EFFECTED FROM WOMEN ON THE BOARD TO BANK PERFORMANCE

JEAN MOULIN LYON 3 UNIVERSITY VIETNAM UNIVERSITY OF COMMERCE
MASTERS FINANCE AND CONTROL
THESIS
EFFECTED FROM WOMEN ON THE BOARD
TO BANK PERFORMANCE
…………………………………………………
Prepared by: AN Thi Xuan Van
Supervised by: Professor Laurence Gialdini
Hanoi 2013
1
DECLARETION
I declare that this current research is my own. The data and the results in this research are
honest. The research content has ever not submitted to any degree in any other university or any
other research work.
Researcher
An Thi Xuan Van

2
Acknowledgements
I would like to say thank you to all the people who were beside me during the
preparation of this paper.
Especially, I want to say thank you to Prof. Laurence Gialdini,my Adviser
She always assists me in my studies and besides during the time I conducted my thesis, she
guided me how to write my thesis and make an excellent power point presentation. She would
go the extra mile in reaching out to her advisee and students.
To Dr. Abadie, Dr Nguyen Hoang and Dr Vu Manh Chien who guided me
and gave me a chance to conduct this current thesis and gave me some ideas for my thesis.
To Dr.Duc Khuong Nguyen who gave me advices and ideas during the time I
conducted this current research.
To Mrs. Bui Viet Thu who has been following our class and give us every
information that we need during this Course.

To All my dear professors from Jean Mounlin Lyon 3 and Faculty of international
training in Viet Nam University of Commerce Who always give me useful counsels which help
me to be more confident. Gave me orientation for the way which I should follow and now I
have already overcome step one to enter my life with the knowledge that I get in my course. I
am sure that it will help me in my future.
To all friends who are always with me during the time I study here in Ha Noi.
And lastly, I want to say thank you to my family especially to my parents who gave me
opportunity to come here to study. They always encourage me and make me become better
person. I am very happy and lucky to have a family like that. They follow and research for me; it
is my chance in advancement of my life.
Thank you for all the persons who are always beside me.

3
Abstract
Corporate Governance literature argues that board diver is potentially positive related to
firm performance. Current study, the researcher examines with 33 Vietnamese Bank.
Objective of the study is to verify the relation between women on the board and bank
performance. Quantitative method is applied. The quantitative data was taken from annual
reports of the sample banks during period 2008 to 2012 and it was analyzed using SPSS
software. The result shows Women on boardroom of Vietnamese banks have positive
relationship with bank performance measured by return on equity.
Keywords: boardroom, firm performance, agency t he or y , stewardship theory,
qu ant it at ive research, qualitative research.
4
TABLE OF CONTENTS
Page
TITLEPAGE
1
2
DECLARETION 3

ACKNOWLEDGEMENT 4
ABSTRACT 5
TABLE OF CONTENTS 6
LIST OF TABLES
LIST OF FIGURE
LIST OF AC
RONYMS
8
9
10
Chapter
1 INTRODUCTION 11
1.1
Background of the Study
11
1.2
Objective of the Study
12
1.3
Important of the Study
12
2
THEORETICAL PERSPECTIVES, LITERATURE REVIEW AND
STUDIES, RESEARCH QUESTIONS AND HYPOTHESES
14
2.1
Introduction
14
2.2
Board and Women in the boardroom

14
2.3
Banking and how is bank work?
16
2.4
Corporate Governance
17
2.5
Firm Performance
19
2.5.1 Financial Performance
20
5
2.6
The link between Woman on the board and firm performance
21
2.6.1 Agency Theory
22
2.6.2 Stewardship theory
23
2.7
Related Studies with the same problems
24
2.8
Corporate Governance in Viet Nam
26
2.8.1 Status of Corporate Governance in Viet Nam
26
2.9 Research questions and Hypothesis
28

2.9.1 Research questions
28
2.9.2 Hypothesis
28
3
RESEARCH METHOD
29
3.1 Introduction
29
3.2 Quantitative research
29
3.3 Qualitative research
30
3.4 Sample and Sampling Technique
30
3.5 Research Instrument and Analyzing methods
31
3.5.1 Research Instrument 31
3.5.2 Analyzing methods 31
3.6 Variables 32
3.6.1 Independent variables 32
3.6.2 Control variables 32
3.6.3 Dependent variables 33
3.7
Empirical Model
35
4
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
36
4.1 Descriptive Statistic 36

4.2 Correlation Matrix
38
4.3 Finding Results
38
6
4.3.1 Hypothesis 1
38
4.3.2 Hypothesis 01
40
4.4 Finding relationship between control variable and Vietnamese banks
performance
42
4.4.1 Finding relationship between bank size and bank performance
42
4.4.2 Finding relationship between Leverage and bank performance
43
CONCLUSION, LIMITATION AND SUGGESTION FOR FUTURE RESEARCH 45
REFERENCE 47
APPENDIX 50
List of Tables
Table Title Page
1
Proportion of Women on the board in Vietnamese Banks
36
2 Variables Descriptive Statistic 36
7
3 Correlation Matrix 38
4
Data analysis of relationship between women on board in Vietnamese banks
and bank performance (measure by ROE)

