Are Women More Likely to Seek Advice than Men? Evidence from the Boardroom

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1 J. Rsk Fnancal Manag. 2015, 8, ; do: /jrfm Artcle OPEN ACCESS Journal of Rsk and Fnancal Management ISSN Are Women More Lkely to Seek Advce than Men? Evdence from the Boardroom Maurce Lev 1, Ka L 1, *, and Feng Zhang 2, 1 2 Sauder School of Busness, Unversty of Brtsh Columba, 2053 Man Mall, Vancouver, BC V6T 1Z2, Canada; E-Mal: maurce.lev@sauder.ubc.ca Davd Eccles School of Busness, Unversty of Utah, 1655 East Campus Center Drve, Salt Lake Cty, UT 84112, USA; E-Mal: feng.zhang@busness.utah.edu These authors contrbuted equally to ths work. * Author to whom correspondence should be addressed; E-Mal: ka.l@sauder.ubc.ca; Tel.: ; Fax: Academc Edtor: Mchael McAleer Receved: 15 December 2014 / Accepted: 4 February 2015 / Publshed: 16 February 2015 Abstract: It s commonly beleved that women are more lkely to seek advce than men; for example, on aspects of health or askng for drectons when lost. Ths paper nvestgates whether women s relatvely greater propensty for advce seekng extends to mportant busness decsons, specfcally those nvolvng corporate takeovers. Consstent wth the evdence from other contexts, we show that the presence of female drectors on target boards s postvely and sgnfcantly assocated wth target boards seekng advce from top-ranked fnancal advsors. In contrast, we do not observe any sgnfcant assocaton between the presence of female drectors on bdder boards and ther engagement of topranked fnancal advsors. We argue that the presence of a gender effect for target boards but not for bdder boards s consstent wth less overconfdent female versus male drectors on bdder boards ntatng fewer bds, hgher ltgaton rsk facng target boards for acceptng too lttle, and the dfferent type of advce sought by bdders and target frms. Keywords: seekng advce; fnancal advsors; drector gender; overconfdence; takeovers JEL Classfcaton: G34

2 J. Rsk Fnancal Manag. 2015, Introducton There s a commonly held belef that women are more lkely than men to seek advce; examples of ths behavor nclude seekng help from health professonals or va the Internet, and seekng drectons when lost. Ths gender dfference n advce seekng has been supported by research across a range of behavoral contexts [1 5]. The tendency for women to more readly seek advce than men s also supported by a 2010 study conducted by the Brtsh automoble nsurance company, Shela s Wheels (see As a result of men s reluctance to seek advce, the Shela s Wheels study shows that men drve more mles each year whle lost than women do, and when lost, 26 percent of men wat at least half an hour before askng for help (Op. ct) (Recent research suggests dfferences n drectonal advce seekng may reflect dfferences n bran actvty; see Ths paper asks whether the greater propensty for women to seek advce extends to busness decsons. Specfcally, when consderng whether to go ahead wth a corporate acquston, s the extent of female representaton on a bdder or target board assocated wth the lkelhood of that board seekng hgh-qualty professonal advce? In order to nvestgate whether the presence of female drectors plays a role n seekng outsde advce from top-ranked fnancal advsors, we examne over 2500 merger and acquston (M & A) deals over the perod We show that there s no sgnfcant assocaton between the fracton of female drectors on a bdder board and the lkelhood of that board consultng wth a top-ranked M&A advsor. On the other hand, usng close to 500 M & A deals over the same sample perod for whch we have nformaton on target boards, we show that there s a postve and sgnfcant assocaton between the fracton of female drectors on target boards and ther lkelhood of consultng wth a top-ranked M & A advsor. In terms of the economc sgnfcance, each ten-percent of female drectors on a target board ncreases the lkelhood of t engagng a top ten-ranked (top 20-ranked) advsor by 7.6 (1.7) percent. Our goals n ths paper are to report the assocaton between drector gender and consultaton wth hghly-ranked fnancal advsors for bdder and target frms, and to suggest possble reasons for asymmetrc connectons. Our nvestgaton shares the same endogenety lmtatons as the majorty of nvestgatons relatng to corporate boards. For example, one could argue that a CEO who wants to seek advce chooses women board members who he beleves more lkely than men to argue n favor of seekng advce from M & A advsors when consderng acqustons. Alternatvely, maybe a CEO who wants to go ahead wth only mnmal consultaton s not appealng to women board members who are lkely to lobby for engagng a fnancal advsor. In these cases, causaton does not go from female drectors to busness decsons, but from busness decsons to female drectors. Nevertheless, n ether case the outcome can be traced back to female board members beng more lkely to seek advce, or at least beng perceved to be more lkely to seek advce. As such, we can stll examne the assocaton between female representaton on corporate boards and boards propenstes to consult wth hghlyranked fnancal advsors. Furthermore, concern over endogenety s to some extent mtgated by the robustness of the assocatons reported n ths paper after controllng for observable frm and drector characterstcs and ndustry effects.

