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The pre- and post-IPOs gender composition of board of directors in Malaysia


Nurwati A. Ahmad-Zaluki
Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia, Sintok, Malaysia
Abstract
Purpose The purpose of this paper is to investigate the gender composition of the board of directors of Malaysian initial public offering (IPO) companies. This study also examines the business case for having women on boards. Design/methodology/approach Using a sample of 228 IPO companies that went public during the period 1999-2006, this study tracks the changes in the gender composition of these companies prior to the IPO year, IPO year and three-year post-IPOs. This study also tracks the changes in the gender composition between the pre-IPO period and some 5 to 12 years later after the IPOs for a subsample of 89 companies that appear as top 500-companies on the Malaysian Stock Exchange (Bursa Malaysia) in 2011. The compounded buy-and-hold returns method is used to measure the post-IPO company performance. Findings This study nds that female representation as board of directors in 228 Malaysian companies prior to the IPO is only about 8 percent. This percentage is almost similar for the subsequent four years (IPO year and three-year post-IPOs). By using a subsample of 89 companies that appear as top 500-companies in 2011, the percentage of female directors increases only 2.5 percent from the pre-IPO year. However, the increment is not statistically signicant. An extended analysis on the business case for women on boards reveals that greater percentage of female representation leads to lower long run underperformance. This underperformance is much lower for companies having more foreign ethnic female representation. Research limitations/implications The results of this study suggest that there is still a long way to realize the benets of having female directors in Malaysian companies. Malaysia needs to create an environment that realizes the benets of having women in the top management levels. Originality/value This research contributes to the existing literature on gender especially in the context of IPO companies. This is the rst comprehensive study on gender composition using Malaysian IPOs data. Prior studies on gender mainly focus on established listed companies. Keywords Women directors, Corporate governance, Gender, IPO, Malaysia Paper type Research paper

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1. Introduction Gender composition of boards of directors has been a subject of recent research interest due to the fact that it has now become a policy for some countries, such as Malaysia. In June 2011, the Malaysian Cabinet approved a policy that women must comprise at least 30 percent of those in decision-making positions in the corporate sector as a step towards gender equality in the workplace[1]. This policy was a continuation of a similar one set for the public sector in 2004. However, there are no formal sanctions for
The nancial support of the Universiti Utara Malaysia (under High Impact Individual Project PIBT research grant) is gratefully acknowledged.

Gender in Management: An International Journal Vol. 27 No. 7, 2012 pp. 449-462 q Emerald Group Publishing Limited 1754-2413 DOI 10.1108/17542411211273441