39
5
Data analysis of relationship between women on board in Vietnamese banks
and bank performance (measure by Tobin’s Q)
40
8
List of Figures
Table Title Page
1
Conceptual framework
28
2 Regression Analysis 31
3
Correlation graph between Women on board and Bank performance (Return on
Equity)
40
4
Correlation graph between Women on board and Bank performance (Tobin’s Q)
42
5
Correlation graph between bank size and Bank performance (Return on Equity)
43
6
Correlation graph between Leverage and Bank performance (Return on Equity)
44
9
List of Acronyms
BoC : Board of Commissioners
BoD : Board of Directors
CEO : Chief Executive Officer

CFO : Chief Finance Officer
CG : Corporate Governance
FDIC : Federal Deposit Insurance Corporation
IBR : International Business Report
ICGN : International Corporate Governance Network
KPIs : Key Performance Indicator
OECD : Organization for Economic Cooperation and Development
ROA : Return on Assets
ROE : Return on Equity
ROI : Return on Investments
ROIC : Return on Invested Capital
ROS : Return on Sales
TSR : Total Shareholder’s Retur
10
INTRODUCTION
1.1 Background
A recent report from the International Business Report (IBR), explores the global shift
in the number of women at the top of the business world and examines ways to make this
growth permanent and parity possible. Key findings from the survey include: women hold
24% of senior management roles globally, a three point increase over the previous year.
There has been a sharp rise in China, with 51% of senior management positions held by
women, compared to 25% last year. The proportion of businesses employing women as CEOs
has risen from 9% to 14%. Education and talent management may work in tandem with
flexible work arrangements, which 67% of respondents offer, to increase the number of
women in top leadership. Just 19% of board roles around the world are held by women.
Although quotas have been put into place around the globe to increase women’s participation
in boards, 55% of respondents oppose such quotas.
In politics, an increasing number of women won elections: South Korea, for instance,
recently swore in its first female president. Approximately 17 countries have women as head
of government, head of state or both (a number that, according to the Inter-Parliamentary

Union and UN Women, has more than doubled since 2005), and the world average for
women in parliament totaled 20.4% as of 1 February 2013.
In 2012, though women comprised over a third of the workforce in the United States,
they held a mere 14.3 percent of executive officer positions at Fortune 500 companies and
only 8.1 percent of executive officer top-earner positions2. Of the FTSE 100, women held
only 15% of board seats and 6.6% of executive positions in 2012. In the Asia Pacific region,
the percentage of women on boards was about half that in Europe, Australia and North
America. The IBR survey, which includes both listed and privately held businesses, indicates
a 3% increase in the number of women in senior management positions from 2011 to 2012,
with 24% of businesses with women in senior management roles globally in 2012 (compared
to 21% in 2011).
In 2013, China is country which is the highest rate of woman senior management with
51%. The second country is Poland with 48%. Viet Nam is ranking of ninth with 33% of
woman senior manager.
Several researchers have examined the trend and the impact of the change in
workforce diversity, especially in the top management level, on business performance (see
for example Terjesen & Singh 2008; Dejardin 2009). In particular, participation by
women in top management is expected to have positive impact on firm performance
(Robinson 2008).
The attributes that impact on the ability of the board members to effectively
perform their job include their capabilities and skills (Carter et al. 2007), educational and
cultural background (Kusumastuti, Supatmi & Sastra 2007), their possible involvement
in multiple directorships, the level of share ownership, and the type of remuneration
(Campbell & Vera, 2008). These attributes affect firm performance (Carter et al. 2007).
There is no observable performance benefit to adding more women to the board of
11
directors. Out of all the regressions performed not a single one found a significant and
positive relationship between the percentage of women on the board and performance (Carl
Fagergren & Samuel Hurst, spring 2012).
Prior studies have found differences in the impact of boards on firm performance,

this study focuses on testing hypotheses about effected from Woman on the board to
firm performance. Further, the study presents results from a qualitative and quantitative
study of Vietnamese women board members regarding the role they play in enhancing
firm performance. The purpose of the study was to throw light on the relationship
between woman on the board and performance.
1.2 Objectives of the study
An objective of the study is to examine in the Vietnamese bank, the link between
women’s participation in top management and its impacts on the financial firm.
. The study only focuses on bank and firm performance. The underlying assumption of
this research is that the presence of women boards may impact firm performance. A diverse
workforce has been found to be generally beneficial for business (Herring 2009).
In the current study, these competing arguments are examined in the Vietnamese
context by using several theories as agency, stewardship, legitimacy, and stakeholder
theories. Woman on the board is very importance in the context of corporate governance.
However, it is still inconclusive whether women on board affects firm performance positively
or negatively. Therefore, the principal objective of this study is to test the effect of
woman in the boardroom on firm performance.
1.3 Importance of the study
In transaction economics as Viet Nam, Corporate Governance is still newness with
Company manager. To apply the principles of corporate governance to management
practical is necessary. We need to have a research about effecting of factors form corporate
governance to firm performance in order to contribute some ideas and propose policies to
make corporate governance of our nation perfectly.
There are so many a numbers of topics and research on gender diversity affects
the performance of the company but only some study that have used the samples from
developing country as India ( Jackling & Johl 2009) and Malaysia (Marimuthu and
Kolamdaisamy 2009) and in Viet Nam have no study about woman in the boardroom
and firm performance. Moreover, most of developed countries already have advanced
policies regarding affirmative action in corporate governance that support woman
representation in the board. But in Viet Nam, we haven’t this policy yet. Therefore, this

