SAJEMS NS 10 (2007) No 2 207 

THE RISK-ADJUSTED PERFORMANCE OF COMPANIES WITH FEMALE 
DIRECTORS: A SOUTH AFRICAN CASE

Pumela Msweli-Mbanga 

School of Management Studies, University of KwaZulu-Natal

Henry Mkhize

School of Economics and Finance, University of KwaZulu-Natal

 

Abstract

The objective of this research was to examine the effects of female directors on the risk-adjusted 
performance of firms listed on the JSE Securities Exchange of South Africa (the JSE). The theoretical 
underpinning for the relationship between representation of female directors and the risk-adjusted 
performance of companies was based on institutional theory. The hypothesis that there is no 
difference between the risk-adjusted performance of companies with female directors and that 
of companies without female directors was rejected. Implications of the results are discussed and 
suggestions for future research presented.

JEL J16

1 
Introduction

According to institutional theory, organisations 
are defined and shaped by the institutional 
environment in which they are embedded 
(DiMaggio & Powell, 1991). Accordingly, 
legal reform efforts and the introduction of 
Affirmative Action legislation in South Africa 
have resulted in an influx of women in the 
labour force. Research is now acknowledging 
the importance of diversifying human resource 
structure regarding gender as a necessary 
requirement for optimising essential resources 
in organisations. Scholars are arguing that, if 
women remain an under-utilised talent pool, 
then national economic growth will be hampered 
in the long-term (Cutler & Jackson, 2002). It 
has also been found that female executives add 
value to organisations by introducing female 
values like caring, an appreciation for teamwork, 
intuitive decision making and a sense of social 
responsibility (Claes, 1999). The objective of this 
paper is thus to determine the performance of 
JSE-listed companies with female directors on 
a risk-adjusted basis. 

2 
Review of related literature

Notwithstanding the increase of women in 
the workforce, there remains a great disparity 
between the number of women in corporate 
leadership and the overall female working 
population. A survey conducted in 2004 by the 
Business Women’s Association (BWA) showed 
that, of the 52 per cent of working women in 
South Africa, only 7.1 per cent were directors in 
the JSE-listed companies. The survey revealed 
further that women comprised only 3.0 per cent 
of chairs of boards and 1.9 per cent of chief 
executive officers (CEOs). Although there are 
no institutional explanations for the limited 
representation of women in senior management, 
a number of scholars have attributed this to the 
“glass ceiling” effect.

The term “glass ceiling” was first used in a 
1986 Wall Street Journal article, with reference 
to the invisible barriers impeding the career 
advancement of women in the American 
workforce (Baker & Lightle, 2001). The term 
has been further defined as the actual or 
perceived barrier, or cap, beyond which few 



208 SAJEMS NS 10 (2007) No 2

women in public and private organisational 
structures are able to progress (Tavakolian, 
1993). In the United States (US), the Federal 
Glass Ceiling Commission‘s report summarised 
the major barriers to women‘s advancement 
in organisations as placement in relatively 
dead-end staff jobs and lack of mentoring, 
management training and career development, 
as well as an absence of critical development 
activities (McDonald & Hite, 1998). 

Crampton & Mishra (1999) identify a range 
of complex reasons explaining why there are 
fewer women in senior management positions in 
the US. These reasons include, amongst others, 
socialisation patterns, choice of positions that 
lack power or supervisory authority, fulfilling 
the dual roles of working woman and mother, 
and the lack of confidence, appropriate skills 
and attitudes needed for women to succeed 
as managers. In another study, Nelson and 
Burke (2000) report that male CEOs view the 
obstacles to women’s corporate progress as 
being their lack of general management skills, 
spending insufficient time in the pipeline, male 
stereotyping and preconceptions of women, 
exclusion from informal networks and an 
inhospitable corporate culture. 

While there are obviously many explanations 
for the barriers to women’s career advancement, 
Nelson and Burke (2000) identify two as being 
particularly plausible: (1) subtle forms of 
discrimination that increase the probability of 
women’s failure, namely inadequate provision 
of development opportunities and unwillingness 
on the part of those in power to confront and 
eliminate sexism; (2) the fact that women are 
afforded different development opportunities 
from those enjoyed by men. The authors 
point out that, in particular, mentoring is not 
adequately provided for women, on account 
of the limited numbers of women in top 
management.