3 J. Rsk Fnancal Manag. 2015, Our paper contrbutes to the growng fnance lterature on whether and how personal or behavoral trats of corporate executves are related to corporate decsons. In terms of CEO characterstcs and experences, Malmender and Tate [6,7] fnd that CEO overconfdence sgnfcantly affects corporate nvestment and M & A decsons. Lev, L, and Zhang [8] document a strong hormone effect n M & As. Malmender, Tate, and Yan [9] and Graham, Harvey, and Pur [10] fnd that measurable CEO characterstcs, such as early-lfe experences, optmsm, and rsk-averson have sgnfcant explanatory power for corporate fnancng decsons. Relatedly, Cronqvst, Makhja, and Yonker [11] fnd that frms behavor s consstent wth how ther CEOs behave personally n the context of leverage choces. In terms of gender dfferences at the executve level, Adams and Ferrera [12] fnd that female drectors are more effectve montors than male drectors. Usng responses to mandated changes n Norwegan boards, Ahern and Dttmar [13] fnd that the quota requrng greater female representaton on corporate boards s negatvely assocated wth frm performance. Masta and Mller [14] further show that the presence of more female drectors on Norwegan corporate boards s assocated wth fewer employee layoffs, hgher labor costs, and lower profts. Smlarly, usng plant-level data n the US, Tate and Yang [15] fnd that female CEOs help cultvate more female-frendly corporate envronments, wth smaller wage gaps between genders. Huang and Ksgen [16] compare corporate fnancal and nvestment decsons made by female executves wth those by male executves and fnd that men exhbt relatvely greater overconfdence n sgnfcant corporate decson makng compared wth women. Smlarly, Facco, Marchca, and Mura [17] fnd that frms run by female CEOs have lower leverage, less volatle earnngs, and a hgher chance of survval than frms run by male CEOs. In an M & A settng, Lev, L, and Zhang [18] show that rsk homeostass, adjustment of behavor to mantan rsk, affects corporate acquston decsons. Lev, L, and Zhang [19] show that less overconfdent female drectors less overestmate merger gans and as a result, frms wth female drectors are less lkely to make acquston bds and f they do, pay lower bd prema. We add to ths lterature by showng that women s relatvely greater propensty for advce seekng than men extends to mportant corporaton decsons nvolvng takeovers. By consderng possble gender effects n the context of large, dscrete decsons, we can gauge whether t s worth nvestgatng possble gender effects n day-to-day operatons. Furthermore, our fndngs n ths paper renforce pror observatons that female drectors are more effectve montors [12], and that female drectors are assocated wth fewer acquston bds [19]. The outlne of the paper s as follows. The next secton revews the related lterature on choces of advsors and develops our hypotheses. Secton 3 descrbes our emprcal specfcaton and data. Secton 4 presents the results on the assocaton between female drectors and consultaton wth advsors for the bdders. Secton 5 presents the results for the target frms. Secton 6 mplements addtonal nvestgaton. We summarze and conclude n Secton Lterature Revew and Hypothess Development 2.1. Related Lterature Our research s related to a strand of the M & A lterature that examnes choces of fnancal advsors. Bowers and Mller [20] fnd that n acqustons where ether the bdder or target frm

4 J. Rsk Fnancal Manag. 2015, employs frst-ter fnancal advsors, the total abnormal dollar return s greater than when nether frm employs a prestgous advsor: Advce seekng s a value-enhancng actvty n whch the expected beneft, broadly defned, presumably exceeds the cost for bdders or target frms or both. Servaes and Zenner [21] show that transacton costs, nformaton asymmetry, and agency consderatons help to explan nvestment bankng choces n M & As: Frms are more lkely to hre consultants when the transacton s complex, when the bdder lacks pror experence, when the target frm operates n multple lnes of busness, or when the bdder has low nsder ownershp. Rau [22] shows that advsor reputaton s postvely assocated wth the lkelhood of deal completon and the advsor s market share, and negatvely and sgnfcantly assocated wth the clent s announcement-perod return, but s not sgnfcantly assocated wth the bd premum. Ksgen, Qan, and Song [23] show that farness opnons are more lkely to be obtaned n complex transactons wth greater uncertanty, such as tender offers, all-stock deals, and large deals, as well as n frms wth better corporate governance practces such as havng more ndependent drectors and smaller boards. Bao and Edmans [24] fnd that certan banks are systematcally assocated wth superor M & A returns, whle there s a negatve assocaton between hghly-ranked advsors and bdder announcement-perod returns. Fnally, Golubov, Petmezas, and Travlos [25] show that hghly-ranked advsors are postvely assocated wth bdder announcement-perod returns only n acqustons nvolvng publc target frms Our Hypothess In ths paper, we take a fresh angle, examnng whether drector gender matters n board decsons to hre top-ranked and presumably hgh-qualty advsors who offer ther expert opnons and gudance on whether and how to pursue a merger or acquston typcally a very mportant, complex corporate decson nvarably nvolvng many unque challenges. The behavoral dfferences of gender n general are non-controversal. One gender dfference of partcular note s that women are less overconfdent than men. Lower overconfdence may take the form of women belevng the precson of ther estmates to be less precse than men beleve ther own estmates to be (see, for example, [18], Barber and Odean [26]), whch s consstent wth the greater propensty for advce seekng by women than by men. Lower overconfdence may also take the form of women havng a less favorable estmate than men of expected outcomes, partcularly those nvolvng large, dscrete events wth slow feedback such as M & As (see [6,27]). Ether form of lower overconfdence but especally the former s consstent wth women beng more lkely to seek advce, snce useful advce should narrow the dsperson of estmates of potental outcomes. That s, for a gven target, women may have hgher varance and lower expected value of the potental outcome. Women are also more cautous, a matter that can be attrbuted to the greater nvestment that women make n the process of reproducton and thereby n the survval of our speces [28]. Ths s evdenced by grls safer play behavors and women s generally more cautous behavors nvolvng sex, drugs and alcohol, gamblng, drvng, and employment choces [29]. In an M & A settng, there are ltgaton rsks facng bdder (target) boards for payng too much (acceptng too lttle), promptng female drectors to hre fnancal advsors.