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non-compliance for either the 2004 or 2011 policies. The Malaysian Prime Minister, Datuk Seri Najib Tun Razak has announced that companies have been given ve years to meet this requirement. Under the phase one (three-year time frame) of the policy for the private sector, the government will use persuasion strategy and will audit these companies to see whether the government persuasion is working or not (Human Resource Online, 2011). This decision reects that the Malaysian Government is not only supportive towards womens roles and success, but is also encouraging them to further move ahead in their career. The national policy on women has improved representation of women in decision-making positions in the public sector from 18.8 percent in 2004 to 30.5 percent in 2010 (Tenth Malaysia Plan). As for the corporate (private) sector, the national policy has increased participation of women from 13.5 percent (2004) to 26.2 percent (2010). Nevertheless, as of April 2011, Bank Negara Malaysia recorded that only 45 women or 6 percent were appointed as board members of nancial institutions (The Star Online, 2011). According to Tan Sri Zarinah Anwar, Chairman of the Malaysian Securities Commission, women are under-represented on the board of directors[2] of Malaysian public listed companies, with only 7.5 percent of the total number of directors even though they constitute almost 50 percent of the workforce (The Edge Financial Daily, 2011). As reported in the Tenth Malaysia Plan, the female labour force participation rate increased from 44.7 percent in 1995 to 45.7 percent in 2008. This percentage further improved to 46.4 percent in 2009. The majority of women remain in low-skilled, labour-intensive jobs in agriculture and in semi-skilled assembly work in the industrial sector (Ahmad, 1998). As disclosed in the Ninth Malaysia Plan, women were mainly in the agriculture sectors. The proportion of women in the senior ofcials and managers category increased from 4.8 percent in 2000 to 5.4 percent in 2005. The lower statistics on the percentage of female directors indicates that there are serious concerns that females are under-represented at the top management level. The Malaysian environment is particularly interesting as it has several distinctive features that may affect the level of participation of women in leadership positions. First, Malaysia is a large Islamic nation with a multi-ethnic society, consisting of Malays, Chinese, Indians and foreigners. They have distinct cultural and religious heritages. In 2010, Malaysian citizens comprised the ethnic groups of Malays (67.4 percent), Chinese (24.6 percent), Indians (7.3 percent) and foreigners (0.7 percent). Kennedy (2002) suggests that cultural values can undermine attempts to increase participation in decision making and remove barriers that limit the contribution of women. Therefore, the leadership style in Malaysia might differ from other countries. Second, Malaysian society places particular emphasis on collective well-being and displays a strong humane orientation within a society that respects hierarchical differences (Kennedy, 2002). This feature can inuence the organisational leadership styles. In Malaysia, employment law provides equal protection for men and women. However, it does not prevent employers from paying lower wages to women for equal work (Ahmad, 1998). Kennedy (2002) reports that Malaysian managers expressed the view that gender egalitarianism has progressed to a satisfactory level, but show little support for more change. He argues that women will continue to face barriers in progressing to senior positions. This is reinforced by the fact that companies in Malaysia generally favour men over women for top positions (The Star Online, 2008). Finally, Malaysia is a common

law country, where welfare legislation concerned with engendering a work-life balance is less extensive (Botero et al., 2004; Grosvold and Brammer, 2011). The purpose of this study is to examine the changes in gender composition of the board of directors of Malaysian initial public offering (IPO) companies that went public during the period 1999-2006. This study examines a ve-year timescale covering the period prior to the IPO year, IPO year and three-year post-IPOs. It provides new evidence on any changes to the board composition of Malaysian companies four years subsequent to listing relative to a year prior to listing. A review of prior literature undertaken has indicated that the study by Dimovski and Brooks (2006) is the only study that investigates the pre- and post-IPO gender composition. However, their study used Australian data. This paper aims to build on their study in some way, thus this study also tracks the changes in the gender composition between the pre-IPO period and some ve to 12 years later after the IPO in 2011. The time period is considered reasonable for the companies to further strengthen their board structure. In addition to Dimovski and Brooks (2006), the business case for women on boards is also highlighted and investigated in this paper. This study contributes to the gender in management literature in the eld of nance that has been neglected in prior studies (Broadbridge and Hearn, 2008; Broadbridge and Simpson, 2011) and underresearched (Nielsen and Huse, 2010). Using a sample of 228 IPOs that went public during the period 1999-2006, this study nds that female representation on board of directors in Malaysia prior to the IPO is only about 8 percent. This percentage is almost similar for the subsequent four years (IPO year and three-year post-IPOs) with slight increases and decreases. When the analysis period is extended some ve to 12 years after the IPOs, the percentage of female directors increases to 8.87 percent but this increment is not statistically signicant. It suggests that there is still a long way to realize the benets of having women directors in Malaysian companies. An extended analysis on the business case for women on boards reveals that greater percentage of female directors leads to lower long run underperformance in the post-IPO period. The underperformance is much lower for companies having more foreign ethnic female representation on the boards. The rest of this paper is structured as follows. Section 2 briey summarizes several important literature on gender composition of board of directors and develops the hypothesis. Section 3 explains the methods used in this study. Section 4 reports the ndings of the study, and Section 5 concludes the paper and suggests directions for future research. 2. Literature review Terjesen et al. (2009) provide a comprehensive and the most up-to-date review on studies of women on corporate boards. Their review indicates that research on women on corporate boards has been about improving corporate governance and building more inclusive and fairer business institutions. They comment that research into women on corporate boards is an important tool for making an academic contribution as well as providing basis for change in the form of a more equitable and effective gender representation at the corporate decision-making levels. International evidence on gender composition generally nds few female relative to male directors on the boards of IPO companies (Dimovski and Brooks, 2006) and publicly listed companies (Daily et al., 1999; Sheridan, 2002; Singh and Vinnicombe, 2003; Kang et al., 2007; Martin et al., 2008; Grosvold and Brammer, 2011). Dimovski and Brooks (2006) report that the proportion of female directors of Australian IPOs is relatively low, which is

