
for firms with male CFOs (β = 0.634, p < .05). These results further support Hypothesis 1.
Hypothesis 2 predicts that the moderating effect of female executives in curtailing the
association between firm-level incentives for unethical behavior and unethical corporate actions
will increase as the percentage of females on the board increases. Model 4 of Table 2 contains
the measure of board gender diversity (% of board that consists of female) and all interaction
24
terms, in addition to the variables in Model 3, with estimated tax sheltering as the dependent
variable. The significant and negative three-way interaction term in Model 4 (β = -0.728, p < .01)
supports Hypothesis 2, indicating that female CFOs reduce the relationship between incentives to
evade taxes (cash holding) and corporate tax sheltering to a greater extent when there is higher
female representation on the board. Figure 3 diagrams the relationships between CFO gender,
cash holding, board gender diversity, and corporate tax evasion. We define high and low % of
board that consists of female as 1 standard deviation above and below the mean, respectively.
The simple slopes indicate that firm-level incentives to evade taxes are negatively associated
with estimated tax sheltering when a firm’s CFO is female, and that this negative association was
more prominent when there was a high, as compared to low, percentage of board that consists of
female directors. We used the slope difference tests in Dawson and Richter (2006) to examine
whether line (1) in Figure 3 is significantly different from the slopes of each of the other three
graph lines. As tabulated in Figure 3, results show that each pair of slopes are significantly
different from each other. These findings further support Hypothesis 2.
[Insert Tables 1-2 and Figures 2-3 about here]
Models 5-8 of Table 2 were estimated using total book-tax differences as an alternative
dependent variable. Consistent with findings using estimated tax sheltering, Model 7 finds the
interaction between female CFO and cash holding is negative and significant (β = -0.226, p <
.01). Figure 4 plots the two-way interaction shown in Model 7 similar to the procedure used to
plot Figure 2, as discussed above. The relationship between cash holding and total book-tax
difference is not significantly different from zero when a firm has a female CFO, although the
relationship is significantly positive when a firm has a male CFO (β = 0.172, p < .01). Consistent
with findings using estimated tax sheltering, Model 8 finds the three-way interaction between
25
female CFO, cash holding, and % of board that consists of female is negative and significant (β =
-0.0706, p < .01). Figure 5 depicts the three-way interaction shown in Model 8 in a way that
parallels the procedure used to plot Figure 3. Cash holding appears to be positively associated
with corporate tax evasion in all circumstances except when a firm employs a female CFO and
has a high percentage of female directors on the board. The slope for the relationship between
firm-level incentives for unethical behaviors and corporate unethical actions when a firm’s CFO
is female and has a high percentage of board that consists of female is significantly different
from the slopes of each of the other three lines. In summary, results using this alternate
dependent variable mirror those in the primary analysis and provide robust support for our
hypotheses.
[Insert Figures 4 and 5 about here]
Supplementary Analyses
To further identify the nature of the three-way interaction, we conducted a series of
supplementary tests. First, we find that the three-way interaction term in Model 4 remains
negative and statistically significant (β = -9.180, p < .01) when we replace the percentage of the
board that consists of female directors (a continuous variable) with a variable reflecting whether
the firm had at least one female director on the board (a dichotomous indicator variable of 1 if
firm as at least one female directors and 0 if no female directors). In order to conduct additional
post-hoc exploratory analysis, we split the full sample into two groups - firms with at least one
female on the board of directors and firms without female directors. Table 3 presents the results
of OLS regressions with the independent variables and the interaction of cash holding and female
CFO for each group. We control for the percentage of the board consisting of female directors in
the subsample of firms with female presence on the board in order to isolate whether having any
26
female representation yields effects beyond the level of female representation. The coefficient
estimates of our variable of interest, Female CFO*Cash holding, are negative and significant in
both Model 1 (β = -7.7630, p < .01) and Model 3 (β = -0.4164, p < .01). This result suggests that
female CFOs are more likely than male CFOs to mitigate the impact of firm-level incentives on
tax evasion among firms with at least one female on the board. 6
In the subsample of firms without female board members, the coefficient estimates of the
interaction term are insignificant in Model 2 and significantly positive in Model 4 (β = 0.5228, p
< .01). We do not include Female CEO as a control variable in this analysis due to lack of
variation, as none of the firms in this subsample has a female CEO. This finding shows that in
firms with an all-male board, female CFOs are not only unable to mitigate the impact of firmlevel incentives on tax evasion decisions, but in fact firms’ levels of tax evasion increase in the
face of incentives. This finding further supports the role of board gender diversity as predicted in
Hypothesis 2.
[Insert Table 3 about here]
Results for control variables. Results for our control variables are largely consistent
with prior research and expectations discussed above. The coefficients of CFO’s age and CEO’s
age are positive and significant in Models 1-4 of Table 2, indicating that firms with older CEOs
and CFOs are more likely to evade taxes than those with younger ones. Interestingly, the main
effect coefficients of Female CEO are insignificant in all regressions. This finding implies that
the CEO gender is not associated with corporate tax evasion. This is likely because, as described
above, CFOs have predominate influence over corporate tax decisions. However, it is also
In addition, the three-way interaction term in Model 4 and Model 8 remains negative and statistically significant (β
= -1.022, p < .01 and β = -0.1048, p < .01, respectively) when we estimate the models only in the subsample of firms
that has a female presence on the board, suggesting that our main results in Table 2 are not driven by the inclusion of
firms without a female on the board.
6
27
possible that the insignificant coefficient of Female CEO is due in part to a lack of variation as
only 2% of the CEOs in our sample are female.
