Does Gender Diversity on Indian Boards Impede IPO Underpricing?

Abstract

India has been endeavouring to achieve gender equality, but has failed to attain much success in the corporate sector. The male-dominated Indian corporate board clearly exhibits gender discrimination. The much-awaited move has finally come from the Indian legislators who took an audacious step towards gender egalitarianism by mandating women directors in Indian boardrooms with the advent of New Companies Act, 2013. The scenario of women involvement on Indian boards just prior to this enactment has been appraised through this study. A glimpse on the advantages accruing to the companies permitting women-led initial public offering (IPO) is explored. The impact of the presence of women directors on IPO underpricing is examined by analyzing 230 Indian companies that went public from 1 May 2007 to 31 March 2013. It was found that more than 50 per cent of the sample companies lack gender diversity and in fact employ no women directors in their boards. The results point towards the existence of women on Indian boards as mere token who fail to impede IPO underpricing. The implication for the managers of Indian companies is to pursue the global trend of female inclusion and appraise women on Indian boards from mere tokens to form a critical mass to procure the benefits of gender diversity.

Signalling IPO quality through female directors

“…These results indicate that the presence of female directors on the board at the time of IPO tends to the uncertainties surrounding the intrinsic value of the company and consequently reduces IPO IR. The negative sign reported in this study is consistent with Kaur and Singh's (2015) findings for the Indian IPO market. However, their result appears insignificant.…”

“…This measurement is consistent with prior IPO studies on gender diversity (e.g. Kaur and Singh, 2015). The second measurement is the proportion of female directors on the board to total number of directors on the board at the time of IPO (Handa and Singh, 2015;Reutzel and Belsito, 2015).…”

“…In a similar vein, Handa and Singh (2015) report a non-significant and negative association between the proportion of female directors and IPO IR in the Indian IPO market. Kaur and Singh (2015) also find similar evidence when both proportion and presence of female directors are used. Both authors argue that the negative sign reflects a company's commitment to effective governance.…”

“…Additionally, they claim that the presence of female directors on the board is perceived by investors as the ability of the company to deal with the complex environment, like IPO, thereby reducing uncertainties about the company's value. In line with these two studies (Handa and Singh, 2015;Kaur and Singh, 2015), Welbourne (1999) argues that the inclusion of women as board members at the time of IPO can serve as a signal of IPO quality. This lowers uncertainty in the minds of investors, leading to reduction in information asymmetry that potential investors possibly face when subscribing to a company's shares, and hence ultimately diminishing IPO IR.…”

Corporate Governance: An Insight into the Imposition and Implementation of Gender Diversity on Indian Boards

“…Recently, there has been thriving research examining the relation between board diversity and firm performance in emerging economies (Bokhari & Hashmi, 2016; De Cabo et al, 2019; Kaur & Singh, 2015; Kaur & Singh, 2017; Liu et al, 2014). To the best of the knowledge of the author, no study has comprehensively examined the implementation of the Companies Act, 2013 that calls for gender inclusive board for the first time in the Indian history, albeit descriptive approach.…”