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only 5 percent. In an earlier study on all public listed companies in Australia, Sheridan (2002) reports that female directors comprise only 3 percent of board seats. Meanwhile, in a later study, Kang et al. (2007), report 10.37 percent female representation in Australias top 100-companies. A study in the UK market by Singh and Vinnicombe (2003) nds that females represent only 7.6 percent of all directors of the top 100 listed UK companies. Daily et al. (1999) nd that there has been a great increase in womens representation on corporate boards over the ten-year period from 1987 to 1996 of the Fortune 500 US companies. Nelson and Levesque (2007) nd a signicant higher percentage of women serving Fortune 500 companies as board of directors as compared to their sample of IPO companies. Davies (2011) reports that the only way that we could make real change in increasing the number of women on boards was by introducing quotas. Adams and Flynn (2005) suggest that national culture and corporate governance environment have an effect on womens role in the boardroom. In a more recent study, Grosvold and Brammer (2011) examine cross-country variation in 38 countries regarding the presence of women on corporate boards for the sample period from years 2001 to 2007. They report that the percentage of women on corporate boards varies very substantially across countries, from 0 percent in Japan and Singapore, 8.1 percent in the UK to 32 percent in Norway. They show that the percentage of female board directors in 2006 for Malaysia is only 4 percent. They nd that half of the variation in the pattern on female representation on corporate boards across countries is attributable to national institutional systems. Maimunah and Mariani (2008) investigate barriers faced by 78 executive women in acquiring higher positions in a Malaysian multinational oil company. Their survey reveals that family structure and commitment to the family are the most signicant barriers women face for career progression. One of the dimensions of the business case for having female representation at board and top management levels suggests a better company performance compared to those not having female representation. This business case is supported by various evidence. Burke (1997) suggests that companies would benet by having women directors. Bilimoria (2000) advocates that women directors have an impact on board decision making. Mkhize and Msweli (2011) argue that women, over and above men, bring unique skills to the workplace. Claes (1999) suggests that women have feminine skills such as caring for fellow employees, appreciate teamwork, are intuitive in decision making and have a sense of social responsibility. Previous studies have conrmed that the presence of women on boards contributes to signicant improvements in performance. For example, the Eversheds Board Report 2010 and the McKinsey & Company set of reports on female participation, discovered that better performing companies tended to have a higher percentage of female directors. In a more recent study, Mkhize and Msweli (2011) examine the impact of female business leaders in JSE-listed companies and the nancial performance of those companies. They nd that companies led by a high percentage of women do not outperform similar companies led by a low percentage of women in leadership positions. Their results indicate that companies in South Africa have not, as yet, recognized the impact women have on the companys performance as a result of the feminine attributes they import into the organization. Brammer et al. (2007) report that women are prevalent in the retail, utilities, media and banking sectors in 543 UK public listed companies. Their results suggest that