Consistent with Graham and Tucker’s (2006) finding that tax-sheltering firms have lower
leverage, we find a negative association between leverage (long-term debt to equity ratio) and
corporate unethical action proxied by total book-tax difference. Results also indicate that firms
with more intangible assets and more fixed assets are less likely to be tax evasive. The
coefficient of firms with pretax income from foreign operations is also positive and significant,
suggesting that firms with foreign operations have more opportunity to engage in tax evasion,
which is consistent with the findings of Frank et al. (2009).
Robustness Tests
We conducted several additional tests to assess the robustness of our findings. First, we
examined whether our results held if we include financial institutions and utility firms in our
sample, which are highly regulated industries. This inclusion increased the sample size to 4,674
observations. Re-estimating the regression models, the untabulated results indicated that the
coefficient estimates of the two-way interaction (Female CFO*Cash holding) and the three-way
interaction (% of board that consists of female*Female CFO*Cash holding) remain negative and
statistically significant (β = -6.4162, p < .01 and β = -.729, p < .01, respectively), providing
consistent results with the exclusion of financial and utility firms.
Second, to address the potential of endogeneity (i.e.., CFO gender is a choice variable
and correlated with other unobservable factor(s) relegated with the error term), we used the
instrumental variable approach and estimated two-stage least squares models. We used the
percentage of female employees in the industry with the same two-digit SIC code reported by the
Bureau of Labor and Statistics as the instrumental variable in the first-stage model. The rationale
28
is that a firm in an industry that has a higher percentage of female employees is more likely to
have a female CFO. We included variables from Ho et al. (2015) for predicting CFO gender in
the first-stage regression: property, plant, and equipment to total assets ratio, annual sales
growth, natural logarithm of total assets, leverage (long-term debt divided by total assets), return
on assets (pretax income divided by total assets), and Tobin’s Q (e.g., Chung and Pruitt, 1994;
book value of assets minus book value of equities plus market value of equities, divided by book
value of assets). We then used the fitted value of Female CFO from the first-stage regression in
the second-stage regression. The inverse Mills ratio generated by the first-stage regression was
then included in the second-stage regressions to address the potential for endogeneity (Lennox,
Francis, & Wang, 2012). Panel A of Table 4 reports the results of the first-stage regression. The
coefficient of the instrumental variable is positive and significant (β = 2.8769, p < .01),
consistent with our expectation that the percentage of female employees in an industry is
positively associated with the appointment of female CFOs within that industry. We then used
the fitted value of female CFO from the first-stage regression in the second-stage regression.
Results of the second-stage regression (shown in Panel B of Table 4) are consistent with our
main findings.
[Insert Table 4 about here]
Lastly, we examined whether CEO gender has a similar interactive effect on corporate
tax evasion as CFO gender. We included Female CEO and interaction terms in the model and reestimated the GLM regressions shown in Table 2, with estimated tax sheltering as the dependent
variable. Table 5 reports the results. The coefficient estimates of the two-way interaction
(Female CEO*Cash holding) in Model 3 and the three-way interaction (% of board that consists
of female* Female CEO*Cash holding) in Model 4 are insignificant. These results further
29
support that while a female CFO curtails the association between firm-level incentives and
corporate tax evasion, a female CEO does not.
[Insert Table 5 about here]
DISCUSSION
In this study, we explored the social dynamics occurring between men and women in
executive and governance positions and the resultant effects on firm ethics. Drawing on theories
from gender socialization and gender differences in risk tolerance, we proposed that female
executives – due to their generally higher ethical sensitivity and tendencies towards risk aversion
– will be less likely than their male counterparts to support unethical corporate actions in the
presence of firm-level incentives to engage in such behaviors. We also proposed, however, that
the extent that female executives positively impact corporate ethics will depend on the gender
diversity of the board of directors. Relying on both the symbolic (via signaling theory) and
instrumental (via contact theory) effects of a female presence on the board of directors, we
proposed that female executives will be more likely to speak up to champion their opinions to
gender diverse boards and that gender diverse boards will be more likely to be positively
influenced by those female executives’ opinions and recommendations.
We tested our hypotheses using 3,186 firm-year observations from a diverse sample
comprised largely of S&P 1500 firms. We used two separate measures of corporate tax evasion
as a proxy for corporate unethical actions. We focused on this proxy as it is an ethical decision
uniformly faced by all firms in our broad sample and it could be effectively estimated across all
firms. This potential unethical action focuses attention on CFOs as the primary fiduciary tax
executive within firms. While controlling for numerous variables that could otherwise confound
the results, we found that female CFOs generally minimize the impact of firm-level incentives on
30
corporate tax evasion. However, this effect is only observed when there is at least one female
director on the board – i.e., a 3-way interaction between CFO gender, board gender diversity, and
incentive for firm unethical behavior, in predicting firms’ unethicality. When examining the
subsample of firms with all-male boards, we find that CFO gender fails to mitigate the
association between incentives and tax evasion. We also find that in the presence of a male CFO,
female directors are unable to attenuate unethical corporate actions. In fact, we observe the
strongest positive associations between firm-level incentives and corporate unethical behavior in
firms with either a female executive and a male-dominated board of directors or with a male
executive and female directors on the board. This counterintuitive finding will be discussed
further below. Overall, the evidence suggests that gender diversity in executive positions is not
sufficient to impact corporate ethics – board gender diversity is needed in tandem.
Theoretical Implications
Findings from academic research on the benefits of gender diversity are mixed (Hoobler
et al., 2016; Post & Byron, 2015), suggesting that these issues are more complex than previously
believed. Some scholars have noted that gender effects in organizations are issue contingent. For
example, Hoobler et al. (2016: 4) propose that the impact of women in leadership positions is
moderated by their “opportunities to leverage their abilities to make unique contributions.” Our
evidence of the moderating effect of board gender diversity supports this notion, and we
encourage research to further investigate the interactive nature of gender effects.