5 J. Rsk Fnancal Manag. 2015, Whether the matter be that women exhbt lower overconfdence, greater cauton or any other related characterstc, the possble gender-based behavoral dfferences n propensty to seek advce suggest the followng null hypotheses and two-tal alternatve hypotheses: Wth respect to bdder boards hrng advsors: H 0 : The fracton of female drectors on a bdder board s not assocated wth ts propensty to hre top-ranked advsors when pursung an acquston target. H 1 : The fracton of female drectors on a bdder board s assocated wth ts propensty to hre top-ranked advsors when pursung an acquston target. Wth respect to target boards hrng advsors: H 0 : The fracton of female drectors on a target board s not assocated wth ts propensty to hre top-ranked advsors when recevng an acquston bd. H 1 : The fracton of female drectors on a target board s assocated wth ts propensty to hre top-ranked advsors when recevng an acquston bd. 3. Model Specfcaton and Data 3.1. Model Specfcaton To explore the role of board gender dversty n hrng qualty M & A advsors, we run the followng cross-sectonal Probt regresson focusng on the fracton of female drectors on a board: Advsor rankng α 0 β β β % Female drectors Unfrendly deal Bdder not frst bdder β Bdder Ln( Transacton value ) β Relatve sze β Drector ownershp Board ndependency β β CEO beng COB e pays all n cash β Dversfyng deal 7 10 Board sze where the dependent varable takes a value of one f a top fve (top ten, or top 20) fnancal advsor s hred, and zero otherwse. The controls for frm characterstcs are motvated by [21 23]. We also control for year and ndustry fxed effects (based on the 48-ndustry classfcatons of Fama and French [30]). The control varable of partcular nterest s a measure of the board gender dversty of sample bdders or target frms the fracton of female drectors on a board Bdder/Target Frm Samples To form our sample, we start wth all M & A deals ntated over the perod n Thomson Reuter s SDC database (The data on frm board characterstcs from RskMetrcs are avalable snce Therefore, our M & A sample starts from that year.). The orgnal sample has 152,123 deals. Followng Rau [22], we requre an M & A deal to take the form of a merger (SDC deal form M) or acquston of majorty nterest (AM). Ths flter sgnfcantly reduces the number of deals to 32,216. We then dvde the sample nto two: the bdder sample and the target frm sample. To be ncluded n the bdder (target frm) sample, the bdder (target frm) must be a publc frm wth avalable fnancal nformaton from Compustat. The ntal bdder sample conssts of 19,110 deals, and the ntal target (1)

6 J. Rsk Fnancal Manag. 2015, frm sample conssts of 9094 deals. We then exclude deals wthout data on deal characterstcs, e.g., relatve sze and transacton value. Ths requrement reduces the bdder sample to 7967 deals, and reduces the target frm sample to 3563 deals. The board and drector nformaton s retreved from the RskMetrcs database, whch s avalable only for S&P 1500 frms, at the date of the most recent annual shareholder meetng pror to the bd announcement. Our fnal bdder sample conssts of 2595 deals, and our fnal target frm sample conssts of 483 deals Rankng M & A Fnancal Advsors We rank fnancal advsors based on ther market share. Our rankng methodology closely follows Rau [22]. The data on M&A fnancal advsors are retreved from Thomson Reuter s SDC database over the perod (The SDC s data on M & A fnancal advsors start from Our sample perod s from We start rankng advsors from the year 1990 to leave a seven-year perod before the begnnng of our sample perod. We exclude the data n the 1980s because the reputaton of a fnancal advsor changes over tme and thus the reputaton n the 1980s s less relevant for our sample perod.). The transacton value of an M & A deal s accredted to the advsors that represent ether the bdder or the target frm. We nclude mergers, acqustons of majorty nterest, repurchases, buybacks, and exchange offers, both completed and wthdrawn ones. Followng [22], f a fnancal advsor s a subsdary of another advsor, we accredt the deal to the specfc advsng entty nstead of ts ultmate parent to avod msclassfcatons. For example, credt for transactons advsed by Merrll Lynch before ts takeover by Bank of Amerca would be credted to Merrll Lynch. For each advsor, we sum up the transacton values (adjusted to 2010 dollars usng the CPI) of the M & A deals t advsed over the perod when the advsor s actve, and then compute ts average annual deal value over that perod. For example, f the frst deal advsed by an advsor s n 1993 and the last deal n 2007, the average annual deal value of ths advsor s calculated as the sum of deal values t advsed dvded by 15 (= ). In each year from , all advsors actve n that year are ranked based on ther average annual deal value. The advsor wth the greatest average annual deal value s ranked one, the advsor wth the second greatest deal value s ranked two, and so on. Some advsors are actve n only a sngle year and have advsed very few deals. To avod renderng a prestgous rank to them, the advsors that are actve n only one year and have advsed less than twenty deals n total are ranked after other more actve advsors (Admttedly, the cut-off number of twenty s arbtrary. However, usng alternatve cut-offs does not qualtatvely change our results.). Our rankng methodology yelds reasonable rankngs of the fnancal advsors. For example, our top ten advsors n 2010 are all among the top ten advsors n the Thomson Reuters 2010 league table (based on announced transacton value n 2010 only; see Appendx A for detals of the top ten advsors dentfed by us. 4. Bdder Board Gender Dversty and M & A Fnancal Advsors 4.1. Bdder Sample Overvew Table 1 presents the descrptve statstcs of the bdder sample. Appendx B provdes defntons of varables.

