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Does Gender Diversity Impact Transparency of Corporate Political Contributions?

In October, 2018, then-California governor, Jerry Brown signed a bill into law that requires all publically-traded companies based in the state to have at least one woman on their boards of directors by the end of 2019.

There are some that may hail this as a nod to corporate diversity and inclusion, while others may say it leads to more of a willingness to publically disclose corporate political contributions. According to recently published research by San Diego State University accounting professors David DeBoskey, Yan Luo and Jeff Wang of the Fowler College of Business, companies with “gender-diversified boards enhance the transparency of corporate political disclosure” compared to boards “with low gender diversity.”

Dr. David DeBoskey

Dr. David DeBoskey

Dr. Yan Luo

Dr. Yan Luo

Jeff Wang

Jeff Wang

“Political activism is an important component of a company’s strategy and its ethical climate,” stated the researchers. “Studies based on international and US settings suggest that political investments help a company to establish or strengthen its political connections, which can enhance corporate operational performance and increase access to favorable lending terms.” But the research goes on to state that there is also risk whenever a corporation makes a political contribution in that the contributions may alienate potential customers and shareholders, and may even expose the corporation to public scrutiny, damage their reputation, or prompt potential litigation.

The research, which posted in the November 2018 issue of the Asian Review of Accounting, went on to state that in spite of the risks corporations face by disclosing their political contributions, Americans and activist investors are demanding corporations offer greater visibility in their political contributions. The disclosures would be entirely voluntary since there is currently no federal law in place that requires that corporate political contributions be made public.

To determine if gender diversity of the board of directors impacted corporate political disclosure, the researchers studied the companies that were listed on Standard & Poor’s 500 Index and assigned them two measures of disclosure transparency. The first, labeled the disclosure score, measured the information in the disclosure including the amount of the contribution, the identity of the recipients and the names of the executives who authorized the contribution. The second measure, called the policy score, determines if the contribution was consistent with company’s policies and corporate interest rather than expressing an individual manager’s personal preference.

After determining disclosure and policy scores for the companies, the researchers reviewed the percentage of women on each company’s board of directors, as well as the overall governance quality of each company, the number of independent board members, and total number of board members as reported by Bloomberg. The minimum number of women board members on the S&P 500 being 0 and the maximum number being 50, the mean number was calculated to slightly over 19.

The researchers’ analysis shows that corporate political disclosure transparency and policy transparency are 14 – 15 percent higher in those firms with greater gender diversity than those firms with lower gender diversity. Previous studies reviewed in the paper indicate that women differ from men in terms of personality, communication style, educational background as well as career experience and expertise, and that women have a positive impact on an organization’s socially responsible behavior. However, this research - unlike prior studies that investigate the effect of diversified boards on corporate value - directly tests the effect of a gender diversified board on corporate political disclosure.

These results offer evidence to support that a diversified board contributes to general corporate governance and the newly signed California law may improve the state’s publically-traded companies’ transparency in their political contribution disclosures

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Note: This research was funded, in part, by the Fowler College of Business