Recent evidence suggests that a “critical mass” of approximately 30% female
representation on the board is necessary in order for board gender diversity to positively impact
firm outcomes such as firm performance (Joecks et al., 2013) and firm innovation (Torchia et al.,
2011). Those studies focused on how gender diversity directly influences those board outcomes.
31
We extend that thrust of research by investigating whether board diversity also moderates the
effects of corporate officers, based on their gender. Further, we extend this research into the
critical area of corporate ethics and demonstrate that firm-level ethical choices are socially
situated and influenced by gender. In investigating this moderating effect of board diversity, we
find that a substantial critical mass of females may not be needed. Instead, only one female
director may be necessary to bolster the effects of a female corporate executive in promoting
corporate ethics in the face of temptation.
It thus appears that the appointment of even one female to the board provides the
signaling and instrumental effects needed to allow female executives to better influence
corporate ethics. Indeed, results in Table 3 show that the percentage of females on the board does
not have a significant incremental direct effect above that of having only one female on the
board. This result, however, found across a large and diverse sample of firms, seems on the
surface inconsistent with the notion of “tokenism,” which would predict that a single “token”
female would have little influence (Kanter, 1977). In interpreting our results, it is important to
understand that we did not simply investigate the effects of a single female on their own maledominated group, as much of the tokenism research has done. Instead, our results show that
having a female in the group (board of directors) amplified the influence of an expert who is
outside the group (corporate executive/CFO) on the governance process. The single female
presence on the board thus appears to alter the social dynamics in a way that facilitates the
“outside female’s” influence. For example, through contact with a competent female peer(s) on
the board, male members may ascribe greater credibility to female executives and listen more
openly to and trust their expert opinions. As another example, after a CFO briefs the firm’s
recommended tax strategy to the board, as the board discusses the matter after the CFO departs,
32
having a female peer on the board may alter the way the board deliberates. If a female CFO
passionately argues against a risky tax evasion strategy, for example, dismissive thoughts such as
“she’s just being emotional” or “over-dramatic” may be less likely when board members have
come to better understand and respect females’ positions through signaling and contact. Such
examples are conjecture, but should spur future research to isolate the complex social dynamics
at play.
However, our results also show that female presence on the board alone is not sufficient
to positively impact firm ethics. That is, results suggest that if the executive is male, female
presence on the board does not attenuate firms’ unethical actions in the face of incentives for
unethical behavior. Instead, there is an increase in unethical action in the face of temptation
when the CFO is male, and the increase is more pronounced when there is a higher percentage of
females on the board. This result, although somewhat counterintuitive, is consistent with Torchia
et al. (2011: 311) who posit that “the gender of the leader may influence women directors’
contributions to board decision making processes.” This finding is also consistent with research
suggesting that characteristics of the key corporate executive are important determinants of
corporate outcomes, and that the characteristics of corporate leaders often outweigh the impact of
effective corporate governance structures (e.g., Francis et al., 2015). Again, it appears to be the
multiplicative effect of gender diversity occurring such that only the presence of a female
executive and at least one female governor creates positive effects on firm ethics.
Instead, female directors may either adopt or succumb to, or be unable to influence, the
ethical sensitivities and risk tolerance levels of the male directors and/or male executives, leading
to higher instances of unethical corporate outcomes. This finding reflects recent calls to consider
the role of male champions (or the lack thereof) in fostering gender diversity (Joshi et al., 2015).
33
We encourage future research to consider the gender-based social context in which ethical
decisions are made. That is, future research should consider the notion that firm ethics are
determined by multiple parties within an organization and further explore the possible conflicts
that may occur between those parties based on gender.
Indeed, the three-way interaction graph shown in Figure 5 suggest that the effects of
gender diversity on firm ethicality are quite complex. Depicting a stark contrast, having a female
executive, instead of a male executive, can either increase or decrease the level of firm ethical
transgressions, depending on the gender diversity of the board. These results show the robustness
of the contingent effect of board diversity and support the notion that the positive effects of
diversity are dependent not only on the minority actor, but of the receptivity of the audience they
seek to influence. These results also reinforce recent calls in the management literature for
researchers to seek to identify “inversions” occurring in their theories (Cavarretta, Trinchera,
Choi, & Hannah, 2016). Inversions occur when a contingency variable alters the effect of
something that is otherwise positive (e.g., effects of executive gender on firm ethicality when
faced with temptation) to the extent that the effect is not only suppressed, but changes direction,
inverting to become negative. The inversion occurring in the data, specifically depicted in Figure
5, could have been easily overlooked by not testing for the 3-way interaction.
These findings warrant future research to investigate the nature and underlying causes of
the observed interactions. While we expected and theorized that female presence on the board
would bolster the effects of a female executive, we did not expect the negative impact on firm
ethicality when the executive is a female and the board is comprised of all males. It is possible
this effect is due to the female executive either failing to voice powerfully or being marginalized
by the male directors to the extent that the board does not avail itself to the prudence that a CFO
34
otherwise offers on financial and tax matters. Alternately, an all-male board, if incentivized to
pursue unethical tax strategies, may seek to coerce or “bulldoze” a female CFO more as
compared to a male CFO to take an ethically risky course of action. Such possibilities are useful
future research questions.
Finally, our results show that only the gender of the CFO, and not the CEO, influenced
corporate ethical action. This result is not surprising given the context of this research, and
foremost the operationalization of firm unethical action using the proxy of corporate tax evasion.
