The Impact of Female Directors on Firm Performance: Evidence From Indonesia

This research shows the impact of female directors on firm performance in Indonesia by using as its sample the public companies listed on the Indonesian Stock Exchange (IDX) from 2011 until 2015. There were 347 companies, with 1,735 samples observed. This research uses the multiple regression method. The model is a modified model from 9 recent articles published between 2012 and 2015. The empirical result shows that a female director has a positive significant effect on firm performance. The control variables, consisting of leverage, firm size and firm age have negative significance for firm performance. This research is conducted across 9 sectors of industrial classification, which support the International Finance Corporation (IFC) in increasing the number of female directors in Indonesia. For managers, this research will promote gender development in the boardroom, female executive training programmes as well as female representation on boards of directors. For regulators, this research may provide a contribution to gender representation in board's policies, rules and regulations. This research can build awareness of women's contributions to firms and encourage a greater female presence in the boardroom.


INTRODUCTION
Corporate governance consists of either a onetier or a two-tier board system (Jungmann, 2006). A one-tier board invests both managerial and supervisory activities in one unified board of directors. However, a two-tier board separates the managerial board and the supervisory board. This research focuses on the executive board or the board of directors. The board of directors acts as an internal governance mechanism via its appointment, supervision and remuneration of senior managers, as well as its framing of corporate strategy (Campbell & Vera, 2010). In this era, the presence of women on boards of directors have increased (Dezso & Ross, 2012). McKinsey (2007) mentioned that female directors have leadership traits that increase their ILUPV ¶ financial performance. The empirical result shows firms with women on their boards can increase their Return on Equity (ROE) by 10 percent, operating income by 48 percent and stock growth by 17 percent compared to the industry averages. Eagly and Johannesen-Schmidt (2001), highlighted that the presence of female directors improves five leadership traits which are people development, expectations and rewards, becoming a role model, providing inspiration and participative decision making. McKinsey (2010) shows about 72 percent of directors are aware that female directors can increase a firm ¶V performance. The research of Folkman (2012) on 7,280 leaders has proven female directors are superior in their leadership competencies. According to George (2012), a global leader not only needs a high level of cultural and emotional intelligence but also an awareness of their values, purpose and vulnerabilities. Female directors are said to possess higher levels of awareness and demonstrate this type of behavior more easily.
According to Dieleman and Aishwarya (2012), the percentage of female directors and commissioners in Indonesia is 11.6 percent. This number is lower than Europe (17 percent), North America (17.1 percent) and Australia (13.8 percent), however, the presence of women in the boardroom in Indonesia is greater than in other developed countries in Asia. The latest study indicates that Indonesia has a higher percentage of female board members than Hong Kong (10.3 percent), Malaysia (7.3 percent), Singapore (7.3 percent) and Japan (1.1 percent), as represented across various sectors of industry.
Dieleman and Aishwarya (2012) examined boardroom ¶V gender diversity, which could be used as an indicator RI ILUP ¶V VXFFHVV. The previous result shows about 40 percent of firms listed on the Indonesian Stock Exchange (IDX) had more than one female director. According to the Deloitte Global Center for Corporate Governance (2015), the women of Indonesia are increasingly moving away from their more traditional roles of wife and mother. Indonesian women are more actively working and pursuing careers.
Numerous studies have shown the impact of female directors on firm performance. These focused on the countries where a two-tier board system is applied. Boards of directors with female members tend to increase their firmV ¶ performance (Frink et al., 2003;Erhardt et al., 2003;Krishnan & Daewoo, 2005;Smith, 2006;Dezso & Ross, 2012;Liu et al., 2014;Gulamhussen & Santa, 2015).
Other research has found that female directors have no impact on firm performance (Ellwood & Garcia-Lacalle, 2015). Joecks et al. (2013) mentioned that female directors, at first, negatively affect their firmV ¶ performance, and only after the critical figure of about 30 percent female directors has been reached can they be associated with higher firm performance than a completely male board. On the other hand, Darmadi (2010) and Lam et al. (2013) mentioned female directors will decrease the performance of their firms. There are various positive and negative opinions towards the empirical results on this topic that covers different research locations and samples. Therefore, this research aims to investigate the impact of female directors on firm performance in Indonesia, specifically by using five-years data across all the sectors of industry, which has not been examined by the previous literature. This research shows the effect of female executives on firm performance in various sectors including the trade, the service and investment sector, the agricultural sector, the financial sector, the property, real estate and building construction sector, the miscellaneous sector, the consumer goods sector, the mining sector, the infrastructure, utility and transportation sector, the basic industry and the chemicals sector. This research supports the International Finance Corporation (IFC) in increasing the number of female directors in Indonesia. For its managerial and practical contributions, this research will promote gender development in the boardroom, female executive training programmes as well as increasing the female composition of Indonesian boards of directors.