study is aimed to add to the literature regarding the link between woman in the
boardroom and firm performance. It will also provide some suggestion about action
policies in the developing countries, specially is Viet Nam.
Additionally, World Bank (2010) have argued that a country can sustain its
long-term economic growth and prosperity, improve governance, and increase
12
living standards by employing more women and narrowing the employment gap
between men and women. This is an indication that women have been acknowledged as
part of the nation’s assets and must be empowered to achieve the national development
goals.
13
CHAPTER 2
THEORETICAL PERSPECTIVES, LITERATURE REVIEW AND STUDIES,
RESEARCH QUESTIONS AND HYPOTHESES
2.1 Introduction
This chapter presents the concepts and theoretical perspectives adopted for the
study. It includes the definitions of Banking, Board, Women in the boardroom and
firm performance, and the descriptions of the theories used to explain the
relationships between the two constructs Woman on the board and firm performance.
Agency theory and stewardship theory are used to define the relationships between
gender diversity in the composition of the board and firm financial performance. The
theoretical framework is presented in the last part of this chapter.
This chapter also reviews the previous research that has examined the link
between gender diversity of board members and firm performance. The reviews include the
studies conducted in the context of both developed and developing countries.
2.2 Board and Women in the boardroom
The board is an important part of the overall corporate governance mechanism within
a firm. As a body responsible for overall policy and strategic direction, the board
essentially drives the overall performance of the firm. As a consequence, board
characteristics and board composition that includes, for example, the number of

independent boards, the tenure of boards, the size of the board, as well as board
diversity in terms of gender, age, ethnicity, nationality, educational background,
industrial experience and organizational membership, may influence firm performance
(Campbell & Vera 2008). For the current study, it will be interesting to examine whether
women in the boardroom enhances firm performance.
Board members can be divided into three categories:
* Chairman – Technically the leader of the corporation, the chairman of the board is
responsible for running the board smoothly and effectively. His or her duties typically include
maintaining strong communication with the chief executive officer and high-level executives,
formulating the company's business strategy, representing management and the board to the
general public and shareholders, and maintaining corporate integrity. A chairman is elected
from the board of governors.
* Inside Directors – These directors are responsible for approving high-level budgets
prepared by upper management, implementing and monitoring business strategy, and
approving core corporate initiatives and projects. Inside directors are either shareholders or
high-level management from within the company. Inside directors help provide internal
perspectives for other board members. These individuals are also referred to as executive
14
directors if they are part of company's management team.
* Outside Directors – While having the same responsibilities as the inside directors in
determining strategic direction and corporate policy, outside directors are different in that they
are not directly part of the management team. The purpose of having outside directors is to
provide unbiased and impartial perspectives on issues brought to the board. Management
Team
As the other tier of the company, the management team is directly responsible for the
day-to-day operations (and profitability) of the company.
* Chief Executive Officer (CEO) – As the top manager, the CEO is typically
responsible for the entire operations of the corporation and reports directly to the chairman
and board of directors. It is the CEO's responsibility to implement board decisions and
initiatives and to maintain the smooth operation of the firm, with the assistance of senior

management. Often, the CEO will also be designated as the company's president and therefore
also be one of the inside directors on the board (if not the chairman).
* Chief Operations Officer (COO) – Responsible for the corporation's operations, the
COO looks after issues related to marketing, sales, production and personnel. More hands-on
than the CEO, the COO looks after day-to-day activities while providing feedback to the
CEO. The COO is often referred to as a senior vice president.
* Chief Finance Officer (CFO) – Also reporting directly to the CEO, the CFO is
responsible for analyzing and reviewing financial data, reporting financial performance,
preparing budgets and monitoring expenditures and costs. The CFO is required to present this
information to the board of directors at regular intervals and provide this information to
shareholders and regulatory bodies such as the Securities and Exchange Commission (SEC).
Also usually referred to as a senior vice resident, the CFO routinely checks the corporation's
financial health and integrity (
The Board of Directors (the “Board”) of the Corporate Executive Board Company (the
“Company”) has developed these corporate governance principles (the “Principles”) to help
it fulfill its responsibilities to the Company and its shareholders. The Board plays the central
role in the Company’s corporate governance and oversees the work of management and the
execution of the Company’s business strategies on behalf of the Company’s shareholders.
The board of directors is an important mechanism in the governance of modern
corporations. Fama and Jensen (1983) view the board as the apex of the internal decision
control systems of organizations. To date, the often-researched mechanism has been the board
of directors (Dalton et al. 1998; Zahra & Pearce 1989).
A board of directors is expected to play a key role in corporate governance. The Board
has the responsibility of endorsing the organization’s strategy, developing directional policy,
appointing, supervising and remunerating senior executives, and ensuring accountability of
the organization to its investors and authorities.
Board of Directors elected by the shareholders, the board of directors is made up of two
types of representatives. The first type involves individuals chosen from within the company.
This can be a CEO, CFO, manager or any other person who works for the company on a daily
basis. The other type of representative is chosen externally and is considered to be