While CEOs are in general responsible for corporate strategic decisions, CFOs are commonly the
focal executive who in practice formulate recommendations for financial and tax policies and
strategies and present them to the top management team and the board as part of the governance
processes. CFOs are also generally considered the focal expert on such matters. Future research
should study whether the gender of other firm executives has greater levels of influence on the
ethicality of outcomes for which they are the focal agent, such as the CEO related to the
ethicality of firm strategic choices (e.g., product lines or markets to pursue), or the COO for the
ethicality of operational practices, etc. The lack of a significant effect of CEO gender could also
be in part because CEOs often sit on the board themselves 7, which could make it difficult to
isolate the influence of CEO gender on firm ethics, and they typically have different managerial
risk-taking incentives from those of CFOs. Yet, a lack of a CEO gender effect could simply be
due to a lack of variation, as less than 2% of sample firms had a female CEO. Therefore,
researchers should continue to study whether and how the gender of various firm executives
influence varied forms of firm (un)ethical choices and actions. If it is simply an issue of
7
For example, 14 of the 15 female CEOs in our sample served on the board of directors during the sample period.
35
statistical power, such research may have to be revisited if or when there are more female CEOs
in corporations.
These described results were confirmed through tests for endogeneity and through using
different supplemental approaches to analyses, including using two different measures of the
proxy for unethical corporate decisions and testing the effects across different industries. The
findings presented are robust to all supplemental tests, increasing confidence in the results.
Practical Implications
These findings should inform practitioners and policymakers. Regulators and those
making executive hiring decisions and director appointments might consider our results showing
that female executives can in general better buffer their firms from incentives for unethical
behavior as compared to male executives, but can only do so when there is at least one female on
the board. This result aligns with Post and Byron’s (2015: 1563) argument that “gender diversity
is not a simple ‘numbers game’”. Specifically, our evidence suggests that firms should consider
gender diversity across both executive and board positions, as it is the combination of the two
which seems to matter. Indeed, our results show that appointing a female executive when there is
an all-male board may actually increase unethical action.
These complex results suggest there are meaningful social and power dynamics that may
occur between males and females in executive and governance positions when ethical matters are
at stake. Female executives, for example, often report paternalistic micromanagement by their
male counterparts – a phenomenon where men place women in leadership positions and then
attempt to control their actions (Bryant, 2014). According to Liz Dolan, former director at
Quiksilver, “even when a woman earns a seat at the table, the men can put you in a sound proof
booth” (Dolan, 2015). Our results align with the notion that a female CFO’s influence is muted
36
when facing an all-male board. This can limit the CFO’s ability to act as the firm’s primary
internal financial and tax authority, allowing the firm to drift into unethical waters. Yet, a recent
study surveying 783 public company directors found that approximately 63% of female directors
consider board gender diversity a “very important” topic, while only 35% of male directors
responded similarly (PWC, 2015). Thus, men and women appear to have differing perceptions
on the importance and value of gender diversity in firm governance.
Our results showing that the high level of firm unethical action when a female CFO faces
an all-male board has significant practical considerations. First, all-male boards should be made
aware through training or other means that they may have overt or implicit biases that limit their
openness to female executives’ input, and might learn techniques and procedures to avoid such
resistance. Male directors may also be trained in techniques to create an environment that helps
female executives feel more at ease and psychologically safe to express their opinions. Further,
female executives should be made aware of the potential hurdle they may have in getting their
recommendations and opinions thoughtfully considered and accepted by all-male boards, and be
developed in voice, persuasion, and negotiation techniques and other knowledge, skills and
abilities that can aid in increasing their level of influence.
Additionally, recent corporate scandals have highlighted the need for improved board
monitoring. In response, regulators have primarily focused on board independence as a measure
of board effectiveness (e.g., SOX). Our results suggest that regulators and policy makers should
also consider board gender diversity in addition to other board attributes when considering the
characteristics of a board effective in governance. Our evidence also suggests that the
effectiveness of a board in governing its firm’s ethics, at least as it relates to the variables
assessed here, must be considered in combination with the gender of key corporate executives.
37
Overall, our results suggest that gender diversity across directors and corporate
executives improves firms’ ethical governance. Yet, despite these potential benefits, there have
been limited improvements in gender diversity. A study by global accounting firm EY (2015)
reports that the proportion of women on boards increased a modest 5% from 2004-2014. The
study also finds that of the S&P 1500 companies, a mere 4% of CEOs and 10% of CFOs are
women.
Limitations and Future Research
As with any empirical research, our study is subject to certain limitations which provide
various opportunities for future research, and some of which we described in the implications
sections above. First, we used corporate tax evasion as a proxy for unethical decisions and
focused on the CFO as the key executive responsible for corporate tax decisions. Although we
expect our results to generalize to other ethical scenarios and other corporate executives most
positioned to influence those decisions, such generalizations remain a matter for future research.
Second, using numerous large-sample archival sources to compile our dataset allowed a
test of our hypotheses across a broad representation of firms. Yet, such sources have limitations
as far as data availability. We did not have data needed to directly test the social dynamics
occurring, based on gender, between executives and boards. For example, we could not assess
the relative influence of the symbolic as compared to the instrumental effects of board gender
diversity we theorized. We could not determine how much of the observed effects are due to
female executives being more likely to voice their opinions, or voice them more strongly, to a
more diverse board versus how much the observed effects are instead due to the extent those
voices are just more “heard” when there is greater board gender diversity. This is an important
38
area of future research requiring a study with methods and design focused on that research
question.
Third, we relied on guidance from upper echelon theory that proposes that observable
demographic variables are useful measures to empirically examine executive decision making
(Hambrick, 2007; Hambrick & Mason, 1984). However, our archival data for this broad sample
did not allow verifying the actual ethical orientations and levels of risk aversion of the hundreds
of executives and directors in this sample. We thus relied on the canon of extant research to
suggest such differences between the genders exist. Future research using survey and/or
experimental methods is needed to fully understand the actual gender-based psychological and
behavioral differences operating across corporate executives and directors.