7 J. Rsk Fnancal Manag. 2015, The average number of advsors hred by the bdder s 0.68, and the medan s one. The fracton of bdders engagng fnancal advsors s about 60 percent (Ths number s computed when the nformaton on the dentty of the fnancal advsor s avalable mssng advsor data s treated as frms not hrng an advsor. As such, our results need to be nterpreted wth cauton. We also checked and found that SDC s coverage on deals done n house wthout hrng a fnancal advsor was ncomplete over our sample perod.). In contrast, Ksgen, Qan, and Song [23] show that 37 percent of bdders n ther sample obtan a thrd-party assessment of the farness of a merger or acquston. About a quarter of them hre from the top fve advsors, over a thrd hre from the top ten advsors, and over 40 percent of them hre from the top 20 advsors. The mean (medan) rank of bdder advsors s 20 (7). Usng the relatve poston of nvestment banks placed n the tombstone announcements n the fnancal secton of newspapers, Bowers and Mller [20] defne frst-ter nvestment banks (also referred to as prestgous banks) as those whch are lsted drectly below the manager and co-manager. The rest are classfed as second-ter banks. In ther sample of acqurers, slghtly less than half of them employ the frst-ter nvestment banks. Rau [22] measures the market share of each nvestment bank as a fracton of the total value of transactons advsed by the nvestment bank n each year over the perod He labels the top fve advsors as bulge bracket or top-ter, the next 15 advsors as major bracket or second-ter, and the rest as thrd-ter. In hs sample, about a thrd of the acqurers hre from the top-ter advsors, 27 percent hre from the second-ter advsors, and the rest hre from the thrd-ter advsors. Table 1. Overvew of the Bdder Sample. Varable N Mean Std. Dev. 5th Percentle Medan 95th Percentle # bdder advsors Bdder hres advsor Bdder hres a top 5 advsor Bdder hres a top 10 advsor Bdder hres a top 20 advsor Bdder advsor rank Bdder fracton of female drectors Bdder fracton of ndependent female drectors Bdder fracton of dependent female drectors Unfrendly deal Bdder not frst bdder Bdder pays all n cash Transacton value ($B) Relatve sze Dversfyng deal Bdder drector ownershp Bdder board ndependence Bdder board sze Bdder CEO beng COB Our bdder sample conssts of 2595 M & As ntated durng the perod The sample s retreved from SDC and has avalable data for the bdder frm from RskMetrcs/Compustat/CRSP. See Appendx B for detals of varable defntons.

8 J. Rsk Fnancal Manag. 2015, About three percent of takeover offers are perceved to be unfrendly, and n 2.5 percent of the cases the bdder s not the frst bdder for the target. About a thrd of the offers nvolve payment all n cash. The average (medan) sze of the offer s $2.2 bllon ($253 mllon). The average (medan) rato of transacton value to bdder frm sze (total assets) s 12.9 percent (3.4 percent). Over a thrd of the offers nvolve bdder and target frms n dfferent ndustres,.e., are dversfyng deals. The average bdder board conssts of 10.4 members, of whch 9.7 percent are women and 67.6 percent are ndependent outsders. These numbers are slghtly hgher than those reported n the study by Farrell and Hersch [31] who show that female drectors comprse 8.6 percent of board members n a sample of Fortune 500 frms, and n the study by Paul [32] who shows that ndependent drectors comprse 53 percent of board members n a sample of M & A deals over the perod About 64 percent of the CEOs are also charmen of the board (COB). The average board ownershp s 7.4 percent Bdder Board Gender Dversty and Reputaton of Fnancal Advsors Table 2 presents the Probt/OLS regresson results where the dependent varable s whether or not a bdder board engages a top-ranked advsor. Panel A employs the full bdder sample and examnes the choce of hrng a top-ranked advsor vs. not hrng any advsor at all or not hrng a top-ranked advsor. Panel B employs a sample of bdders that have decded to hre an advsor, and examnes ther choce of hrng a top-ranked advsor. We fnd that the fracton of female drectors on the board s not sgnfcantly assocated wth the lkelhood of the board hrng a top-ranked advsor. Whle ths result could be taken at ts face value, t may also be drven by a number of mportant dfferences between bdder and target frms. Frst, there are dfferences n the way advsors are engaged by bdders versus target frms. Many deals are ntated (ptched) to bdders by nvestment banks. Fnancal advsors are hred to assst wth nternal dscussons of the possblty of makng an offer (consderng an offer), and through ths process may advse aganst proceedng wth an offer (acceptng an offer) [23]. Lev, L, and Zhang [19] fnd that less overconfdent female drectors on the bdder board less overestmate merger gans and as a result, these frms wth female drectors are less lkely to make acquston bds. Target frms, on the other hand, are seekng advce n response to the bdder s approach. There s no such (symmetrc) effect of female drectors on the target board on deal ntatons. It follows that these cases are not recorded as announced bds n the SDC M & A database. Cases where advce has been sought for bdder board delberatons as to whether to proceed wth an offer are, accordng to the fndngs of [19], lkely to be dsproportonately those where female drectors have played a role as compared to cases where advce has been sought for target board delberatons as to whether to accept an offer. In short, the data on acquston bds that are actually made and therefore end up n the SDC database may understate the nfluence of bdder female drectors who are more lkely to screen out potental bds that, as a consequence, never make t nto the database: Women affect what we do not see. Second, sellng a frm s a much more ltgous busness than buyng a frm (see the semnal legal case of Smth vs. Van Gorkom and the Delaware Supreme Court rulng that leads to the popularty of frms seekng farness opnon). Lawsuts aganst the target board (brought by dsgruntled shareholders who beleve the offer prce was nsuffcent) accompany almost every large takeover. Not surprsngly, Ksgen, Qan, and Song [23] fnd that 80% of target frms and only 37% of bdders obtan a thrd-party