Institutional theory, on the other hand, 
suggests that the glass ceiling is perpetuated 
by cultural biases, which define leadership 
competence in terms of male characteristics 
and traits (Frankforter, 1996). Researchers 
have also suggested that male organisational 
culture explains the persistence of the glass 
ceiling effect (Van Vianen & Fischer, 2002; 

Cassell & Walsh, 1997; Maddock, 1999). 
Shakeshaft (1987) emphasises this argument by 
pointing out that male dominance in key social 
positions and the prevalence of patriarchal 
norms reinforcing gender differences constitute 
a serious impediment to women’s career 
advancement. The implication is that, if a 
masculine culture prevails in an organisation, 
then the institutionalisation of a policy to 
appoint women to key management positions 
will be influenced by the men in that particular 
environment.

Indeed, researchers argue that institu-
tionalisation of any policy generally depends 
on the relative power of ‘critical constituencies’  
and interested actors who stand to gain from 
whether or not a policy is fully implemented 
(DiMaggio, 1988; Blair-L oy & Wharton, 
2002). For example, in a study conducted by 
Blair-Loy and Wharton (2002) investigating 
the institutionalisation of work-family policies,  
the ‘critical constituencies’ of these policies 
were women. 

This study investigates the institutionalisation 
of the policy that includes women in the 
corporate leadership of companies listed 
on the JSE, for the period 2002-2003. It 
argues that appointing women to corporate 
director positions signifies those corporations’ 
responsiveness to employment equity policy, 
and reasonably expects that the extent to which 
women are represented in their corporate 
leadership will affect their share price returns. 
The purpose of this study is to estimate risk-
adjusted returns of JSE-listed companies with 
female directors (WOMEN portfolio) and to 
compare them with:

 r i s k - a d j u s t e d  r e t u r n s  o f  c o m p a n i e s 
without women directors (NO-WOMEN 
portfolio).

 risk-adjusted returns of the overall market 
(MARKET portfolio).

A number of scholars (Claes, 1999; Appold, 
Siengthai & Kasarda, 1998; Cutler & Jackson, 
2002) argue that women add value to an 
organisation by introducing female qualities 
like team spirit, caring, intuitive decision-
making and corporate social responsibility. 
A positive impact by female directors on 



SAJEMS NS 10 (2007) No 2 209 

the performance of companies listed on the 
JSE is expected. This expectation is based 
on Arthur’s (2003) study showing that policy  
adoption resulting in ‘legitimation’ has a 
positive effect on the value of a firm. Based on 
Arthur’s conclusion, it could be inferred that the 
same policy adoption would result in superior 
performance as measured by the Sharpe Index. 
In this study, the ‘legitimating process’ refers to 
compliance with an employment equity policy,  
as illustrated by the representation of women in 
top management. It could therefore be expected 
that the higher the percentage of women 
directors in a company the better the company’s 
financial performance, as measured by the 
Sharpe Index, to be discussed in the section on 
methodology below. The hypothesis this study 
seeks to test is that:

H
0
: There is no difference between the per-

formance of companies with women 
directors and the performance of companies 
without women directors.

H
1
: There is a difference between the perfor-

mance of companies with women directors 
and the performance of companies without 
women directors.

3 
Methodology

Data 
The Business Women’s Association (BWA) 
gave permission for the writers to use the 
results of a 2004 nationwide census of female 
board directors for companies listed on the 
JSE. The BWA data set of 347 observations was 
the starting point for this research procedure. 
Only those companies listed on the JSE on 30 
September 2003 were included in this data set. 
Using the BWA data set, data was computed 
with two variables: (1) companies with female 
directors, and (2) companies without female 
directors.

Share price data for the period October 2002-
September 2003 was obtained from McGregor 
(2004), who provides a comprehensive database 
of JSE-listed companies. Risk-free rates were 
obtained from the website of the South African 

Reserve Bank. To eliminate bias due to different 
financial year-ends, only companies with a 
common year-end were selected, which reduced 
the sample size from 347 to 115 companies. 
Daily share price returns were computed over 
a 12-month period, from 1 October 2002-30 
September 2003.