As mentioned above, future studies should examine how gender affects the influence of
other executives as well as within the board itself. For example, future research could consider
the interactive effects of CEO gender and the gender diversity of the board (and perhaps
specifically, the compensation committee) on the ethicality of executive compensation decisions.
Whether and how gender effects materialize within the board is another important area for future
research. For example, it would refine the current research to test the extent to which the gender
diversity of the board’s audit committee relative to the gender diversity of the overall board
impacts our current findings related to tax evasion.
Finally, although we focused on the ethical decisions of corporate-level executives and
directors, future research could explore whether similar phenomenon occurs amongst other
leaders and employees or stakeholders at lower organizational levels and different contexts.
Example research questions include: Does the ability of a female business unit-level HR director
to prevent the unit from enacting unfair labor practices depend on whether there are females on
39
the unit’s senior staff? Does the ability of a female plant manager to influence employee safety
procedures and policies in a unionized plant depend on whether or the extent to which there are
females on the union committee? Does a female lawyer’s ability to protect her client, a police
officer charged with a crime or violating a policy, depend on whether or the extent to which there
are females on the department’s internal review board?
CONCLUSION
This study contributes to the research on gender diversity and corporate ethics by
examining the gender-related dynamics between corporate executives and the board of directors
and resultant impact on corporate ethical actions. These results improve our understanding of the
complex social nature of corporate ethical decision making, particularly the gender dynamics
occurring between those in executive and governance positions. The current findings suggest that
raising the ‘glass ceiling’ by appointing females to senior leadership positions might raise the
‘moral floor’ of corporations, but that effect only occurs when such appointments span the
governance structure of both executives and the boards that oversee them.
40
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Figure 1
Theoretical Model
Executive
Gender
H2
Board
Gender
Diversity
H1
Firm-Level
Incentives for
Unethical
Behavior
Corporate
Unethical
Actions
49
Figure 2
Slopes for the Interaction of Cash Holding and CFO Gender with Estimated
Tax Sheltering as the Dependent Variable
5
4.5
Estimated tax sheltering
4
3.5
3
Male CFO
2.5
2
Female
CFO
1.5
1
0.5
0
Low cash holding
High cash holding
High and low cash holdings are 1 standard deviation above and below the means, respectively.
50
Figure 3
Slopes for the Interaction of Cash Holding, CFO Gender, and Board Gender
with Estimated Tax Sheltering as the Dependent Variable
5
4.5
(1) Female CFO, High % of
board that consists of
female
Estimated tax sheltering
4
(2) Female CFO, Low % of
board that consists of
female
3.5
3
(3) Male CFO, High % of
board that consists of
female
2.5
2
(4) Male CFO, Low % of
board that consists of
female
1.5
1
0.5
0
Low cash holding
High cash holding
High and low cash holdings are 1 standard deviation above and below the means, respectively. High and
low % of board that consists of female are 1 standard deviation above and below the means, respectively.
The t-statistics and the p-value of slope difference tests for three-way interactions are listed below:
Pair of slopes
(1) and (2)
(1) and (3)
(1) and (4)
(2) and (3)
(2) and (4)
(3) and (4)
t-value for slope difference
-4.973
-13.441
-7.146
-9.343
-2.241
7.544
51
p-value for slope difference
0.000
0.000
0.000
0.000
0.025
0.000
Figure 4
Slopes for the Interaction of Cash Holding and CFO Gender with Total BookTax Differences as the Dependent Variable
3.3
Total book-tax differences
3.2
3.1
Male CFO
3
Female
CFO
2.9
2.8
2.7
Low cash holding
High cash holding
High and low cash holdings are 1 standard deviation above and below the means, respectively.
52
Figure 5
Slopes for the Interaction of Cash Holding, CFO Gender, and Board Gender
with Total Book-Tax Differences as the Dependent Variable
3.3
(1) Female CFO, High %
of board that consists of
female
Total book-tax differences
3.2
(2) Female CFO, Low %
of board that consists of
female
3.1
(3) Male CFO, High % of
board that consists of
female
3
(4) Male CFO, Low % of
board that consists of
female
2.9
2.8
2.7
Low cash holding
High cash holding
High and low cash holdings are 1 standard deviation above and below the means, respectively. High and
low % of board that consists of female are 1 standard deviation above and below the means, respectively.
The t-statistics and the p-value of slope difference tests for three-way interactions are listed below:
Pair of slopes
(1) and (2)
(1) and (3)
(1) and (4)
(2) and (3)
(2) and (4)
(3) and (4)
t-value for slope difference
-9.286
-13.164
-6.382
-4.771
3.427
7.983
53
p-value for slope difference
0.000
0.000
0.000
0.000
0.001
0.000
Table 1
Descriptive Statistics and Pearson Correlation Coefficientsa
Variable
1 Estimated tax sheltering
2 Total book-tax differences
3 Female CFO
4 Cash holding (Cash and cash equivalent to total asset ratio)
5 Percentage of board that consists of female directors
6 Female CEO
7 CFO's age
8 CEO's age
9 Percentage of board that consists of independent directors
10 Corporage governance index
11 Advertising expense to sales ratio
12 Selling, general, and adminstrative expenses to sales ratio
13 Capital expenditures to property, plant, and equipment ratio
14 Annual sales growth
15 Firm has tax loss carry-forward
16 Intangible to total asset ratio
17 Property, plant, and equipment to total asset ratio
18 R&D expense to sales ratio
19 Long-term debt to total asset ratio
20 Firm has pretax income from a foreign operation
21 Natural log of total assets
Variable
11 Advertising expense to sales ratio
12 Selling, general, and adminstrative expenses to sales ratio
13 Capital expenditures to property, plant, and equipment ratio
14 Annual sales growth
15 Firm has tax loss carry-forward
16 Intangible to total asset ratio
17 Property, plant, and equipment to total asset ratio
18 R&D expense to sales ratio
19 Long-term debt to total asset ratio
20 Firm has pretax income from a foreign operation
21 Natural log of total assets
a
Mean
S.D.