independent from the company. The role of the board is to monitor the managers of a
corporation, acting as an advocate for stockholders. In essence, the board of directors tries to
15
make sure that shareholders' interests are well served.
In the context of the working environment, gender diversity refers to the proportion
of men and women in the workplace that may affect the way people communicate
and work with each other in that area, and influence the organization’s performance
(Herring 2009). Specifically, gender diversity in the context of the boardroom refers to the
presence of women as board members (Dutta & Bose 2006).
2.3. Banking and how is Bank work?
According to “A Lawful Organization” StudyMode.com. Retrieved 07, 2011, Bank is a
lawful organization, which accepts deposits that can be withdrawn on demand. It also lends
money to individuals and business houses that need it. Banks also render many other useful
services – like collection of bills, payment of foreign bills, safe-keeping of jewellery and other
valuable items, certifying the credit-worthiness of business, and so on. Banks accept deposits
from the general public as well as from the business community. Anyone who saves money for
future can deposit his savings in a bank. Businessmen have income from sales out of which
they have to make payment for expenses. They can keep their earnings from sales safely
deposited in banks to meet their expenses from time to time. Banks give two assurances to the
depositors
a. Safety of deposit, and
b. Withdrawal of deposit, whenever needed
On deposits, banks give interest, which adds to the original amount of deposit. It is a
great incentive to the depositor. It promotes saving habits among the public. On the basis of
deposits banks also grant loans and advances to farmers, traders and businessmen for
productive purposes.
Thereby banks contribute to the economic development of the country and well being of the
people in general. Banks also charge interest on loans. The rate of interest is generally higher
than the rate of interest allowed on deposits. Banks also charge fees for the various other
services, which they render to the business community and public in general. Interest received

on loans and fees charged for services which exceed the interest allowed on deposits are the
main sources of income for banks from which they meet their administrative expenses.
Types of Banks: There are several types of banking institutions, and initially they were
quite distinct. Commercial banks were originally set up to provide services for businesses.
Now, most commercial banks offer accounts to everyone. Savings banks, savings and loans,
cooperative banks and credit unions are actually classified as thrift institutions. Each originally
concentrated on meeting specific needs of people who were not covered by commercial banks.
Savings banks were originally founded in order to provide a place for lower-income workers to
save their money. Savings and loan associations and cooperative banks were established during
the 1800s to make it possible for factory workers and other lower-income workers to buy
homes. Credit unions were usually started by people who shared a common bond, like working
at the same company (usually a factory) or living in the same community. The credit union's
main function was to provide emergency loans for people who couldn't get loans from
16
traditional lenders. These loans might be for things like medical costs or home repairs.
How does it work? The funny thing about how a bank works is that it functions because
of our trust. We give a bank our money to keep it safe for us, and then the bank turns around
and gives it to someone else in order to make money for itself. Banks can legally extend
considerably more credit than they have cash. Still, most of us have total trust in the bank's
ability to protect our money and give it to us when we ask for it. Why do we feel better about
having our money in a bank than we do having it under a mattress? Is it just the fact that they
pay interest on some of our accounts? Is it because we know that if we have the cash in our
pockets we'll spend it? Or, is it simply the convenience of being able to write checks and use
debit cards rather than carrying cash? Any and all of these may be the answer, particularly with
the conveniences of electronic banking today.
Why does it work?
Banking is all about trust. We trust that the bank will have our money for us when we
go to get it. We trust that it will honor the checks we write to pay our bills. The thing that's hard
to grasp is the fact that while people are putting money into the bank every day, the bank is
lending that same money and more to other people every day. Banks consistently extend more

credit than they have cash. That's a little scary; but if you go to the bank and demand your
money, you'll get it. However, if everyone goes to the bank at the same time and demands their
money (a run on the bank), there might be problem.
Even though the Federal Reserve Act requires that banks keep a certain percentage of
their money in reserve, if everyone came to withdraw their money at the same time, there
wouldn't be enough. In the event of a bank failure, your money is protected as long as the bank
is insured by the Federal Deposit Insurance Corporation (FDIC). The key to the success of
banking, however, still lies in the confidence that consumers have in the bank's ability to grow
and protect their money. Because banks rely so heavily on consumer trust, and trust depends on
the perception of integrity, the banking industry is highly regulated by the government.
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2.4 Corporate Governance
According OECD (April 1999), Corporate governance is the system by which business
corporations are directed and controlled. The corporate governance structure specifies the
distribution of rights and responsibilities among different participants in the corporation, such
as, the board, managers, shareholders and other stakeholders, and spells out the rules and
procedures for making decisions on corporate affairs. By doing this, it also provides the
structure through which the company's objectives are set, and the means of attaining those
objectives and monitoring performance.
Corporate governance involves a set of relationships between company’s
management, its board, its shareholders and other stakeholders. It provides a structure
through which objectives of a company are set as well as means of obtaining these objectives
and monitoring performance is determined (OECD Principles of Corporate Governance
17
April, 2004).
Principles of Corporate Governance (OECD, April, 2004):
- Ensuring

the

Basis

for

an

Ef
fective
Corporate

Governance

Framework
- The corporate
governance framework should promote transparent and efficient markets, be consistent
with the rule of law and clearly articulate the division of responsibilities among
different supervisory, regulatory and enforcement authorities.
-
The

