Equbusiness book VERSION 28SEPT2023 - Flipbook - Page 73
typically quantified by the ratio of expenditures on innovation, encompassing various activities like internal and
R&D or machinery acquisition, to its sales revenues (Choi and Williams, 2014).
The top management team serves as an indicator of a business's future performance. This is because the
expertise and experience possessed by top management have an impact on shaping the strategies of the
business. The more heterogeneous the top management team is, the greater the expectation for the emergence
of different and original ideas, leading to the development of innovative strategies (Alexiev et al., 2010).
Homogeneous groups in the decision-making process can hinder innovation because they tend to focus on similar
experiences. Homogeneous boards of directors are more likely to inhibit the evaluation and critique of
alternatives, which can have a negative impact on innovation (Janis, 1972).
Especially gender diversity in the board of directors is an indicator of an inclusive, egalitarian culture for the
entire organization. Women managers can enhance the firm's ability to be flexible and cope with uncertainty
(Rosener, 1995). Thus, companies can become more innovative because creative conflicts that may arise during
board meetings lead to better solutions. The conflicts that may arise due to the different natures of men and
women on boards bring about the need for information search, additional evidence gathering, and finding
different solutions. Gender diversity is also positively perceived by investors (Herring, 2009). The more gender
equality on boards brings greater creativity, innovation and quality decisions. The elimination of biases, along
with diverse ideas in decision-making processes, especially has a positive impact on organizational innovation
(Torchia et al., 2018). When we examine the literature, it can be seen that there is a positive relationship between
gender equality and innovation (Turner, 2009; Østergaard et al., 2011; Faems and Subramanian, 2013; Sastre,
2015; Fernández, 2015; Torchia et al., 2018). There are also studies in the literature that have found no impact of
women on innovation (Sonfield et al., 2001; DeTienne and Chandler, 2007) and even a negative effect (Kalleberg
and Leich, 1991; Gupta et al.,2014; Strohmeyer et al., 2017). Therefore, it is not possible to claim consensus in
the literature on this issue. The differences in the results of these studies may be related to societal structures.
The impact of women in society is proportional to the opportunities given to women (Azeem et al., 2022). In
other words, what is more determinative is not just the number of women on the boards of directors but how
much influence women members have.
Additionally, as revealed in many studies, innovation and financial performance have a positive relationship (Kao,
1989; (Salomo et al., 2008; Liao and Rice, 2010; Rass et al., 2013). Through innovation, product quality can be
improved, subsequently enhancing a firm's performance and, ultimately, its competitive advantage (Forker et al.,
1996). Therefore, businesses that prioritize gender equality are expected to be more open to innovation, and as a
result, their financial performance is also expected to be higher.
6.4. GENDER EQUALITY ON BOARDS AND ITS EFFECTS ON FINANCIAL PERFORMANCE
Financial performance is the ability to acquire and manage the resources of the establishment to provide
competition advantage and shows the systems' success of reaching the financial targets (Iswati and Anshori,
2007). Financial performance measurement is a mechanism that decision-makers in firms must use to make the
right decisions. The financial performance of a firm depends on many indicators. Since many of these indicators
exhibit a high correlation among themselves, they tend to affect performance similarly. In this context, financial
ratios such as profitability, liquidity, and operating are considered among the most commonly used indicators for
evaluating a firm's financial performance (Weston and Brigham, 1993; Gibson, 1995; White et al., 1997; Akgüç,
1998; Brealey et al., 1999; Erkki, 2002; Smith, 2005: Sels and Roodhooft, 2005; Çabuk and Lazol, 2011; Ozden et
al., 2012). However, in the literature, the focus is often on profitability and indicators such as Return on Assets
(ROA) and Return on Equity (ROE) (Bae et al., 2008; Wang, 2011; Masa9deh et al., 2015; Dasuki, 2016; Chen et al.,
2019; Alam et al., 2020).
Also, there are many factors that can impact a firm's financial performance. One of them is gender equality on
boards. The relationship between gender equality and financial performance is primarily explained by agency