companies consumers play a major role in shaping board diversity than a reaction to the number of women in a companys wider workforce. Using US IPO and Fortune 500 data, Nelson and Levesque (2007) nd that women were less present in technology intensive industries and in venture capital backed companies. The pre-IPO owners must select and appoint the board of directors of the IPO companies before they decide to go public. As argued by Burke (2003), an ideal board should theoretically include qualied female directors. This is to attract the potential new investors to purchase the IPO shares. In the context of IPO companies and based on the signalling theory of Leland and Pyle (1977), the gender composition can be considered as a signal of a companys quality. For that reason, the board of directors should include women directors and this can be used as a signal of company value or other specic signals (Certo, 2003) due to liability of newness of the IPO companies (Nelson and Levesque, 2007). Bilimoria (2000) advocates that the presence of women directors signals that a company values the success of its women. Dimovski and Brooks (2006) suggest that gender composition is an important ingredient in maximizing the chances to raise capital by IPO companies. In addition, IPO companies are subject to greater external monitoring by the capital markets once they are listed. Due to greater external monitoring, the gender composition hypothesis of Burke (1997, 2003) suggests that the gender composition could increase post-listing. Dimovski and Brooke (2006) assert that the public, media and investor scrutiny all suggest higher female board representation. Therefore, it is expected that the proportion of female directors would increase over time in the post-IPO periods. Thus, the following hypothesis is tested: H1. The proportion of female directors on the companys board increases over time in the post-IPO periods relative to the pre-IPO year. 3. Data and methods This study gathered gender data of board members for Malaysian companies that went public for the period 1999-2006. The board of directors is chosen as a sample because it is the boards that make decisions and have collective responsibility for the success of the company. The board of directors who are included in this study consists of chief executive ofcer (CEO), managing director, executive/insider directors and non-executive/outsider directors. Five years of data on corporate board of directors had to be available for each company to examine the pre- and post-IPO changes of gender composition. The periods examined are the pre-IPO year, the IPO year and each of the three post-IPO years. This study denotes pre-IPO year as year 2 1, IPO year as year 0, each of the three post-IPO years as year 1, year 2 and year 3, respectively. Data concerning gender composition of corporate boards prior to the IPO were hand-collected from offering prospectuses under the section corporate information and were cross-checked with the director, senior management and employee section. Data on gender composition of board members in the IPO year and post-IPO periods were also hand-collected from the rst published annual reports and then subsequent annual reports, respectively. Both prospectuses and annual reports were downloaded from Bursa Malaysia web site at: www.bursamalaysia.com In selecting the sample, all companies listed on the main and second boards of Bursa Malaysia during the period 1999-2006 were initially considered. The full list of companies was obtained from the Bursa Malaysia web site. In total, there were 253 companies listed on both listing boards. This study subsequently excluded nancial companies

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(consisting of four nance companies, seven real estate investment trusts (REITs) and one closed-end fund) due to their different regulatory requirements. In addition, these companies might have different criteria for selecting board members. For example, REITs were excluded for the reason that a management company managed the affairs of the trust (Dimovski and Brooks, 2006). Following Ahmad-Zaluki et al. (2007), two companies listed via introduction and four infrastructure project companies were also excluded. This study also excluded four companies that changed their nancial year end and three companies that have missing annual reports for the post-IPO periods on the Bursa Malaysia web sites. Directors who hold alternate position on the boards were not included in the calculation on gender composition. This sample selection procedure generated a nal sample of 228 companies. 4. Findings and analysis Table I reports the number and percentage of directors of the 228 IPO sample companies by gender. The board composition is reported from a year prior to the IPO (year 2 1), IPO year (year 0) and one-, two- and three-year post-IPOs (year 1, year 2, year 3, respectively). Panel A reports the analysis for all IPO companies in the sample that went public during the period 1999-2006. As highlighted in the introduction section, the gender composition policy was set for the public sector in 2004. To see whether this policy was considered by companies that underwent an IPO, this study splits the sample into two periods: before gender composition policy was set for the public sector (for companies that went public during the period 1999-2003) and after gender composition policy was set (for IPO companies that went public during the period 2004-2006). Panel B reports the results for IPO that occurred before gender composition policy was set for the public sector. Meanwhile, panel C reports the results after gender composition was set. As reported in panel A of Table I, the number of female directors to total directors is only 8.23 percent for the year prior to the IPOs (year 2 1). The composition of female directors to total directors is 3 percent higher than what was observed by Dimovski and Brooks (2006) for 54 Australian IPOs that went public during the period 1994-1997. The number of female directors to total directors reduces slightly in the IPO year (year 0), at 8.08 percent, and reduces again in the rst year after the IPO (year 1), at 7.78 percent. It then increases to 8.29 percent in the second year after IPO (year 2) and reduces again to 8.24 percent in the third year after the IPO (year 3). Surprisingly, comparison between panels B and C indicates that the composition of female directors to total directors is slightly higher before the gender composition policy was enforced for the public sector than the period after enforcement. Even though the gender composition was enforced rst for the public sector, the results however suggest that IPO companies in Malaysia did not take into considerations the gender composition of their board of directors. During the IPO year (year 0) and in the post-IPO periods (year 1, year 2 and year 3), the number of female directors to total directors for IPO companies that went public during the period before the gender composition policy was enforced for the public sector remains greater than the period after enforcement. Table II reports the board size of the 228 IPO companies. On average, the size of the board of directors prior to the IPO year (year 2 1) is 7. The board size ranges from a minimum of four directors to a maximum of 16 directors, with a standard deviation of 1.74. Further inspection on the data reveals that there are only ve companies that have four board members and only one company that has 16 directors on its board. The average