9 J. Rsk Fnancal Manag. 2015, assessment of the farness of an offer. Gven that female drectors are more rsk-averse than male drectors, the former would be more lkely to seek advce from top-ranked nvestment banks as a matter of protecton. Beng on the buy-sde s not subject to the same ltgaton rsk (We thank an anonymous referee for suggestng ths argument.). Table 2. Gender Dversty of the Bdder s Board and Fnancal Advsor Reputaton. Panel A: Probt regresson results for all bdders; Panel B: Regresson results for bdders that hre at least one fnancal advsor. Dependent Varable Bdder Hres Bdder Hres Bdder Hres a top 5 advsor a top 10 Advsor a top 20 advsor vs. vs. vs. Estmaton method a non-top 5 advsor a non-top 10 a non-top 20 or no advsor advsor or no advsor advsor or no advsor Probt Probt Probt (1) (2) (3) Bdder fracton of female drectors (0.106) (0.140) (0.155) Unfrendly deal * (0.046) (0.057) (0.066) Bdder not frst bdder (0.055) (0.082) (0.079) Bdder pays all n cash (0.019) (0.026) (0.028) Log Transacton value *** *** *** (0.006) (0.009) (0.011) Relatve sze ** (0.036) (0.063) (0.101) Dversfyng deal (0.020) (0.026) (0.029) Bdder drector ownershp * * ** (0.087) (0.113) (0.121) Bdder board ndependence ** *** ** (0.058) (0.077) (0.084) Bdder board sze (0.003) (0.004) (0.004) Bdder CEO beng COB * ** (0.018) (0.024) (0.026) Year fxed effects Yes Yes Yes Industry fxed effects Yes Yes Yes Observatons Pseudo R-squared (A)

10 J. Rsk Fnancal Manag. 2015, Table 2. Cont. Dependent Varable Bdder Hres Bdder Hres Bdder Hres Log (1/Bdder) a top 5 advsor a top 10 advsor a top 20 advsor vs. vs. vs. Estmaton method a non-top 5 a non-top 10 a non-top 20 (advsor rank) advsor advsor advsor Probt Probt Probt OLS (1) (2) (3) (4) Bdder fracton of female drectors Unfrendly deal Bdder not frst bdder Bdder pays all n cash Log Transacton value Relatve sze Dversfyng deal Bdder drector ownershp Bdder board ndependence Bdder board sze Bdder CEO beng COB Constant (0.177) (0.161) (0.115) (0.388) (0.080) (0.086) (0.065) (0.160) (0.084) (0.073) (0.050) (0.174) (0.033) (0.032) (0.022) (0.079) *** *** *** *** (0.011) (0.011) (0.009) (0.023) ** *** (0.053) (0.052) (0.038) (0.112) (0.033) (0.030) (0.022) (0.074) (0.139) (0.120) (0.091) (0.300) * ** (0.097) (0.088) (0.065) (0.211) (0.005) (0.005) (0.003) (0.011) (0.030) (0.027) (0.020) (0.069) *** (0.236) Year fxed effects Yes Yes Yes Yes Industry fxed effects Yes Yes Yes Yes Observatons Adjusted/Pseudo R-squared (B) Our bdder sample conssts of 2595 M & As ntated durng the perod The sample s retreved from SDC and has avalable data for the bdder frm from RskMetrcs/Compustat/CRSP. Panel A presents regresson results for all bdder frms, whle Panel B only ncludes bdders that hre at least one fnancal advsor. We run Probt regressons and present the margnal effects n Panel A and the frst three columns of Panel B. Column (4) of Panel B presents the OLS regresson results. All model specfcatons employ robust standard errors (reported n parentheses below each coeffcent). See Appendx B for detals of varable defntons. Superscrpts ***, **, and * correspond to statstcal sgnfcance at the one, fve, and ten percent levels, respectvely.