3.1 Construction of WOMEN and NO- 
 WOMEN portfolios

Before an assessment of performance was 
conducted, companies were divided into two 
distinct groups:

 WOMEN (these were companies with 
women directors) 

 NO-WOMEN (these were companies 
without women directors).

3.2 Measuring performance

According to Fabozzi (1999), performance 
assessment involves performance measurement 
and performance evaluation. Fabozzi (1999) 
defines performance measurement as the return 
realised over a certain time interval, called the 
evaluation period. He defines performance 
evaluation as the act of determining whether 
value was added by the out-performance of an 
established benchmark. The well-established 
benchmark used in this study was the All Share 
Index (ALSI), which is regarded as one of 
the generally-accepted market proxies in the 
Republic of South Africa. For the purpose of this 
study, this benchmark represents the MARKET 
portfolio.

Affleck-Graves, Burt and Cleasby (1988) 
and Van den Honert, Barr and Smale (1988) 
computed share price returns (R

i
), using the 

following formula:

R
i
 = 

P
P – P

0

1 0

i

i i  × 100

Where: P
1i
 is the price of a share I/ALSI at the 

 close of a trading day;

   P
0i
 is the price of a share I/ALSI at the 

 opening of a trading day.

This formula was adopted in this study in order 
to compute daily portfolio and market returns. 



210 SAJEMS NS 10 (2007) No 2

Daily returns of WOMEN, NO-WOMEN, 
and MARKET portfolios were thereafter 
averaged. These averaged daily returns for each 
of the portfolios were then annualised over the 
evaluation period.

In order to arrive at a risk-free rate, Banker’s 
Acceptance (BA) discount rates were obtained 
from the website of the South African Reserve 
Bank. These were utilised to obtain the quoted 
price in order to compute a risk-free rate. These 
three-month quotes for BAs were obtained for:

 the first week of October 2002 (that is, to be 
redeemed at the end of December 2002);

 the first week of January 2003 (that is, to be 
redeemed at the end of March 2003);

 the first week of April 2003 (that is, to be 
redeemed at the end of June 2003);

 the first week of July 2003 (that is, to be 
redeemed at the end of September 2003).

Three-month yields were computed in compound 
factor form and then multiplied together in 
order to get an annualised return on a strategy 
entailing purchasing and holding a three-month 
BA until maturity, re-investing the proceeds 
in a second BA, and holding until maturity (a 
roll-over investment strategy). This rolling-over 
investment strategy was repeated until the end 
of the evaluation period at the end of September 
2003.

Mayo (2005) maintains that the Sharpe and 
Treynor Indices are alternative measures of 
performance. Fabozzi (1999) argues that the 
Sharpe Index (SI) is a measure of the reward-
to-risk ratio, and that the risk of the share is 
measured by the standard deviation of the share. 
Bodie, Kane and Marcus (2002) maintain that 
the attractive feature of the Sharpe Index is that 
it divides the average return over the relevant 
time period by the standard deviation of returns 
over that period, thereby measuring the reward-
to-volatility trade-off. Bodie et al. (2002) contend 
that directors seek to maximise the Sharpe Index 
of their companies. It is argued in this research 
that companies maximise the Sharpe Index 
by recruiting, training and retaining female 
directors owing to the benefits associated with 
women in leadership. This transfers directly 
to the hypothesis that the performance of 

companies with female directors, as measured 
by the Sharpe Index, will be different from that 
of companies without female directors, also 
measured by the Sharpe Index. Companies 
will therefore partially maximise shareholders’ 
wealth if they conform to institutional theory.

Mayo (2005) argues that the Sharpe Index is 
given as follows:

SI = 
SD

R – R
i

i f

Where: R
i
 is the average return on WOMEN, 

 NO-WOMEN or MARKET,

   R
f
 is the return on bankers’ acceptance 

 annualised rate (risk-free rate), and

   S D
i  
i s  t h e  s t a n d a r d  d e v i a t i o n  o f  

 WOMEN, NO-WOMEN or MARKET 
 portfolios.