R
i
ghts

of

Shareholders

and

Key

Ownership

Functions
- The corporate governance
framework should protect and facilitate the exercise of shareholders’ rights.
-
The

Equitable

Treatment

of

Shareholders
- The corporate governance framework should
ensure the equitable treatment of all shareholders, including minority and foreign
shareholders. All shareholders should have the opportunity to obtain effective redress for
violation of their rights.
-
The

Ro
le
of

S
t

akeholders

in

Corporate

Governance -
The corporate governance framework
should recognise the rights of stakeholders established by law or through mutual agreements
and encourage active co-operation between corporations and stakeholders in creating
wealth, jobs, and the sustainability of financially sound enterprises.
-
Disclosure

and

Transparency-
The corporate governance framework should ensure that
timely and accurate disclosure is made on all material matters regarding the corporation,
including the financial situation, performance, ownership, and governance of the company.
-
The

Responsibilities

of

the

Board:

The corporate governance framework should ensure the strategic guidance of the
company, the effective monitoring of management by the board, and the board’s
accountability to the company and the shareholders.
A. Board members should act on a fully informed basis, in good faith, with due
diligence and care, and in the best interest of the company and the shareholders.
B. Where board decisions may affect different shareholder groups differently, the board
should treat all shareholders fairly.
C. The board should apply high ethical standards. It should take into account the interests of
stakeholders.
D. The board should fulfil certain key functions, including:
1. Reviewing and guiding corporate strategy, major plans of action, risk policy,
annual budgets and business plans; setting performance objectives; monitoring
implementation and corporate performance; and overseeing major capital
expenditures, acquisitions and divestitures.
2. Monitoring the effectiveness of the company’s governance practices and
making changes as needed.
3. Selecting, compensating, monitoring and, when necessary, replacing key
executives and overseeing succession planning.
4. Aligning key executive and board remuneration with the longer term interests of the
company and its shareholders.
18
5. Ensuring a formal and transparent board nomination and election process.
6. Monitoring and managing potential conflicts of interest of management, board
members and shareholders, including misuse of corporate assets and abuse in
related party transactions.
7. Ensuring the integrity of the corporation’s accounting and financial reporting
systems, including the independent audit, and that appropriate systems of
control are in place, in particular, systems for risk management, financial and
operational control, and compliance with the law and relevant standards.
8. Overseeing the process of disclosure and communications.

E. The board should be able to exercise objective independent judgement on corporate
affairs.
1. Boards should consider assigning a sufficient number of non-executive board
members capable of exercising independent judgement to tasks where there is a
potential for conflict of interest. Examples of such key responsibilities are
ensuring the integrity of financial and non-financial reporting, the review of
related party transactions, nomination of board members and key executives,
and board remuneration.
2. When committees of the board are established, their mandate, composition and
working procedures should be well defined and disclosed by the board.
3. Board members should be able to commit themselves effectively to their
responsibilities.
F. In order to fulfil their responsibilities, board members should have access to
accurate, relevant and timely information.
2.5 Firm performance
Firm performance is a relevant construct in strategic management research and
frequently used as a dependent variable (Juliana Bonomi SantosI & Luiz Artur, Ledur
BritoII, May 2012). Measures of firm performance – such as productivity, value-added and
profit,…( Lazear, The economic Journal 116 June, 1995). Performance measures as Catalyst
(2007) and McKinsey (2007) were return on equity (ROE), return on sales (ROS) and return
on invested capital (ROIC), while McKinsey’s (2007) financial performance measures were
return on equity (ROE), operating result (EBIT) and stock price growth. As in the McKinsey
(2007) include total shareholder return (TSR) as a financial measure together with the
accounting measures. Form those prior researches; the researcher used ROE to measure
Vietnamese bank performance. It based on accounting financial of bank.
Another way to characterize performance is to distinguish between financial and non-
financial performance (Ittner, 2008). The financial performance is often measured using
traditional accounting KPIs such as ROA, ROS, EBIT, EVA® or Sales growth (Ittner &
Larcker, 1997; Fraquelli & Vannoni, 2000; Crabtree & DeBusk, 2008). The advantage of
these measurements is their general availability, since every profit oriented organization