Year 2 1 No. of directors % 7.78 92.22 100.00 7.89 92.11 100.00 7.57 92.43 100.00 47 530 577 95 1,040 1,135 142 1,570 1,712 8.29 91.71 100.00 8.37 91.63 100.00 8.15 91.85 100.00 % % %

Year 0 No. of directors

Year 1 No. of directors

Year 2 No. of directors

Year 3 No. of directors 140 1,558 1,698 93 1,024 1,117 47 534 581

% 8.24 91.76 100.00 8.33 91.67 100.00 8.09 91.91 100.00

Panel A: all years: years 1999-2006 (n 228) Female directors 140 8.23 138 8.08 134 Male directors 1,561 91.77 1,570 91.92 1,588 Total directors 1,701 100.00 1,708 100.00 1,722 Panel B: before gender composition policy was enforced: years 1999-2003 (n 151) Female directors 97 8.47 99 8.62 91 Male directors 1,048 91.53 1,050 91.38 1,063 Total directors 1,145 100.00 1,149 100.00 1,154 Panel C: after gender composition policy was enforced: years 2004-2006 (n 77) Female directors 43 7.73 39 6.98 43 Male directors 513 92.27 520 93.02 525 Total directors 556 100.00 559 100.00 568

Notes: This table reports the number and percentage of directors to total directors of the 228 IPO sample by gender; the board composition is reported from a year prior to the IPO (year 2 1), IPO year (year 0) and one-, two- and three-year post-IPOs (year 1, year 2, year 3), respectively

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Table I. Number and percentage of directors by gender

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board size is almost the same in the IPO year (year 0) and in the post-IPO periods (years 1 until 3). Table II also reports the percentage of female directors, the percentage of male directors and the percentage of companies having female directors for IPO companies for a ve-year period. As can be observed from Table II, the average percentage of female directors is 7.98 percent prior to the IPO (year 2 1). It increases slightly during the IPO year (year 0) to 8.02 percent but decline to a lower percentage in the period prior the IPOs at 7.68 percent. However, the percentage of female directors increases slightly to 8.18 percent in the year 2 but reduces to 8.06 in the year 3. Even though we can observe an increase in percentage of female directors in the year 3 relative to the period prior to the IPO year (year 2 1), this is not a statistically signicant increment. The results suggest that the four to ve-year periods given are too short for the company to strengthen its board structure to include female directors. In view of the fact that the increment of gender composition in the three-year post-IPOs relative to the pre-IPO year is not signicant, this study further investigates whether there are any signicant changes in the percentage of female directors some ve to 12 years later when the company is recorded as top 500-companies on the Bursa Malaysia. To do so, all the Malaysian public listed companies available on the DataStream database were ranked by their market capitalization[3]. As of 30 June 2011, there are 965 companies data available on the DataStream database. Out of 228 IPO sample, only 89 IPO companies appear to be top 500-companies in 2011[4]. Table III shows the comparison of board composition in terms of size and gender between pre-IPO year (year 2 1) and when the company is recorded as a top 500-company on the Bursa Malaysia some ve to 12 years later after the IPOs for 89 companies. The data for companies that become top 500-companies were obtained from the latest annual reports available on the Bursa Malaysia web site as of November 2011[5]. As can be seen from Table III, the board size prior to the IPO and when the company is included as a top 500-company on the Bursa Malaysia is similar, standing at eight directors. The result indicates that the board size for Malaysian IPO companies is slightly higher than the board size observed for Australian IPO companies by Dimovski and Brooks (2006). The percentage of women directors in the pre-IPO year for these 89 companies is only 6.39 percent but it increases to 8.87 percent some ve to 12 years later after the IPOs. Although there is an increment in the percentage of female directors by 2.5 percent, this increment is not statistically signicant (t-stat. 1.52, p-value 0.130). Out of
Year 2 1 Year 0 Year 1 Year 2 Year 3 Board size Percentage of female directors Percentage of male directors Percentage of companies having female directors Number of companies 7.46 7.98 92.02 41.23 228 7.49 8.02 91.98 41.67 228 7.55 7.68 92.32 41.23 228 7.51 8.18 91.82 43.86 228 7.45 8.06 91.94 42.54 228