11 J. Rsk Fnancal Manag. 2015, Fnally, the type of advce sought dffers across bdders and target frms. Bdders seek help to dentfy operatonal synerges, whch calls for n-depth ndustry expertse that s often lackng among fnancal advsors. Target frms are more concerned about sellng hgh and seek help to value the terms of an offer, whch s the expertse of typcal fnancal advsors. In addton to the above man fndngs, we show that large transactons and bdder boards wth greater ndependent drector representaton are postvely and sgnfcantly assocated wth the lkelhood of the bdder board hrng top-ranked advsors, whle hgh board drector ownershp s negatvely and sgnfcantly assocated wth the lkelhood of the bdder board hrng top-ranked advsors. These results are consstent wth pror fndngs n [21,23]. Table 3. Overvew of the Target Sample. Varable N Mean Std. Dev. 5th Percentle Medan 95th Percentle # target advsors Target hres advsor Target hres a top 5 advsor Target hres a top 10 advsor Target hres a top 20 advsor Target advsor rank Target fracton of female drectors Target fracton of ndependent female drectors Target fracton of dependent female drectors Unfrendly deal Bdder not frst bdder Bdder pays all n cash Transacton value ($B) Relatve sze Dversfyng deal Target drector ownershp Target board ndependence Target board sze Target CEO beng COB Our target sample conssts of 483 M & As ntated durng the perod The sample s retreved from SDC and has avalable data for the target frm from RskMetrcs/Compustat/CRSP. See Appendx B for detals of varable defntons. 5. Target Board Gender Dversty and M & A Fnancal Advsors 5.1. Target Frm Sample Overvew Table 3 presents the descrptve statstcs of the target frm sample. The average number of advsors hred by a target frm s 1.38, and the medan s one. The fracton of target frms hrng an advsor s close to 100 percent. In contrast, Ksgen, Qan, and Song [23] show that 80 percent of target frms n ther sample obtan a thrd-party assessment of the farness of a merger or acquston. More than half of them hre from the top fve advsors, close to three-quarters hre from the top ten advsors, and over 80 percent of them hre from the top 20 advsors. The mean (medan) rank of target advsors s 13 (4). Bowers and Mller [20] show that n ther sample of target frms slghtly over 60 percent of them

12 J. Rsk Fnancal Manag. 2015, employ frst-ter nvestment banks. Note that they defne frst-ter banks based on ther relatve postons n the tombstone announcements. About a ffth of the takeover offers are perceved to be unfrendly, and n about sx percent of the cases there have been pror bds for the target. About a ffth of the offers nvolve payment all n cash. The average (medan) sze of the offer s $8.4 bllon ($2.2 bllon). The average (medan) rato of transacton value to bdder value (total assets) s 36.9 percent (22.7 percent). About a thrd of the offers nvolve bdders and target frms n dfferent ndustres. The average target board conssts of 9.5 members, of whch 8.4 percent are women and 68.4 percent are ndependent outsders. These numbers are smlar to the numbers reported for the average bdder board (see our Table 1). About 64 percent of the CEOs are also charmen of the board. The average board ownershp s 7.5 percent Target Board Gender Dversty and Reputaton of Fnancal Advsors Table 4 presents the Probt/OLS regresson results where the dependent varable s whether or not a target board hres a top-ranked advsor and the nverse of an advsor s rankng. Panel A employs the full target frm sample and examnes the choce of hrng a top-ranked advsor vs. not hrng any advsor at all or not hrng a top-ranked advsor. Panel B employs a sample of target frms that have decded to hre an advsor and examne ther choce of hrng a top-ranked advsor or not. We fnd that the fracton of female drectors on the target board s postvely and sgnfcantly assocated wth the lkelhood of the target board hrng a top-ten or top-20 ranked advsor. In terms of the economc sgnfcance, each ten-percent representaton of female drectors on the target board ncreases the lkelhood of the board hrng from the top-ten (top-20) ranked advsors by 7.6 (1.7) percent (= /0.720 (= /0.834)), where the second term n the numerator s the coeffcent on the target frm proporton of female drectors, and the denomnator s the sample frequency of target boards hrng from the top-ten (top-20) ranked fnancal advsors, as shown n Table 3. Ths fndng s consstent wth the tendency for women vs. men to seek advce observed n other contexts such as seekng drectons when lost and learnng about health. In addton to the above man fndngs, we show that unfrendly deals and large transactons are postvely and sgnfcantly assocated wth the lkelhood of the target boards engagng advsors. These fndngs are consstent wth pror fndngs n Ksgen, Qan, and Song [23]. 6. Addtonal Investgaton Pror work ncludng Byrd and Hckman [33], Shvdasan [34], Cotter, Shvdasan and Zenner [35], Hermaln and Wesbach [36], and Paul [37] has shown that boards domnated by ndependent drectors are more lkely to make decsons that are n the nterest of shareholders. If ndependence of drectors matters, we expect the choce of fnancal advsors and ther reputaton to dffer dependng on whether a female drector s an ndependent or a dependent drector. Thus, we break down the fracton of female drectors nto the fracton of ndependent female drectors and the fracton of dependent female drectors. Female drectors on the bdder boards come prmarly from outsde (.e., roughly 90 percent of female drectors are ndependent, see Table 1), consstent wth fndngs of Farrell and Hersch [31]. On average, the fracton of ndependent female drectors on the bdder board s 8.6 percent, compared to the fracton of all female drectors, whch s 9.7 percent of the bdder board; hence the average fracton