It is further argued that the Sharpe Index is a 
measure of the excess of the risk-free return 
relative to the total variability of the company 
(Bodie et al., 2002). In this research, standard 
deviation, not beta, is the appropriate measure 
of a company’s risk, because individual share 
price returns are used, not portfolio returns, 
which may be diversified.

The higher the Sharpe Index, the higher 
the past performance of the company. All 
companies should therefore aim to maximise 
the Sharpe Index. This research infers that the 
Sharpe Index will be higher if a company applies 
‘smart’ recruitment policy by appointing women 
to senior management positions and, in turn, 
complying with the Employment Equity policy 
of the Republic of South Africa. The recruitment 
policy will be regarded as ‘smart’ if a company 
recruits, trains and retains a higher percentage of 
women than other comparable companies.

4 
Results

Standard deviations of WOMEN, NO-WOMEN 
and MARKET over the study period are 
presented in Table 1 below. Table 1 also shows 
the average returns of WOMEN, NO-WOMEN, 
MARKET and RISK-FREE variables. Sharpe 
Indices of all portfolios are also contained in 
Table 1.



SAJEMS NS 10 (2007) No 2 211 

Table 1 
Sharpe indices of all portfolios 

Variable name/portfolio Standard deviation Average return Sharpe index

= (R
i
 – R

f
) / SD

WOMEN 1.25 14.02% 0.35%

NO-WOMEN 0.79 25.62% 15.19%

MARKET 1.19 –2.30% –13.37%

RISK-FREE not applicable 13.59% not applicable

The NO-WOMEN portfolio has the highest 
Sharpe Index. It out-performed both the 
WOMEN portfolio by 14.84 per cent and 
the MARKET portfolio by 28.56 per cent. 
The WOMEN portfolio out-performed the 
MARKET portfolio by 13.72 per cent. Overall, 
the NO-WOMEN portfolio achieved superior 

results during the evaluation period October 
2002 - September 2003.

A t-test was conducted to compare the 
differences in the means between the perfor-
mance of companies with female directors and 
that of companies with no female directors. 
Table 2 below provides the results of the test.

Table 2 
t-test for comparison of means

t df Sig (2-tailed)

Performance:women/no women 
portfolios

Equal variances 
assumed

2.18 98 .031

The null hypothesis that there is no difference 
between the performance of companies with 
women directors and that of companies without 
women directors is rejected. The p-value of .031 
(in Table 2) represents the probability of error 
associated with rejecting the hypothesis that 
there is no difference between the performance 
of companies with female directors, and that of 
companies without female directors.

5 
Discussion and conclusions

This study tested the effects of female directors 
on the risk-adjusted performance, as measured 
by the Sharpe Index, of companies listed on the 
JSE over a twelve-month period 2002-2003. The 
hypothesis that there is no difference between 
the performance of companies with female 
directors and the performance of companies 
without female directors was rejected. These 
findings indicate that there is a statistically 
significant difference between the two categories 

of companies. Findings contained in Table 
1 (above) showed that the Sharp Index of a 
group of companies without female directors 
was higher than the Sharp index of a group of 
companies with female directors.

From the perspective of institutional theory, 
these findings imply that the adoption of a 
policy to appoint women to top management 
positions is not perceived to have a positive 
effect on the performance of these companies. 
A study conducted by Chevalier and Ellison 
(1999), although it differs from the present one 
in considering how cross-sectional performance 
is related to observable characteristics like the 
institution from which a manager received his/
her undergraduate degree, or whether she or he 
has an MBA degree, showed no clear evidence 
of the relationship between performance and 
women fund-manager characteristics. The 
lack of evidence was attributed to the fact 
that women comprised only 7 per cent of the 
sample examined. Chevalier and Ellison’s 
study (1999) found instead that things like a 



212 SAJEMS NS 10 (2007) No 2

better education, social networks and age were 
predictive of performance. A study by Golec 
(1996) also showed that age and the length of 
time a manager has managed his or her fund 
are the most significant predictors of portfolio 
performance.