Table II. Board size, percentage of female and male directors, and percentage of companies having female directors

Notes: This table reports the board size, average percentage of female directors and male directors, and percentage of companies having female directors for a sample of 228 IPOs that went public during the period 1999-2006; the average board composition is reported from a year prior to the IPO (year 2 1), IPO year (year 0) and one-, two- and three-year post-IPOs (year 1, year 2, year 3), respectively

89 companies, 40 companies have female directors when the company became a top 500-company as compared to 31 companies at the time prior to the IPO year. The additional number of companies having female directors is around 10 percent, from 35 percent in the pre-IPO year to 45 percent when the company became a top 500-company some ve to 12 years later after the IPOs. The results of this study are in line with the results observed by Dimovski and Brooks (2006) that do not nd any signicant changes in the numbers or percentage of females or male directors holding directorships at the time of the IPO and some ve to eight years later when the company is recorded as a top 500-company by market capitalization on the Australian Stock Exchange. Similar to Dimosvki and Brooks (2006), the results of this study implies that the capital market is generally satised with the gender composition of the boards since the year prior to the IPO until ve to 12 years later after the IPOs. To provide the business case for women on boards, this study further investigates the buy-and-hold abnormal returns for the IPO sample by gender composition. The results are reported in panel A of Table IV, showing the three-year median buy-and-hold abnormal returns for the full 228 IPO sample (column 2), 134 companies with no female directors (column 3) and 14 companies with percentage of female directors greater than 30 percent (column 4). Similar to Ahmad-Zaluki et al. (2007, 2011), the KL Composite Index is used as a market benchmark. The compounded buy-and-hold return method is used to measure the IPO company returns because it is more relevant to IPO investors, assuming the IPO share is held starting from the rst day of public listing until three-year post-listing. Overall, IPO companies underperform the market benchmark, with a signicant median three-year buy-and-hold abnormal return of 2 47.04 percent. Companies with no female directors show more underperformance than companies with female directors being greater than 30 percent. However, the difference in median underperformance between companies with no female directors (2 44.17 percent) and the companies having female directors of greater than 30 percent (43.79 percent) is not statistically signicant. Overall, the results of this study suggest that greater percentage of female directors leads to lower long run underperformance in the post-IPO period. As reported in panel A of Table IV, out of 228 IPO companies, only 134 companies have no female board of directors. To see the effect of unique Malaysian culture, consisting of Malays, Chinese, Indian and foreign ethnic groups, this study further extends the analysis to focus on only 94 IPO companies having female board of directors. The sample is then split into two groups, companies having 50 percent or more Malay female directors and companies with less than 50 percent Malay female directors. The buy-and-hold abnormal returns are analysed by this ethnic representation. This process
Prior to the IPO (in 1999-2006) Board size Percentage of female directors Percentage of male directors Percentage of companies having female directors Number of companies 7.51 6.39 93.61 34.83 89 Top 500-company (in 2011) 7.74 8.87 91.13 44.94 89