19
produces these figures for the yearly financial reporting (Chenhall & Langfield-Smith,
2007). However, balance sheet manipulations and choices of accounting methods may also
lead to values that allow only limited comparability of the financial strength of companies.
The non-financial performance can be measured using operational KPIs. Market share,
innovation rate or customer satisfaction are prominent examples (Hyvönen, 2007). Tangen,
(2003) provides an overview of frequently used performance measures. Many researchers
also use self reported measures to operationalize performance (Evans, 2004; Chenhall &
Morris, 1995; Henri, 2006; Ittner, Lanen, & Larcker, 2002). Others combine both, the
accounted financial KPIs and self reported measures in their reports (Cadez & Guilding,
2008). Langfield-Smith, (1997) writes that there are various ways non-financial performance
can be measured; however the performance can be hardly assessed without the link to
corporate strategy. The consequence for the researcher is simple: it is first to decide what the
research question should be, then a performance definition can be created. So that, the
researcher used Tobin’s Q to measure bank performance. It is market-based.
For this research, firm performance will be measured by includes financial
performance. To measure firm financial performance, accounting-based and market-based
calculations are used. And date will be gotten from annual report of bank.
2.5.1 Financial performance
The word ‘Performance is derived from the word ‘parfourmen’, which means ‘to do’,
‘to carry out’ or ‘to render’. It refers the act of performing; execution, accomplishment,
fulfillment, etc. In border sense, performance refers to the accomplishment of a given task
measured against preset standards of accuracy, completeness, cost, and speed. In other
words, it refers to the degree to which an achievement is being or has been accomplished. In
the words of Frich Kohlar “The performance is a general term applied to a part or to all the
conducts of activities of an organization over a period of time often with reference to past or
projected cost efficiency, management responsibility or accountability or the like. Thus, not
just the presentation, but the quality of results achieved refers to the performance.
Performance is used to indicate firm’s success, conditions, and compliance.
Financial performance refers to the act of performing financial activity. In broader

sense, financial performance refers to the degree to which financial objectives being or has
been accomplished. It is the process of measuring the results of a firm's policies and
operations in monetary terms. It is used to measure firm's overall financial health over a
given period of time and can also be used to compare similar firms across the same industry
or to compare industries or sectors in aggregation.
Firm financial performance is generally defined as a measure of the extent to
which a firm uses its assets to run the business activities to earn revenues. It examines the
overall financial health of a business over a given period of time and can be used to
contrast the performance of identical firms in similar industries or between industries in
general (Atrill et al. 2009). The main source of data for determining firm financial
performance is the financial statements, the product of accounting, which consists of the
balance sheet which shows the assets, liabilities and equities of a business, the income
statement that records the revenues, expenses and profits in a particular period, the cash
flow statement which exhibits the sources and uses of cash in a period, and the
statement of changes in the owners’ equity that represents the changes in owner’s
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wealth.
Moreover, firm financial performance generally may also be reflected in
market-based (investor returns) and accounting-based (accounting returns) (Griffin &
Mahon 1997) as the ratios are the return on assets (ROA), return on equity (ROE) and
return on investments (ROI) which are calculate the firm’s profitability (Atrill et al.
2009). Market-based indicators to measure firm financial performance are price per share
and Tobin’s Q which indicate the market value or the share value of the firm as well as the
financial prospects of the firm in the future. Alternatively, accounting-based measures,
including profitability, efficiency, liquidity, gearing, and investment ratios, are
calculated using the figures from the financial reports and may represent a firm’s financial
performance. In contrast, the market-based measure is believed to be more objective because
it relies on market responses to particular decision made by a firm (Griffin & Mahon
1997). This study is used accounting-based measure is ROE and market-based measure is
Tobin’s Q.

2.6 The link between Woman on the board and firm performance
Several theories that one can draw upon to explain the association between gender
diversity in the boardroom and firm performance are discussed in this section. The roles
of board members, as well as the effect of gender diversity of board members on firm
performance, are described in the theories. The agency theory and stewardship theory are
particularly used to define the relationship between gender diversity in the boardroom
and a firm’s financial performance.
2.6.1 Agency theory
Agency theory has been very popular in explaining the role of boards in mitigating the
agency costs (Jensen & Meckling, 1976, Fama & Jensen, 1983) Specifically, this theory
describes the relationship between the principal or the owners of firms and the agents or the
managers that should be well managed so that they may act in the best interest of the
principal. Jensen & Meckling (1976) define the term ‘agency relationship’ as a contract
under which one or more (principals) engage another person (the agent) to perform some
service on their behalf. This relationship involves delegating some decision-making
authority to the agent. It is hypothesized that the principal will assume that the agent
(and all individuals) will be driven by self-interest as the wealth maximize (Jensen and
Meckling, 1976). Therefore, the principal will anticipate that the agent, unless restricted
from doing otherwise, will choose to pursue individual self-interest that could have a
negative impact on the principal’s economic welfare.
The fundamental premise of agency theory is that the managers act out of self-interest
and are self centred, thereby, giving less attention to shareholder interests. For example, the
managers may be more interested in consuming perquisites like luxurious offices, company
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cars and other benefits, since the cost is borne by the owners. The managers who possess
superior knowledge and expertise about the firm are in a position to pursue self-interests
rather than shareholders (owners) interests (Fama, 1980; Fama & Jensen, 1983).
Eisenhardt (1989, p. 58) explains that agency problem arrives when “(a) the desires or
goals of the principal and agent conflict and (b) it is difficult or expensive for the principal to
verify what the agent is actually doing”. Consequently, the monitoring of management