13 J. Rsk Fnancal Manag. 2015, of dependent female drectors on the bdder board s only about one percent. The dstrbuton of ndependent and dependent female drectors on the target boards s smlar (.e., agan roughly 90 percent of female drectors are ndependent, see Table 3). In Table 5 Panels A and B, we replace the fracton of female drectors n Equaton (1) wth the fractons of ndependent and dependent female drectors (relatve to board sze) to check the robustness of our fndngs on gender dversty and boards engagng a fnancal advsor. We show that ndependent female drectors on the bdder board are not sgnfcantly assocated wth bdder advsor reputaton, whle dependent female drectors are postvely and sgnfcantly assocated wth the rank of the bdder advsors. Table 4. Gender Dversty of the Target s Board and Fnancal Advsor Reputaton. Panel A: Probt regresson results for all target frms; Panel B: Regresson results for target frms that hre at least one fnancal advsor. Dependent Varable Target Hres Target Hres Target Hres a top 5 advsor a top 10 advsor a top 20 advsor vs. vs. vs. Estmaton method a non-top 5 advsor a non-top 10 advsor a non-top 20 advsor or no advsor or no advsor or no advsor Probt Probt Probt (1) (2) (3) Target fracton of female drectors ** * (0.360) (0.255) (0.084) Unfrendly deal *** *** (0.085) (0.032) (0.010) Bdder not frst bdder (0.120) (0.108) (0.021) Bdder pays all n cash * (0.071) (0.046) (0.011) Log Transacton value *** *** *** (0.024) (0.019) (0.006) Relatve sze (0.060) (0.048) (0.015) Dversfyng deal (0.065) (0.045) (0.016) Target drector ownershp (0.199) (0.136) (0.037) Target board ndependence (0.171) (0.127) (0.046) Target board sze (0.010) (0.008) (0.002) Target CEO beng COB ** (0.055) (0.040) (0.014) Year fxed effects Yes Yes Yes Industry fxed effects Yes Yes Yes Observatons Pseudo R-squared (A)

14 J. Rsk Fnancal Manag. 2015, Table 4. Cont. Dependent Varable Target Hres Target Hres Target Hres Log (1/Target) a top 5 advsor a top 10 advsor a top 20 advsor vs. vs. vs. Estmaton method a non-top 5 a non-top 10 a non-top 20 (advsor rank) advsor advsor advsor Probt Probt Probt OLS (1) (2) (3) (4) Target fracton of female drectors Unfrendly deal Bdder not frst bdder Bdder pays all n cash Log Transacton value Relatve sze Dversfyng deal Target drector ownershp Target board ndependence Target board sze Target CEO beng COB Constant ** * ** (0.358) (0.247) (0.066) (0.713) *** *** *** (0.085) (0.032) (0.009) (0.167) (0.118) (0.107) (0.015) (0.221) * (0.071) (0.045) (0.009) (0.174) *** *** *** *** (0.024) (0.019) (0.006) (0.056) (0.062) (0.050) (0.012) (0.124) (0.066) (0.044) (0.010) (0.145) (0.197) (0.133) (0.037) (0.481) (0.173) (0.127) (0.036) (0.450) (0.010) (0.007) (0.002) (0.024) ** ** (0.055) (0.039) (0.011) (0.127) *** (0.651) Year fxed effects Yes Yes Yes Yes Industry fxed effects Yes Yes Yes Yes Observatons Adjusted/Pseudo R-squared (B) Our target sample conssts of 483 M & As ntated durng the perod The sample s retreved from SDC and has avalable data for the target frm from RskMetrcs/Compustat/CRSP. Panel A presents regresson results for all target frms, whle Panel B only ncludes target frms that hre at least one fnancal advsor. We run Probt regressons and present the margnal effects n Panel A and the frst three columns of Panel B. Column (4) of Panel B presents the OLS regresson results. See Appendx B for detals of varable defntons. All model specfcatons employ robust standard errors (reported n parentheses below each coeffcent). Superscrpts ***, **, and * correspond to statstcal sgnfcance at the one, fve, and ten percent levels, respectvely.

15 J. Rsk Fnancal Manag. 2015, Table 5. Board Gender Dversty and Fnancal Advsor Reputaton: Independent vs. Dependent Female Drectors. Panel A: Probt regresson results for all bdders; Panel B: Regresson results for bdders that hre at least one fnancal advsor; Panel C: Probt regresson results for all target frms; Panel D: Regresson results for target frms that hre at least one fnancal advsor. Dependent Varable Bdder Hres Bdder Hres Bdder Hres a top 5 advsor a top 10 advsor a top 20 advsor vs. vs. vs. Estmaton method a non-top 5 a non-top 10 a non-top 20 advsor advsor advsor or no advsor or no advsor or no advsor Probt Probt Probt (1) (2) (3) Bdder fracton of ndependent female drectors Bdder fracton of dependent female drectors Unfrendly deal Bdder not frst bdder Bdder pays all n cash Log Transacton value Relatve sze Dversfyng deal Bdder drector ownershp Bdder board ndependence Bdder board sze (0.114) (0.148) (0.166) (0.260) (0.361) (0.404) * (0.045) (0.057) (0.066) (0.055) (0.082) (0.079) (0.019) (0.026) (0.028) *** *** *** (0.006) (0.009) (0.011) ** (0.036) (0.063) (0.101) (0.020) (0.026) (0.029) * * ** (0.087) (0.113) (0.121) *** *** ** (0.062) (0.081) (0.089) (0.003) (0.004) (0.004) Bdder CEO beng COB * ** (0.018) (0.024) (0.026) Year fxed effects Yes Yes Yes Industry fxed effects Yes Yes Yes Observatons Pseudo R-squared (A)