From the perspective of institutional theory, 
the findings of this study could be interpreted 
as indicating that the core constituents of South 
African firms perceive the institutionalisation 
of the Employment Equity policy as having 
no effect on their individual bottom lines. 
The present findings also indicate that the 
Employment Equity Act was possibly adopted 
for symbolic rather than substantive reasons, 
which could explain the slow adoption rate of 
the policy. These findings are not consistent with 
those of Arthur (2003), which showed an increase 
in share price with the institutionalisation of a 
work-family policy. It could be argued that 
the way in which the investors (existing and 
potential shareholders as indicated by supply 
of and demand for shares) perceive the policy 
in terms of adding value determines the 
institutionalisation of the policy.

The findings show clearly that investors at 
the JSE do not see any additional value in 
recruiting, training and retaining female rather 
than male directors. It is also clear that investors 
are interested in the return of their investment, 
irrespective of the gender of those who handle 
their investment portfolios. In other words, it 
does not matter whether a shareholder’s wealth, 
the supposedly ultimate goal of any manager, 
is being maximised by a man or a woman. A 
subject for future research could be that of 
investigating the underlying reasons for the 
disparity in the numbers of women and men in 
corporate leadership viewed from the investors’ 
perspective. Such an investigation would throw 
some light on whether stereotypical beliefs 
about women have any bearing on investor 
perceptions. A critical mass of research is 
required to address the limited number of 
women in senior management positions. This 
is of the utmost importance in South Africa at 
the present time, considering the current focus 
on employment equity. Such research should 
identify barriers to the corporate progress of 
women in the country. Engaging women at all 

levels in the corporate, particularly in positions 
of corporate leadership, would not only have a 
substantive impact on the economy, but would 
also ensure optimal use of the country’s human 
capital.

This study has several limitations. First, the 
effect of different industries was not controlled. 
Industries like retailing, for example, would 
probably have more women in top management 
than do the manufacturing and mining industries. 
Further research is needed to examine industry 
effects on the institutionalisation of employment 
equity policies. Secondly, the small size of 
the sample and the fact that the study was 
confined to JSE-listed companies limited 
the generalisation of the findings to other 
companies. Thirdly, studying the effects of the 
representation of women on share-price returns 
over a period of one year may have been an 
oversimplification. Fourthly, prior research on 
mergers and acquisitions at the JSE indicated 
that share prices are highly sensitive to a 
proposed merger (Affleck-Graves et al., 1988; 
Van Honert et al., 1988), and these effects on 
share-price returns were not isolated. Future 
researchers may want to exclude from their 
samples all companies that have been involved 
in mergers and acquisitions. Fifthly, and most 
important, Sharpe Indices used in this study can 
change dramatically, depending on the time-
period of the analysis. Again, a longer-term 
period would be required to properly address 
this limitation. Further research, focusing on a 
number of performance variables, may provide 
a better understanding of the effect of women 
directors on firm performance.

Finally, in addition to the drawbacks of 
measuring short-term performance, the 
WOMEN and NO WOMEN portfolios were 
judged according to past performance. The 
rationale for doing so was that the portfolios 
that had, on average, under- or over-performed 
during the study period would continue to do 
so in the future. However, the efficient market 
hypothesis (EMH) provides no support for the 
use of past performance as a predictor of future 
performance. Whether the above-mentioned 
rationale is correct or not will depend on the 
level of market efficiency of the JSE.



SAJEMS NS 10 (2007) No 2 213 

References 

1 AFFLECK-GRAVES, J.F.; BURT, G.H. & 
CLEASBY, S.J.M. (1988) “The premium on 
acquisition in South African mergers: An empirical 
evaluation”, South African Journal of Business 
Management, 19(4): 55-160.

2 APPOLD, SJ.; SIENGTHAI, S. & KASARDA, 
J.D. (1998) “The employment of women managers 
and professionals in an emerging economy: 
Gender inequality as an organizational practice”, 
Administrative Science Quarterly, 45: 538-565.

