Women on boards of directors and firm performance: the mediation of employment downsizing

This study contributes to the literature of women on boards of directors by showing how female board representation affects the board's involvement in the strategy of employment downsizing, and whether the downsizing strategy mediates female directors' influence on firm performance. We examine data of Taiwanese 1329 manufacturing firms over the 1996-2017 period and apply dynamic panel methods to deal with the endogeneity problems contained in the mediation model. Evidence on the gross effect of women on boards supports our contention that in Taiwanese socio-cultural context, the cognitive frames and human capital female directors bring to boards can improve the firms' accounting-based performance; however, investors' ingrained bias against women may dilute the positive impact and lead to unfavorable stock market reaction to the firms with female directors. Focusing on the indirect mediating effect, our results indicate that perhaps because female directors' leadership style and core values provide boards with more stakeholder-oriented perspectives, the firms with more women directors tend to implement less downsizing, and such talent-retaining strategy is beneficial to firm performance. This positive indirect effect is investors' bias-free, that is, women on boards can be leveraged for higher accounting returns and stock market valuation through their involvement in downsizing.