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Note: This table reports the board composition of a sample of 89 companies prior to the IPO and some ve to 12 years later after the IPOs

Table III. Board composition prior to the IPO and as a top 500-company

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Panel A: buy-and-hold abnormal returns by gender Percentage All IPO No female female directors . 30% companies directors Median marketadjusted return (%) 2 47.04 * * 2 44.17 * 2 43.79 p-value 0.000 0.017 0.992 z-stat. for difference 0.144 Number of companies 228 134 14 Panel B: buy-and-hold abnormal returns for companies having female directors by ethnic groups Malays female Chinese female Foreigners female $ 50% , 50% $ 50% , 50% $ 50% , 50% Median marketadjusted return (%) 2 49.92 2 58.09 2 49.54 2 55.13 2 43.84 2 53.37 p-value 0.768 0.000 * * 0.000 * * 0.421 0.885 0.000 * * z-stat. for difference 0.163 0.372 0.335 Number of companies 27 67 66 28 11 83 Notes: Statistically different from zero at the *0.05 and * *0.01 levels, respectively, using two-tailed tests; this table reports median three-year buy-and-hold abnormal returns for all sample IPO companies, IPO companies that have no female board of directors and IPO companies that have a percentage of female board of directors greater than 30 percent (panel A), and median three-year buyand-hold abnormal returns for companies having female directors by ethnic group; the marketadjusted return is calculated as IPO company return minus the market (KL Composite Index) return; the difference in median return between IPO companies that have no female directors and IPO companies that have a percentage of female directors greater than 30 percent group is based on the Mann-Whitney U-test; similar test is also used for the difference in median returns between IPO companies having 50 percent or more Malays (Chinese and foreigners) female directors and IPO companies having less than 50 percent Malays (Chinese and foreigners) female directors

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Table IV. Median three-year buy-and-hold abnormal returns by gender and ethnic group

is repeated independently for companies having 50 percent or more Chinese female directors and companies with less than 50 percent Chinese directors, and so forth. The results are reported in panel B of Table IV. The results of Indian female directors are not reported in the table because the data revealed that none of the female directors comes from the Indian ethnic group. Focusing rst on the Malay ethnic group, companies with 50 percent or more Malay female directors show less underperformance (i.e. lower median market-adjusted returns, 2 49.92 percent) than companies with less than 50 percent Malay female directors (i.e. statistically signicantly higher median market-adjusted returns of 2 58.09 percent). Meanwhile, for companies having 50 percent or more Chinese female directors, the level of underperformance is also lower than companies having less than 50 percent of Chinese female directors. Similar less underperformance is also observed for companies having 50 percent or more foreign female directors. Among the three ethnic groups, companies having 50 percent or more foreign ethnics group show less underperformance in the three-year post-IPO periods. However, the difference in median underperformance between companies with 50 percent or more female directors in each ethnic group and the companies having less than 50 percent female directors is not statistically signicant. Overall, the results of this study suggest that greater percentage of female representation in each