LITERATURE REVIEW
The Implicit Leadership Theory views leadership as the outcome of a perceptual process involving both leaders and subordinates. The central idea is the implicit belief about the personal qualities and behaviour of leaders. Leaders affect the performance of subordinates through their behaviour, traits, charismatic qualities and the ability to structure situations and define roles (Levy, 2003: 394).
The implication is that leadership ¶V effectiveness is more about the IROORZHUV ¶ perceptions, rather than about the OHDGHUV ¶ actions. In order to get the attention of their followers, leaders ¶ traits become a concern. Subordinates will look at how their leaders behave, communicate, and develop an impression about their effectiveness. Female leaders gain attention through their communication and relationship-building skill with their subordinates. Hence, female leaders will leave a 2017 Triana and Asri 21 good impression and thus recall good previous OHDGHUV ¶ behavior and traits, which will lead toward better performance.
According to the Social Role Theory, the differences between male and female behaviour are a function of the different roles men and women hold in society. This theory views gender differences between males and females as the cause of their different roles, especially at work (Eagly, 1987). Social Role Theory focuses on the structure of society and its roles, which form the behaviour of a group of people (Helgeson, 2012:165). Currently, gender and role orientation ¶V IRFXV RQ PDVFXOLQLW\ and femininity is associated with their social role at work rather than by gender (Eagly et al., 2000in Eckes & Trautner, 2000. Masculinity, which is mostly attributed to males, can be possessed by females and femininity is also found in both genders. Althoug, it is more in the role itself rather than the gender. The way labour is divided between women and men in society accounts for why women become communal and men become agentic. Men are primarily responsible for work outside the home, which leads to their agentic orientation. Women are primarily responsible for domestic labour and taking care of children, which leads to a communal orientation. However, this traditional perspective has been changed. Nowadays, women may lead in the corporate world because of their work ethic, environmental and social concerns. Ibarra and Obodaru (2009) mentioned that female executives who possess score higher for certain effectiveness criteria than male executives on their study. Hambrick (2007) mentioned that the leadership of a complex organization is a shared activity and the collective cognition, capabilities and interaction of the entire Top Management Team (TMT) enter into this strategic behaviour. The psychological and social processes by which executive profiles are converted into strategic choice remains a mystery. Gender remains one of the aspects of these psychological and social processes. Gender splits between male and female executives who occupy strategic leading roles can boost the performance of their companies.
The conflict of interest between both the principal and agent in Agency Theory (Jensen & Meckling, 1976) can be improved because female executives are more cautious than male executives in making important corporate decisions (Huang & Kisgen, 2013). Female executives are more diligent in their monitoring and demand more audit efforts than male directors do (Adam & Ferreira, 2009). It is due to a board ¶V diversity needing a high degree of independence. Female directors ¶ oversight could also minimize agency issues (Erhardt, 2003). Women are better able to lower operating costs (Chakrabarty & Bass, 2014) and improve the financial performance (Strom et al., 2014).
Moreover, the basic proposition of the Resource Dependency Theory is the need for environmental linkages between the firm and its outside resources. In this perspective, directors serve to connect the firm with the required external factors by co-opting the resources needed for it to survive (Pfeffer & Salancik, 1978). Pfeffer and Salancik (1978) attribute three benefits to these corporate board linkages: advice and counsel, legitimacy and communication channel. Women have the advantage when it comes to advice and counsel as well as legitimacy. As for communication channels, women leaders ¶ perspectives are better equipped to connect their firms to customers, labour and society at large (Liu et al., 2014). Erhardt et al. (2003) examined the relationship between the demographic diversity of boards of directors with the firmV ¶ performance by using 1993 ¶V and 1998 ¶V financial performance data and the percentage of women and minorities for 127 large US companies. The result shows that board diversity is positively associated with firm performance. The same result was indicated by Frink et al. (2003) from 500 randomly selected firms in Dun and Bradstreet ¶V list of publicly traded firms between 1978 and 1992. The research found gender diversity leads to better firm performance. Female directors performed a 22