2.777 1.777
0.027 0.124
0.071 0.257
0.132 0.148
13.234 8.946
0.019 0.138
50.636 6.228
55.932 6.945
73.538 15.730
8.567 3.813
0.016 0.033
0.221 0.162
0.118 0.079
0.130 0.511
0.684 0.465
0.197 0.182
0.531 0.364
0.045 0.094
0.224 0.156
0.718 0.450
8.842 1.257
10
-.128
-.115
-.214
-.120
-.045
.087
.088
-.093
.088
.125
.057
1
2
3
4
5
6
7
8
9
.733
-.046
.026
.129
.046
.109
.101
.187
.099
-.020
-.098
-.204
-.376
-.067
-.008
-.008
-.122
-.189
.564
.461
-.032
.032
.025
.014
.036
.069
.044
.070
-.102
-.168
-.160
-.442
-.009
-.093
.035
-.260
-.072
.132
.012
.025
.047
-.021
-.109
-.002
.060
-.042
.026
.022
.020
.016
.006
-.009
-.003
-.020
-.023
-.055
-.018
-.129
.023
-.054
-.111
.000
-.191
.100
.406
.313
.109
.015
-.228
-.367
.478
-.384
.059
-.256
.276
.010
-.062
.223
.053
.156
.059
-.158
-.098
.036
.090
.001
-.098
.129
.054
.246
.089
-.103
.059
-.053
.069
.073
-.007
.014
-.007
.001
-.041
-.014
.029
.043
.056
.109
.077
.050
-.054
-.083
-.141
-.086
-.007
.010
.039
-.045
-.025
.076
.093
-.024
.080
-.105
-.169
-.158
-.041
-.011
-.025
.053
-.115
-.009
.044
.080
.173
-.107
.009
-.197
-.069
-.007
.110
.017
.069
.051
.180
.230
11
12
13
14
15
16
17
18
19
20
.375
.117
.128
-.058
.126
-.098
.009
-.018
.076
.018
.201
.226
.029
.162
-.365
.492
-.205
.130
-.243
.333
.003
-.124
-.236
.178
-.250
-.133
-.241
.004
.025
-.070
.157
-.061
-.054
-.083
-.023
-.070
.009
-.052
-.081
-.105
-.430
.026
.161
.114
.108
-.255
.178
-.082
.119
-.202
.052
-.110
-.053
.193
.116
3,186 observations. Coefficients with absolute values greater than .04 are significant at p < .05.
54
Table 2
Regression Results
Variables
(1)
6.250 **
Intercept
Cash holding
Female CFO
% of board that consists of female
Estimated Tax Sheltering
(2)
(3)
6.263 **
6.258 **
0.199
-0.282 **
Female CFO x Cash holding
% of board that consists of female x CFO is a female
% of board that consists of female x Cash holding
(4)
5.999 **
0.634 *
-0.158
1.360 **
-0.263 *
0.024 **
-6.401 **
-8.600 **
-0.070 **
0.089 **
% of board that consists of female x Female CFO x Cash holding
-0.728 **
Control Variables:
Female CEO
CFO's age
CEO's age
Percentage of board that consists of independent directors
Corporage governance index
Advertising expense to sales ratio
Selling, general, and adminstrative expenses to sales ratio
Capital expenditures to property, plant, and equipment ratio
Annual sales growth
Firm has tax loss carry-forward
Intangible to total asset ratio
Property, plant, and equipment to total asset ratio
0.245
0.016 **
0.015 **
0.005 *
0.026 **
5.553 **
-0.926 **
-1.404 **
-1.222 **
-0.201 **
-0.786 **
-0.535 **
0.239
0.015 **
0.015 **
0.005 **
0.026 **
5.641 **
-0.973 **
-1.426 **
-1.223 **
-0.199 **
-0.719 **
-0.510 **
0.231
0.014 **
0.015 **
0.006 **
0.027 **
5.565 **
-0.992 **
-1.142 **
-1.187 **
-0.192 **
-0.676 **
-0.500 **
-0.016
0.016 **
0.017 **
0.004 *
0.028 **
5.160 **
-1.281 **
-1.233 **
-1.096 **
-0.165 **
-0.459 *
-0.438 **
n
Adjusted R square
F-statistics
3,186
.31
19.6
3,186
.31
19.2
3,186
.33
20.4
3,186
.36
22.0
All non-dichotomous variables are mean-centered. Year and Industry (defined by 2-digit SIC) fixed
effects (not reported) are included in the models.