activities is seen as a fundamental duty of a board, so that agency problems can be minimised,
and superior organizational performance can be achieved.
The agency theory has also been the underlying concept of corporate governance that
analyses the relationships among shareholders, boards, managers, and employees. It
emphasizes the responsibilities of managers as the agents of owners and the roles
of boards as the representatives of owners (Jensen & Meckling 1976). Improved
monitoring of decisions and activities of managers by the boards will result in the
greater protection of shareholders (Ragothaman & Gollakota 2009).
Specifically, based on the concept provided by the OECD (2004), corporate
governance includes a set of relationships between a firm’s management, its board, its
shareholders and other stakeholders that provide the structure through which the
objectives of the firm are set, and the means of attaining those objectives and
monitoring performance are determined. Furthermore, according to the principles of
corporate governance (OECD 2004), good corporate governance should provide
proper incentives for the board and management to pursue objectives that are in the
interests of the firm and its shareholders and should facilitate
effective monitoring. Then,
based on these principles, the corporate governance framework
should ensure the
strategic guidance of the firm, the effective monitoring of management by the board, and
the board’s accountability to the firm and the shareholders.
Since one of the board’s obligations is to ensure that management prioritizes the
interests of shareholders, agency theory has suggested that a more diverse board
monitors managers better because board diversity increases board independence
(Carter et al. 2007).
The proponents of gender diversity in the boardroom believe that women members,
minority members, or independent board members bring unique and important
information and knowledge to the board and managers, encourage different and innovative
insights in decision making and problem solving, and create an open communication among
board members and staffs for topics that have not yet been discussed (Carter et al. 2007,

Grosvold, Brammer & Rayton 2007; Verboom & Ranzijn 2004; Fama & Jensen 1983a).
Two important governance mechanisms used for this purpose are board of directors and
compensation schemes to align the interests of both the agent and the principal. Fama (1980)
considers the board a low-cost mechanism of management compared to other alternatives such
as, for example, takeovers. The literature on board, as a governance team, is mainly focused
on issues such as board size, inside versus outside directors (also known as executive versus
non-executive directors), separation of CEO and Chair positions, etc (Dalton et al., 1998;
Coles & Hesterly, 2000; Daily et al., 2003) with an aim to improve the effectiveness of
oversight. Executive compensation concentrates on the degree to which managers are
compensated in ways that align their interests with those of shareholders (Davis et al., 1997;
Tosi, Brownlee, Silva & Katz, 2003). Such incentivised compensation schemes are
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particularly desirable when the agents have a significant informational advantage and
monitoring is difficult. Many scholars have relied upon agency theory to examine the role of
boards and other related governance aspects in affecting firm performance (Cadbury, 1992;
Vienot, 1995; Hampel, 1998; OECD, 1999; ICGN, 1999; King, 2002).
2.6.2 Stewardship theory
While Agency theory assumes that principals and agents have divergent interests and
that agents are essentially self-serving and self-centred, Stewardship theory takes a
diametrically opposite perspective. It suggests that the agents (directors and managers) are
essentially trustworthy and good stewards of the resources entrusted to them, which makes
monitoring redundant (Donaldson 1990; Donaldson & Davis, 1991; Donaldson & Davis,
1994; Davis et al., 1997).
The stewardship perspective views directors and managers as stewards of firm. As
stewards, directors are likely to maximise the shareholders’ wealth. Davis et al. (1997) posit
how stewards derive a greater utility from satisfying organisational goals than through self-
serving behaviour. Davis et al. (1997) argue that the attainment of organisational success also
satisfies the personal needs of the stewards. Stewardship theory suggests that managers
should be given autonomy based on trust, which minimizes the cost of monitoring and
controlling behaviour of the managers and directors.

Furthermore, according to Muth and Donaldson (1998) the stewardship theory
indicates that higher level management also has non-financial motives that include
the demand for achievement and recognition, the intrinsic satisfaction of successful
performance, respect for authority and the work ethic. Additionally, when the boards
are insiders (those who were previously the managers or the employees of the firms)
they are empowered to behave as stewards and to manage companies’ assets
accountably. Furthermore, Muth and Donaldson (1998) state that when the boards and
managers work together and acknowledge the obligation to enhance a firm’s
performance in the future, this develops trust and empowerment, the depth of
experience, technical expertise, and ease of communication required for effective board
functioning.
When applied in the context of a boardroom, stewardship theory considers
that board members are motivated by more than personal motivations (Nordberg 2008).
The stewardship theory, supported by Maslow and ERG theories, argues that board
members may look after the interests of someone or something larger than their personal
self- interests (Nordberg 2008). The board members also have their own needs to have
meaningful interactions with the management. By having board members who have these
characteristics,
it is expected that they may perform better to safeguard the firms’ assets. An
example of stewardship theory is a statement given by Peter Weinberg, an executive
of a bank, that serving on a board is not, and should not be, a wealth creation
opportunity but a chance to play a role in the proper environment of the marketplace
(Weinberg 2006 in Nordberg 2008). Stewardship theory then is believed to be able to help
board members when making economic decisions for firms.
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From the stewardship theory perspective, superior performance of the firm was
linked to having a majority of the inside (executive) directors on the board since these
inside directors (managers) better understand the business, and are better placed to govern
than outside directors, and can therefore make superior decisions (Donaldson, 1990;
Donaldson & Davis, 1991). Stewardship theory argues that the effective control held by