Journal of Indonesian Economy and Business January
better monitoring role and minimise agency issues. Krishnan and Daewoo (2005) in research into the upper echelon framework of top management, mentioned that the proportion of female directors has positively significant effect on firm performance. This research was conducted on 679 Fortune 1,000 companies registered since 1998 and leads to large implications for future career women. Smith et al. (2006) researched 2500 companies in Denmark, and the result showed that a more gender diverse board may also improve a ILUP ¶V competitive advantage as well as its corporate image DQG KDV D SRVLWLYH HIIHFW RQ FXVWRPHUV ¶ behaviour. Francoeur et al. (2006) undertook research in Canada and found empirical evidence that having a higher proportion of women does generate positive and significant abnormal returns. Ibarra and Obodaru (2009) in the Harvard Business Review mentioned women ¶V effectiveness in top management scored higher than men ¶V GLG. This research was conducted by using a 360 degree assessment of the executive development program in INSEAD. Miller and Triana (2009) mentioned that women will increase firm performance. Post and Byron (2015) combined 140 studies that examined empirical evidence that a female director is positively significant for firm ¶V performance. Dezso and Ross (2012) mentioned that female representation in top management will enrich the information and social diversity of a board, which can bring benefits to management, enrich the PDQDJHU ¶V EHKDYLRur and motivate the women in middle management. Hence, female representation remains an important indicator of the success of firms.
According to Darmadi (2010), the proportion of female directors is negatively significant to firm performance in Indonesia. This research was conducted over 1 year period, using as its sample 169 companies listed on the Indonesian Stock Exchange (IDX). The research focused on examining whether women, foreign nationals and younger people in the boardroom influenced the firmV ¶ performance, but was unable to prove any significant impact. Furthermore, Lam et al. (2013) in their research into the China Stock Market Financial Statements and the Shenzhen Stock Exchange, found female directors are negatively significant to firm performance. Liu et al. (2014) examined the statement that firm performance is positively related to gender diversity and found that a critical mass of at least three women is needed to obtain a positive effect. Peni (2014) in research into 305 companies using 1,525 data observation from Standard and Poor 500 (S&P 500) found empirical evidence that among female CEO leads to better firm performance. Garcia-Meca et al. (2015) suggest the presence of women on the boards of banks improves their governance, which causes the bank to be more profitable. The findings suggest women directors are not a substitute for the traditional corporate directors with identical abilities, but rather that these qualified women directors have unique characteristics that create additional value for the banks.  Gulamhussen and Santa (2015) have proven that a female director is positively significant to a firm ¶V performance. Table 1 shows the summary of 15 previous studies.
Numerous studies into female directorships and firm performance have been conducted. However, they reported the different results. Thus, the hypothesis will be as follows.
H1: Female director will have positive impact on firm performance.  This study is using purposive sampling with the following criteria: 1. Audited annual reports posted in www.idx.co.id from 2011 to 2015.
2. Audited annual reports with complete data of firm performance, female directors, leverage, firm age, firm size and in the selected nine sectors of industry.

Regression Model and Variables
The dependent variable used in this study is firm SHUIRUPDQFH PHDVXUHG E\ 7RELQ ¶V 4 The researcher used 7RELQ ¶V 4 DV the firmV ¶ performance measurement because the aim was to measure market performance as a reflection of ILUPV ¶ long-term performance ( This study would like to employ firm characteristicV ¶ construct as the control variables. The control variables are leverage, firm age, firm size and industry. Leverage is measured by the total book value of the liabilities divided by the total book value of the assets. Firm age is measured by the number of years since the company ¶V IPO, until the sample year. Total assets are measured by the natural logarithm of the total book value of the assets (Campbell & Vera, 2008). The selected industries consist of the agricultural sector, the mining sector, the basic industry and chemical sector, the miscellaneous sector, the consumer goods sector, the property, real estate and Industry Leverage Firm age

Firm size
Firm performance

Independent Variable
Female director building construction sector, the infrastructure, utilities and transportation sector, the finance sector and trade, services and investment sector.

The Main Model and Estimation Methods
For the model ¶V selection, the researcher used the following models.
The following is the main regression model:  Table 2.
Furthermore, this best model was used in a regression employing a multiple linear regression with classical assumptions consisting of test for normality, a test for multicollinearity, a test for autocorrelation and a test for heteroscedasticity. Then, an F-test and independent t-test were conducted to examine the significance level of each variable simultaneously and individually.

Descriptive Statistic
From the data observation, there are companies where all members of the board of directors are female. One is PT Ristia Bintang Mahkota Sejati Tbk (in 2014), which operates in the property, real estate and building construction sector. Another is PT Pool Advista Indonesia Tbk which operated in the trade, services and investment sector (from 2011 to 2015). PT Inti Agri Resources Tbk involved in the agricultural sector (from 2012 to 2015) is another (Table 3).   (2017) PT Bank Mandiri Tbk is the biggest Indonesia bank in terms of assets. It has total assets of Rp. 910.063 trillion. PT Rimo Internasional Lestari Tbk which operates in the trade, services and investment sector had the highest leverage ratio in 2013. The newest company is PT Greenwood Sejahtera Tbk which is active in the property, real estate and construction sector, while the oldest company is PT Century Textile Industry Tbk which is in the miscellaneous sector. PT Inti Kapuas Arowana Tbk has a 7RELQ ¶V 4 of approximately 37.19. The average for the firm performance in Indonesia between 2011 to 2015 is 1.186. All the sectors in Indonesia have female directors, but in some their numbers are limited compared to the number of male directors. The detailed percentage of female directors in Indonesia across various industries is shown in Table 4.  (2017) The trade, services and investment sector has the highest representation of female directors, followed by the basic industry and chemical sector and the property, real estate and building construction sector. The sector with the least representation is the agricultural sectors.