ethnic group leads to lower long run underperformance in the post-IPO period. Interestingly, more foreign ethnic female representation on the boards leads to better companies performance. 5. Discussion, conclusions and implications The purpose of this study is to examine the gender composition of board of directors in Malaysian IPO companies. This study tracks the changes of the board composition for a ve-year period starting from the pre-IPO year, IPO year and one-, two- and three-year post-IPOs. This study also splits the sample into two time periods: before and after gender composition policy was set for the public sector. The results of this study show that the female representation as board of directors in Malaysian companies prior to the IPO for a sample of 228 companies is only about 8 percent. This percentage is almost similar for the subsequent four years (IPO year and three-year post-IPOs) with slight increases and decreases. This study observes that the composition of female directors to total directors is slightly higher before the gender composition policy was enforced for the public sector than the period after enforcement. The results of this study suggest that there is no substantial effect of gender composition program on female representation in the board structure on Malaysian companies that went public during the period 1999-2006. It can be said that the program is gurative rather than successful. This study also reports the comparison of female representation between pre-IPO year and when the company is recorded as a top 500-company on the Bursa Malaysia some ve to 12 years later after the IPOs in 2011 for a sample of 89 companies. This study nds that the percentage of women directors at the time prior to the IPO year is only 6.39 percent but increases to 8.87 percent some ve to 12 years later after the IPOs. However, the increment is not statistically signicant. The results of this study are in accordance with the results observed by Dimovski and Brooks (2006), suggesting that the capital market is generally satised with the gender composition of the boards. However, the gender composition hypothesis of Burke (1997, 2003) is not supported. It also suggests that there is still a long way to realize the benets of having women directors in Malaysian companies. The low numbers of women on the board seats may be due to the fact that the Malaysian companies are focusing on developing Malaysian females for leadership positions rather than choosing them as a board member. Further analysis on the business case for women on boards reveals that greater percentage of female directors leads to lower long run underperformance in the post-IPO period. The underperformance is much lower for companies having more foreign ethnic female representation. The implication of this study is that Malaysia needs to create an environment that realizes the benets of having women in the top management levels. It is suggested that IPO companies should start to acknowledge and fully utilize human capital especially the female gender. The Malaysian public listed companies should also pace themselves to increase the composition of women directors by designing and adopting policies that will facilitate greater numbers of women as board directors. In order to facilitate women to reach their full potential, support strategies such as training and development programs for women, mentoring, partnerships and networking should be created. To ensure the gender composition policy can be executed effectively, the suggestion made by Malaysian prime minister to formulate training programs to prepare those with potential for the

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board of directors job should be implemented without further delay. The Malaysian Government must also reserve the right to introduce more prescriptive alternatives if the recommended gender composition does not achieve signicant change. The analysis undertaken has a number of limitations that could serve as the basis of future work. First, this study tracks the changes in the gender composition of IPO companies prior to the IPO year, IPO year and three-year post-IPO. The analysis is mainly univariate in nature; the current analysis could be extended by using multiple regression techniques to study the drivers of gender representation on the corporate boards. Future studies should explore the reasons why the number of female board directors is low in Malaysia. Among other issues that can be explored include the type of leadership roles that is currently being developed in Malaysia and on how they are being developed. Second, the current study is conducted using data before the quota policy for women on Malaysian corporate sectors was approved. Therefore, the results of the current study are not affected by the enforcement of this policy. Future studies may reect on the impact of the policy on the gender composition of IPO companies and its contribution to the success of the companies after listing.
Notes 1. This policy is a decree to corporate sectors, whether the company is listed or unlisted. In Malaysia, corporate sectors refer to the segment of industry that is operated by corporations (businesses). It is also known as private sectors that are not controlled by the government. It is usually run by individuals and companies for prot. Meanwhile, public sectors refer to government sectors. These are companies and corporations that are run by the government. Examples of private sectors in Malaysia are public companies, government-linked companies, banks and nancial institutions. Those in decision-making positions means anyone who is involved in making decisions for the companys success, such as the top management team (e.g. chief nancial ofcer, marketing/human resource manager, nance manager, general manager, etc.) and board of directors (e.g. CEO, managing director, executive or non-executive directors). 2. In Malaysia, there should be a formal and transparent procedure for the appointment of new directors to the board. All directors should be required to submit themselves for re-election at regular intervals and at least every three years (Malaysian Code on Corporate Governance, Revised 2007). 3. The market value data is as of 30 June 2011. 4. As of June 2011, there are only nine IPOs that became the top 100-companies, 21 IPOs included in the top 200-companies, 40 companies as the top 300-companies and 62 IPOs comprised in the top 400-companies. 5. The annual reports for the year 2010 or year 2011 were used to obtain the gender composition data when the company became a top 500-company. The year 2010 is chosen as some companies have not published their annual reports at the time the analysis was undertaken.

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