scorecardresearchHigher proportion of women on boards lead to better company performance, says BofA Securities

Higher proportion of women on boards lead to better company performance, says BofA Securities

Updated: 08 Mar 2022, 10:52 AM IST
TL;DR.

Since 2010, stocks with higher female representation in management have outperformed stocks with lesser representation by 26 percent on a 3-year basis.

Since 2010, stocks with higher female representation in management have outperformed stocks with lesser representation by 26 percent on a 3-year basis

Since 2010, stocks with higher female representation in management have outperformed stocks with lesser representation by 26 percent on a 3-year basis

There are fewer women in decision-making roles in Asia, despite, it being the home to 2.4 billion women, roughly 15 times the number of men in the US. A Bank of America report on the occasion of International Women’s Day has highlighted that higher female representation in management provides the most meaningful results, positively impacting profitability, efficiency and innovation.

"Since 2010, stocks with higher female representation in management have outperformed stocks with lesser representation by 26 percent on a 3-year basis. On average, these stocks have a higher return on equity (RoE), incur a lower cost of capital, invest 50 percent more in R&D, and have relatively attractive environmental, social and governance (ESG) ratings. Along with bringing diverse experience, knowledge, skill-sets, and perspective, data suggests greater gender diversity in management brings additional alpha," BofA Securities' report pointed out.

Why The Glut? 

Despite Asia's huge talent pool, women comprise only 36 percent of total employees, 25 percent of management roles, and merely 16 percent of board members in the Asia Pacific, informed the report.

One must note that this analysis does not claim the use of women's representation as a factor for stock selection. However, the analysis showcases a strong link between women's representation in corporate structure with better financial performance, noted BofA.

It added that female representation potentially focuses on non-financial and less quantifiable indicators such as customer satisfaction, corporate and social responsibility, board accountability, and improved corporate governance.

As per the report, since 2010, companies with a higher proportion of women on the board have had a higher ROE (13 percent) than companies with a lower proportion (11 percent), on average. While no major uplift was observed in ROE, R&D, or Cost of Capital, these stocks outperformed over the subsequent 1, 2, and 3-year periods, on average, it added.

Data also suggests that on a 3-year basis, stocks with a higher proportion of women employees have outperformed stocks with a lower proportion by 8 percent per annum, on average, the report claimed. Across a 5-year period, stocks in the more women in management outperformed stocks with the lowest women in management by 23 percent, it added.

 Average Returns (%)
Proportion of women in management1-year2 - year3-year5-year
Low-9-15-18-20
High4783
No0-1-2-5

There are fewer women in decision-making roles in Asia, despite, it being the home to 2.4 billion women, roughly 15 times the number of men in the US. A Bank of America report on the occasion of International Women’s Day has highlighted that higher female representation in management provides the most meaningful results, positively impacting profitability, efficiency and innovation.

"Since 2010, stocks with higher female representation in management have outperformed stocks with lesser representation by 26 percent on a 3-year basis. On average, these stocks have a higher return on equity (RoE), incur a lower cost of capital, invest 50 percent more in R&D, and have relatively attractive environmental, social and governance (ESG) ratings. Along with bringing diverse experience, knowledge, skill-sets, and perspective, data suggests greater gender diversity in management brings additional alpha," BofA Securities' report pointed out.

The report further noted that despite impressive growth in reporting and transparency over the last decade, companies in Asia Pac have a long way to go. As of 2021, less than 18 percent of board members in Asia Pac were women, up just 6 percent since 2010.

The India Story

Back home, BofA noted that India has the lowest female labor force participation rate, at just 16 percent, although Japan, South Korea and Indonesia are also below the average of 36 percent.

Going by sector, utilities lag the most, with just 24 percent female employees, even though this sector's boards are 21 percent women. Also, in the financial sector, female employees are almost half of the total workforce (48 percent), but only 17 percent in materials, informed the report.

Sector% of Women Employees in India
Financials48%
Healthcare45%
Real Estate40%
Staples38%
Comm Services37%
Consumer Disc36%
IT35%
Industrials33%
Utilities24%
Energy20%
Materials17%

According to the report, Asia's divergence in female labour participation compared to other markets is mainly due to fewer working women in China and India.

"Urbanization and rising household incomes are two key factors. As workers move to cities for better prospects, women are more likely to stay home. Higher household incomes mean more households can afford to have only one wage earner. Pension and healthcare reforms offer more options for social benefits outside the traditional employer-provided programs," noted BofA.

It further stated that in India, safety concerns and the lack of transportation infrastructure also make it difficult for women to join the urban labor force.

 

Article
Percentage of women joining the workforce has increased to 21 percent
First Published: 08 Mar 2022, 10:51 AM IST