3 ARTHUR, M.M. (2003) “Share price reactions to  
work-family initiatives: An institutional perspective,  
Academy of Management Journal, 46 (4): 497.

4 BAKER, B. & LIGHTLE, S.S. (2001) “Cracks 
in the glass ceiling: An analysis of gender equity 
in the federal government auditing career field”, 
The Journal of Government Financial Management, 
50(3): 18-26.

5 BLAIR-LOY, M. & WHARTON, M. (2002) 
“Employees’ use of work –family policies and the 
workplace social context”, Social Forces, 80(3).

6 BODIE, Z.; KANE, A. & MARCUS, A.J. (2002) 
Investments (int. ed.) McGraw-Hill: Irwin.

7 BUSINESS WOMEN ASSOCIATION CENSUS 
(2004) South African Women in Corporate 
Leadership.

8 CASSELL, C. & WALSH, S. (1997) 
“Organisational cultures, gender management 
strategies and women’s experience of work”, 
Feminism & Psychology, 7: 224-230.

9 CHEVALIER, J. & ELLISON, G. (1999) ”Are 
some mutual fund managers better than others? 
Cross-sectional patterns in behaviour and 
performance”, The Journal of Finance, LIV(3): 
875-899.

10 CLAES, M. (1999) “Women, men, and 
management styles”, International Labour Review, 
138(4): 431-446.

11 CUTLER, M.M. & JACKSON, A.L. (2002) “A 
‘glass ceiling‘ or work/family conflict?” The Journal 
of Business and Economics Studies, 8 (2): 73-85.

12 CRAMPTON, S.M. & MISHRA, J.M. (1999) 
“Women in management”, Public Personnel 
Management, 28.

13 DiMAGGIO, P. (1988) “Interest and agency in 
institutional theory”, Institutional Patterns and 
Organizations: 3-22.

14 DiMAGGIO, P.J. & POWELL, W.W. (1991) The 
New Institutionalism in Organizational Analysis, 
University of Chicago Press: Chicago.

15 FABOZZI, (1999) Investment Management (2nd ed.)  
Prentice-Hall: New Jersey.

16 FRANKFORTER, S.A. (1996) “The progression 
of women beyond the glass ceiling”, Journal of 
Social Behaviour & Personality, 11(5).

17 GOLEC, J.H. (1996) ”The effects of mutual 
fund managers’ characteristics on their portfolio 
performance, risk and fees”, Financial Services 
Review (5): 133-148.

18 MADDOCK, S. (1999) Challenging Women: 
Gender, Culture And Organisation, Sage, London. 

19 MAYO, H.B. (2005) Investments: An Introduction 
(8th ed.) Thomson: South-Western.

20 McDONALD, K.S. & HITE, L.M. (1998) 
“Exploring the glass ceiling: An exploration of 
gender differences in management-development 
experiences”, Journal of Management Education, 
22(2): 242-254. 

21 McGREGOR, (2004) Who Owns Whom in South 
Africa? (24th ed.) Carla Soares: Johannesburg.

22 NELSON, D.L. & Burke, R.J. (2000) “Women 
executives: Health, stress, and success”, Academy 
of Management Executive, 14(2): 107-121.

23 SHAKESHAFT, C. (1987) Women in Educational 
Administration, Sage: Newbury Park.

24 TAVAKOLIAN, H.R. (1993) “Break on through 
to the other side of the glass ceiling”, Equal 
Opportunities International, 12(6): 14.

25 VAN DEN HONERT, R.C.; BARR, G.D.I., 
AFFLECK-GRAVES, J.F. & SMALE, G. (1988) 
“Merger announcements and share price return 
– The role of the relationship between acquiring 
and target firms”, South African Journal of Business 
Management, 19(1): 1-10.

26 VAN VIANEN, A.E. & FISCHER, A.H. (2002) 
“Illuminating the glass ceiling: The role of 
organizational culture”, Journal of Occupational 
and Organizational Psychology, 75(3): 315.

27 ZANE, N.C. (2002) “The glass ceiling is a floor my 
boss walks on: Leadership challenges in managing 
diversity”, The Journal of Applied Behavioral 
Science, 38 (3): 443-354.