professional managers empowers them to maximize firm performance and corporate
profits.
Several studies in the corporate governance area which have used the
stewardship theory as Ranasinghe (2011), Rovers (2009), Singh, Terjesen and
Vinnicombe (2008), Bernardi, Bean and Weippert (2002), and Marimuthu and
Kolandaisamy (2009) and whether the boards can maintain their independency although
they come from inside the firms and they tend to be involved in managers’ activities
(Nicholson & Kiel 2007). Muth and Donaldson (1998) compared the predictions of agency
theory with that of stewardship theory and found support for stewardship theory being a good
model of reality. Bhagat and Black (1999) have also found that firms with boards consisting
of a greater number of outside directors (representing agency theory perspective), perform
worse than firms with boards with less number of outside directors.
2.7 Related Studies with the same problem:
It includes a review of the results found in prior Studies. It is not only positive link,
but also negative, curvilinear and even no relationship.
John Puthenpurackal & Arun Upadhyay (2006) found that the performance impact of
women directors depends on firms’ information environments as well as their prior
experience. Specifically, women directors appear to be more beneficial in less opaque firms.
Women directors with senior corporate experience are associated with higher firm
performance relative to women directors with lower level corporate and non-corporate
experience. Consistent with these valuation effects, they fiound that firms appear to take into
account their information environment while deciding on appointing women directors. . Bill
Francis – Iftekhar Hasan – Qiang Wu (2012) suggested that when independent directors as
outside directors who are less connected with current CEOs, a measure we call true
independence, there is a positive and significant relationship between this measure and firm
performance. Board meeting frequencies, director attendance behaviors, and director age also
affect firm performance during the crisis. Nina Smith,Valdemar Smith, Mette Verner ( 2005 )
found that the proportion of women in top management jobs tends to have positive effects on
firm performance, even after controlling for numerous characteristics of the firm and direction
of causality. The results show that the positive effects of women in top management depend

on the qualifications of female top managers. Results of Annu Kotiranta – Anne Kovalainen
– Petri Rouvinen(2007) indicate that a company led by a female CEO is on average slightly
more than a percentage point – in practice about ten per cent – more profitable than a
corresponding company led by a male CEO. This observation holds even after taking into
account size differences and a number other factors possibly affecting profitability. The share
of female board members also has a similar positive impact. Luca Flabbi, Mario Macis,
Fabiano Schivardi (2012) the interaction between female leadership and female workers at the
firm has a positive significant impact on firm performance. Our results show that firms with
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women directors perform better than those without women on their boards, Mijntje
Lu¨ckerath-Rovers (2011). Beate Elstad & Gro Ladegård suggested that a significant positive
linear relationship between proportion of women and individual influence. We conclude that
increasing the female ratio in a board is a necessary but not sufficent condition for increased
influence for women. Australia (Bonn 2004), Norway (Gregoric et al. 2009), Denmark
(Smith, Smith & Verner 2006), Spain (Vera & Martinez 2010), Canada (Francoeur, Labelle
& Desgagne 2008), the UK (McKinsey & Company 2011), and the Netherlands (Rovers
2011) also confirm that women in the boardrooms impact positively on financial
performance. Women directors provide mentoring and networking opportunities for more
junior women to develop their careers (Bilimoria, 2000). Women directors are good at
networking with other women (Catalyst, 1995) and often act as speakers at networking events,
which women find very inspiring, and an opportunity to ask how the director had overcome
the career and work/family challenges that attendees are experiencing (Singh, Vinnicombe
and Kumra, 2006). These interactions increase the potential for women to find a wider variety
of female role models, enabling them to emulate behaviors from a number of women as well
as men, which Ibarra (1999) suggests is more beneficial than drawing on a single role model
But there are many studies with result are nagative between gender diversity and firm
financial performance. Bohren and Strom (2006) find that gender mix in the
boardroom is negatively related to financial performance of non-financial firms listed
on the Oslo Stock Exchange and almost always in a statistically significant way.
Adams and Ferreira (2009) obtained similar results from the US firms; that the average

impact of gender diversity on firm performance is negative which may be driven by
gender quota and firms’ fewer takeover defenses. Carl Fagergren & Samuel Hurst (2012)
the regressions performed not a single one found a significant and positive relationship
between the percentage of women on the board and performance. These results suggest that
if Canada decides to implement a gender quota for public corporations, they should not
expect to observe any increase in firm performance. Shrader et al. (1997) analyse the 200
largest US firms and they are unable to find any significantly positive relationship between
the percentage of female board members and firm performance (measured by ROA and
ROE). They even find significantly negative relations in some cases. Kochan et al. (2003)
also find no positive relations between gender diversity in management and firm
performance for US companies.
Carter et al. (2010) reveal that in the context of major US firms there is no
significant relationship between gender diversity in the boardroom and firm financial
performance. Similarly, Shrader, Blackburn and Iles (1997), using a sample of 200 US
firms, conclude that there is no link between the proportion of women on boards and firm
accounting-based financial performance. Farrell and Hersch (2005) additionally find
no association between the addition of women in the boardrooms of Fortune 100
firms and market reaction on this addition. Reasons underlying this result are varied.
Lin h Chi Vo( 201 0), By focusing on the companies listed in US Fortune 100 and French
SBF 120 stock market index in 2010, we show that firm performance is not significantly
linked to female directorship despite important differences in firm’s attributes and board
characteristics across studied countries.
Yeney Widya Prihatiningtias (2012) surprisingly, the result of the quantitative analysis
shows that gender diversity has both positive and negative influence on firm financial
performance, which was measured by using ROA and Tobin’s Q respectively. There is no link
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