DISCUSSION
The independent t-test shown in Table 7, indicates that female directors are positively significant for firm performance with a significance level of 0.003, thus Hypothesis 1 is supported. The control variables consisting of leverage, firm size and firm age are negatively significant for firm performance with significance levels of approximately 0.000, 0.028 and 0.001, respectively. Some sectors have significance on firm performance, while some do not.
The result is consistent with the previous empirical findings from Frink et al. (2003), Erhardt et al. (2003), Krishnan and Daewoo (2005), Smith et al. (2006), Francoeur et al. (2008. Furthermore, the empirical findings are also consistent with the research of Dezso and Ross (2012) into the S&P 1500, Peni (2014) into the S&P 500, Labelle et al. (2015) who carried out research in 17 countries, Liu et al. (2014) who examined China, Gulamhussen and Santa (2015) who looked at banks of the OECD countries as well as Garcia-Meca et al. (2015).
Having a female director will improve the firm ¶V performance. Garcia-Meca et al. (2015) mentioned that the presence of female directors would cause a bank to be more profitable. Qualified female directors have unique characteristics that create additional value for banks. More female directors may reduce the asymmetry information and associated agency costs. Women often bring a fresh perspective on complex issues and this can help correct informational biases in strategy formulation and problem solving (Francoeur et al., 2008).
Female directors can lead to better firm performance because women tend to be more risk averse and cautious in their decision making. Females tend to think about the wider impacts in democratic and participatory way (Dezso & Ross, 2012). In the realm of social responsibility, female directors care more about the corporate social responsibility and moral issues of their businesses. Moreover, female directors possess better communication skills and listening skills in day-to-day operations (Peni, 2014).
However, this study does not support the empirical findings from Darmadi (2010) in Indonesia and Lam et al. (2013) which mentioned female directors reduce firm performance. On the other hand, the empirical findings do not support the results from Joecks et al. (2013), Ellwood andGarcia-Lacalle (2015) which mentioned that female directors have no significant effect on firm performance. From the sectoral view, the trade, services and investment sector become the reference category. Hence, women ¶V representation in the agricultural sector is not significant for firm performance. The same case is found for the property, real estate and construction sector, the mining sector and the infrastructure, utility and transportation sector. Meanwhile, the finance sector, the miscellaneous sector and the basic and chemical sector are not better than than the trade, services and investment sector with significant negative sign. The consumer good sector is better than the trade, services and investment sector.

CONCLUSION
This research used the multiple regression method to analyse the data. The result proves that a female director has a significantly positive effect on firm performance. The findings are useful to a contribution for various parties, such as academics, practitioners and regulators for rules and policy forming purposes.
For the academic, this research aims to add to the corporate governance literature in behavioural finance, especially in the area of gender and its impact on firm performance. For practitioners, this research provides a contribution to gender development in the boardroom, female executive training programs, as well as the female composition of boards of directors. For regulators, this research may contribute to gender representation in policies for boards and their rules and regulations.
Furthermore, this research also supports the International Finance Corporation (IFC) of The World Bank in its efforts to increase the number of female directors in Indonesian boardrooms. This research can build awareness of the contribution of women to firms and to encourage more women to participate. This research leads to future careers for women on boards of directors and women ¶s career development programs generally.

LIMITATION
In practice, Indonesian pXEOLF OLVWHG FRPSDQLHV ¶ tend to have more male directors than female directors. The real situation shows there are limitations to accommodating female directors due to the cultural perspective and people ¶V perceptions of women. Moreover, this research APPENDIX

Classical Assumption Result
This study has passed the classical assumption test, consisting of the tests for normality, multicollinearity, autocorrelation and heteroscedasticity as follows.
1.1. Test for normality Normal P-P plot indicates the data is normal. Beside using the normal P-P Plot for testing the normality, Kolmogorov-Smirnov indicates the significance level is 0.299 which means the observed data are normal (0.299 > 0.05). Thus, the normality assumption is complied with.  Table 5 indicates none of the tolerance scores are less than 0.1 and the Variance Inflation Factor (VIF) is more than 10, thus the multicollinearity assumption is complied with. Durbin Watson scored 0.627 which is between -2 and 2. The score of dl is 1.915 and du is 1.927. Durbin Watson indicates a positive autocorrelation due to the nature of the economic data.

Test for heteroscedasticity
The data are dispersed and do not accumulate in any certain pattern. The pattern indicates there is no homoscedasticity. Thus, the heterescedasticity assumption is complied with.