** and * indicate that the coefficient is significant at the .01 and .05 levels, respectively.
55
Table 2
Continued
Variables
Total Book-Tax differences
(6)
(7)
(8)
0.0337
0.0351
0.0334
(5)
0.1541
Intercept
Cash holding
Female CFO
% of board that consists of female
0.1568 ** 0.1722 ** 0.2001 **
-0.0163 * -0.0120
-0.0252 **
0.0003
Female CFO x Cash holding
% of board that consists of female x CFO is a female
% of board that consists of female x Cash holding
-0.2260 ** -0.4067 **
-0.0049 **
0.0036 *
% of board that consists of female x Female CFO x Cash holding
Control Variables:
Female CEO
CFO's age
CEO's age
Percentage of board that consists of independent directors
Corporage governance index
Advertising expense to sales ratio
Selling, general, and adminstrative expenses to sales ratio
Capital expenditures to property, plant, and equipment ratio
Annual sales growth
Firm has tax loss carry-forward
Intangible to total asset ratio
Property, plant, and equipment to total asset ratio
R&D expense to sales ratio
Long-term debt to total asset ratio
Firm has pretax income from a foreign operation
Natural log of total assets
n
Adjusted R square
F-statistics
-0.0706 **
0.0008
-0.0004
0.0002
-0.0001
0.0005
-0.2740
-0.0120
-0.0220
-0.0958
0.0010
-0.1063
-0.0425
-0.3728
-0.0886
0.0257
-0.0027
3,186
.30
18.1
**
**
**
**
**
**
**
0.0048
-0.0003
0.0003
0.0000
0.0007
-0.3004
-0.0245
-0.0378
-0.0962
0.0011
-0.0430
-0.0156
-0.4316
-0.0798
0.0248
-0.0012
3,186
.32
18.8
**
**
*
**
**
**
0.0045
-0.0004
0.0003
0.0000
0.0008
-0.2984
-0.0253
-0.0279
-0.0951
0.0012
-0.0418
-0.0156
-0.4305
-0.0749
0.0236
-0.0015
3,186
.32
18.9
**
**
*
**
**
**
-0.0015
-0.0003
0.0004
0.0000
0.0009
-0.2707
-0.0447
-0.0471
-0.0885
0.0043
-0.0343
-0.0131
-0.4335
-0.0732
0.0263
-0.0023
3,186
.36
21.1
All non-dichotomous variables are mean-centered. Year and Industry (defined by 2-digit SIC) fixed
effects (not reported) are included in the models.
** and * indicate that the coefficient is significant at the .01 and .05 levels, respectively.
56
**
*
**
*
**
**
**
Table 3
Regression Results from Subsamples
Variables
Subsample
Intercept
Estimated Tax Sheltering
Female
No female
on the board on the board
(1)
(2)
6.0434 **
4.9805 *
Total Book-Tax differences
Female
No female
on the board on the board
(3)
(4)
0.0357
0.2167
Cash holding
Female CFO
1.2236 **
-0.2356 *
0.9659
-0.1658
0.1283 **
-0.0207 **
0.2658 **
-0.0003
Female CFO x Cash holding
-7.7630 **
2.5686
-0.4164 **
0.5228 **
Control Variables:
% of board that consists of female directors
Female CEO
CFO's age
CEO's age
Percentage of board that consists of independent directors
Corporage governance index
Advertising expense to sales ratio
Selling, general, and adminstrative expenses to sales ratio
Capital expenditures to property, plant, and equipment ratio
Annual sales growth
Firm has tax loss carry-forward
Intangible to total asset ratio
Property, plant, and equipment to total asset ratio
R&D expense to sales ratio
Long-term debt to total asset ratio
Firm has pretax income from a foreign operation
Natural log of total assets
0.0060
0.1706
0.0158 **
0.0143 **
0.0033
0.0185 *
4.3728 **
-0.4525
-0.2497
-2.0423 **
-0.1794 **
-0.1569
-0.4747 **
n
Adjusted R square
F-statistics
2,651
.36
18.0
0.0036
0.0199
0.0052
0.0572
9.2293
-4.5191
-1.9563
-0.5804
-0.1773
-1.4177
-0.1009
535
.51
8.1
*
*
*
**
*
**
*
0.0001
0.0103
-0.0004
0.0003
-0.0003
0.0013
-0.3394
0.0372
0.0087
-0.1297
0.0060
-0.0116
-0.0121
-0.2848
-0.1067
0.0173
0.0012
2,651
.31
14.1
*
*
**
*
**
**
**
**
-0.0002
-0.0006
0.0008
-0.0007
0.2702
-0.3260
-0.1511
-0.0526
-0.0042
-0.0878
0.0500
-0.5381
0.0506
0.0409
-0.0109
535
.52
7.9
All non-dichotomous variables are mean-centered. Year and Industry (defined by 2-digit SIC) fixed
effects (not reported) are included in the models.
** and * indicate that the coefficient is significant at the .01 and .05 levels, respectively.
57
**
**
**
*
Table 4
Two-Stage Least Squares Regression Results
Panel A: The First-stage CFO Gender Regression
Variables
Percentage of female employees in the industry
Property, plant, and equipment to total asset ratio
Annual sales growth
Natural log of total assets
Long-term debt to total asset ratio
Returns on assets
Tobin's Q
Year Fixed Effects
Industry Fixed Effects
Likelihood Ratio
Observations
Coefficient
2.8769 **
-0.0334
0.0719
-0.0029
-0.3547
0.2463
0.0225
Yes
Yes
58.24
3,104
All non-dichotomous variables are mean-centered. ** and * indicate that the coefficient is significant at
the .01 and .05 levels, respectively.
58
Table 4
Continued
Panel B: The Second-stage Tax Evasion Regression
Variables
(1)
4.0324 **
Intercept
Cash holding
Female CFO
% of board that consists of female
Estimated Tax Sheltering
(2)
(3)
3.9451 **
3.8666 **
1.6897 **
-0.3404 **
Female CFO x Cash holding
% of board that consists of female x Female CFO
% of board that consists of female x Cash holding
2.1353 **
-0.2474 *
3.0184 **
-0.3454 **
0.0205 **
-7.1579 **
-9.8902 **
-0.0967 **
0.1743 **
% of board that consists of female x Female CFO x Cash holding
Control Variables:
Female CEO
CFO's age
CEO's age
Percentage of board that consists of independent directors
Corporate governance index
Advertising expense to sales ratio
Selling, general, and administrative expenses to sales ratio
Capital expenditures to property, plant, and equipment ratio
Firm has tax loss carry-forward
Intangible to total asset ratio
Inverse Mills Ratio
n
Adjusted R square
F-statistics
(4)
3.7762 **
-0.8727 **
0.4707 *
0.0219 **
0.0176 **
0.0184 **
0.0163
1.6629
-0.5155 *
-3.5172 **
-0.2480 **
-0.5154 **
-0.5699 **
0.4895 *
0.0200 **
0.0185 **
0.0177 **
0.0219 **
2.2585 *
-1.1755 **
-4.1085 **
-0.2391 **
-0.1456
-0.5157 **
0.4991 *
0.0181 **
0.0187 **
0.0176 **
0.0247 **
2.2284 *
-1.1522 **
-3.7159 **
-0.2229 **
-0.1323
-0.4812 **
0.1140
0.0230 **
0.0208 **
0.0159 **
0.0238 **
2.1337 *
-1.4505 **
-3.6237 **
-0.1885 **
-0.0333
-0.4278 **
3,104
.09
30.2
3,104
.11
30.3
3,104
.13
34.8
3,104
.18
38.8
All non-dichotomous variables are mean-centered. ** and * indicate that the coefficient is significant at
the .01 and .05 levels, respectively.
59
Table 4
Continued
Panel B: Continued
Variables
(5)
0.1042 **
Intercept
Cash holding
Female CFO
% of board that consists of female
Total Book-Tax differences
(7)
(6)
0.0750 **
0.0723 **
0.2064 **
-0.0191 *
Female CFO x Cash holding
% of board that consists of female x Female CFO
% of board that consists of female x Cash holding
(8)
0.0707 **
0.2251 **
-0.0152
0.2568 **
-0.0315 **
0.0004
-0.3058 **
-0.5039 **
-0.0054 **
0.0059 **
% of board that consists of female x Female CFO x Cash
-0.0862 **
Control Variables:
Female CEO
CFO's age
CEO's age
Percentage of board that consists of independent directors
Corporate governance index
Advertising expense to sales ratio
Selling, general, and administrative expenses to sales ratio
Capital expenditures to property, plant, and equipment ratio
Firm has tax loss carry-forward
Intangible to total asset ratio
R&D expenses to sales ratio
Firm has pretax income from a foreign operation
Inverse Mills Ratio
n
Adjusted R square
F-statistics
0.0058
-0.0001
0.0001
0.0001
0.0002
-0.3477
-0.0089
-0.1626
-0.0007
-0.0755
-0.3088
0.0447
-0.0554
3,104
.12
34.8
**
**
**
**
**
**
0.0061
-0.0002
0.0002
0.0001
0.0009
-0.3362
-0.0492
-0.2244
-0.0006
-0.0309
-0.4238
0.0383
-0.0374
3,104
.16
40.6
**
**
**
*
**
**
**
0.0067
-0.0003
0.0002
0.0001
0.0010
-0.3352
-0.0485
-0.2084
0.0001
-0.0302
-0.4211
0.0373
-0.0358
3,104
.17
40.4
**
**
**
*
**
**
**
0.0000
-0.0001
0.0003
0.0000
0.0011
-0.2961
-0.0634
-0.2141
0.0036
-0.0278
-0.4283
0.0382
-0.0361
**
**
**
*
**
**
**
3,104
.22
45.7
All non-dichotomous variables are mean-centered. ** and * indicate that the coefficient is significant at
the .01 and .05 levels, respectively.
60
Table 5
Regression Results with CEO Gender
Variables
(1)
6.252 **
Intercept
Cash holding
Female CFO
Female CEO
% of board that consists of female
Estimated Tax Sheltering
(2)
(3)
6.263 **
6.255 **
0.199
-0.282 **
0.239
Female CFO x Cash holding
Female CEO x Cash holding
% of board that consists of female x Female CFO
% of board that consists of female x Female CEO
% of board that consists of female x Cash holding
(4)
5.919 **
0.609 *
-0.157
0.148
1.321 **
-0.259 *
0.670
0.026 **
-6.350 **
3.447
-8.588 **
1.633
-0.073 **
-0.052 **
0.084 **
% of board that consists of female x Female CFO x Cash holding
% of board that consists of female x Female CEO x Cash holding
-0.723 **
-0.020
Control Variables:
CFO's age
CEO's age
Percentage of board that consists of independent directors
Corporage governance index
Advertising expense to sales ratio
Selling, general, and adminstrative expenses to sales ratio
Capital expenditures to property, plant, and equipment ratio
Annual sales growth
Firm has tax loss carry-forward
Intangible to total asset ratio
Property, plant, and equipment to total asset ratio
0.017 **
0.014 **
0.005 *
0.026 **
5.584 **
-0.925 **
-1.427 **
-1.221 **
-0.201 **
-0.801 **
-0.540 **
0.015 **
0.015 **
0.005 **
0.026 **
5.641 **
-0.973 **
-1.426 **
-1.223 **
-0.199 **
-0.719 **
-0.510 **
0.014 **
0.015 **
0.006 **
0.027 **
5.314 **
-1.008 **
-1.199 **
-1.187 **
-0.190 **
-0.684 **
-0.505 **
0.017 **
0.017 **
0.004 *
0.027 **
4.737 **
-1.247 **
-1.279 **
-1.097 **
-0.158 **
-0.501 *
-0.458 **
n
Adjusted R square
F-statistics
3,186
.31
19.8
3,186
.31
19.2
3,186
.33
20.3
3,186
.36
21.4
All non-dichotomous variables are mean-centered. Year and Industry (defined by 2-digit SIC) fixed
effects (not reported) are included in the models.
** and * indicate that the coefficient is significant at the .01 and .05 levels, respectively.
61