16 J. Rsk Fnancal Manag. 2015, Table 5. Cont. Dependent Varable Bdder Hres Bdder Hres Bdder Hres Log (1/Bdder) a top 5 advsor a top 10 advsor a top 20 advsor vs. vs. vs. Estmaton method a non-top 5 a non-top 10 a non-top 20 (advsor rank) advsor advsor advsor Probt Probt Probt OLS (1) (2) (3) (4) Bdder fracton of ndependent female drectors Bdder fracton of dependent female drectors Unfrendly deal Bdder not frst bdder Bdder pays all n cash Log Transacton value Relatve sze Dversfyng deal Bdder drector ownershp Bdder board ndependence Bdder board sze Bdder CEO beng COB Constant (0.192) (0.174) (0.128) (0.418) ** * (0.442) (0.428) (0.321) (1.002) (0.081) (0.087) (0.065) (0.159) (0.083) (0.073) (0.050) (0.173) (0.033) (0.032) (0.022) (0.079) *** *** *** *** (0.011) (0.011) (0.009) (0.023) ** *** (0.053) (0.052) (0.038) (0.112) (0.033) (0.030) (0.022) (0.074) (0.140) (0.120) (0.091) (0.299) ** ** * (0.103) (0.093) (0.068) (0.226) (0.005) (0.005) (0.003) (0.011) (0.030) (0.027) (0.020) (0.069) *** (0.237) Year fxed effects Yes Yes Yes Yes Industry fxed effects Yes Yes Yes Yes Observatons Adjusted/Pseudo R-squared (B)

17 J. Rsk Fnancal Manag. 2015, Table 5. Cont. Dependent Varable Target Hres Target Hres Target Hres a top 5 advsor a top 10 advsor a top 20 advsor vs. vs. vs. Estmaton method a non-top 5 a non-top 10 a non-top 20 advsor advsor advsor or no advsor or no advsor or no advsor Probt Probt Probt (1) (2) (3) Target fracton of ndependent female drectors ** (0.392) (0.277) (0.084) Target fracton of dependent female drectors ** (0.823) (0.561) (0.251) Unfrendly deal *** *** (0.085) (0.032) (0.010) Bdder not frst bdder (0.119) (0.111) (0.018) Bdder pays all n cash (0.072) (0.047) (0.012) Log Transacton value *** *** *** (0.024) (0.019) (0.007) Relatve sze (0.061) (0.049) (0.014) Dversfyng deal (0.066) (0.046) (0.016) Target drector ownershp (0.201) (0.139) (0.038) Target board ndependence (0.180) (0.132) (0.043) Target board sze (0.010) (0.008) (0.002) Target CEO beng COB ** (0.055) (0.040) (0.013) Year fxed effects Yes Yes Yes Industry fxed effects Yes Yes Yes Observatons Pseudo R-squared (C)

18 J. Rsk Fnancal Manag. 2015, Table 5. Cont. Dependent Varable Target Hres Target Hres Target Hres Log (1/Target) a top 5 advsor a top 10 advsor a top 20 advsor vs. vs. vs. Estmaton method a non-top 5 a non-top 10 a non-top 20 (advsor rank) advsor advsor advsor Probt Probt Probt OLS (1) (2) (3) (4) Target fracton of ndependent ** * female drectors (0.391) (0.269) (0.059) (0.796) Target fracton of dependent * female drectors (0.811) (0.540) (0.161) (1.844) Unfrendly deal *** *** *** (0.086) (0.030) (0.008) (0.167) Bdder not frst bdder (0.117) (0.109) (0.013) (0.221) Bdder pays all n cash ** (0.072) (0.045) (0.007) (0.176) Log Transacton value *** *** *** *** (0.024) (0.019) (0.004) (0.056) Relatve sze (0.062) (0.050) (0.010) (0.124) Dversfyng deal (0.067) (0.044) (0.009) (0.146) Target drector ownershp (0.199) (0.133) (0.034) (0.490) Target board ndependence (0.183) (0.131) (0.033) (0.487) Target board sze (0.010) (0.007) (0.002) (0.024) Target CEO beng COB ** ** (0.055) (0.039) (0.010) (0.127) Constant *** (0.654) Year fxed effects Yes Yes Yes Yes Industry fxed effects Yes Yes Yes Yes Observatons Adjusted/Pseudo R-squared (D) Ths table examnes the role of ndependent and dependent female drectors n hrng reputable fnancal advsors n M&As. Our bdder and target samples are retreved from SDC coverng deals ntated over the perod and wth avalable data for the bdder and target frm, respectvely, from RskMetrcs/Compustat/CRSP. Panel A presents the regresson results for all bdders, whle Panel B only ncludes bdders that hre at least one fnancal advsor. Panel C presents the regresson results for all target frms, whle Panel D only ncludes target frms that hre at least one fnancal advsor. See Appendx B for detals of varable defntons. We present margnal effects of each of the ndependent varable n Panels A and C and the frst three columns of Panels B and D. Column (4) of Panels B and D present the OLS regresson results. All model specfcatons employ robust standard errors (reported n parentheses below each coeffcent). Superscrpts ***, **, and * correspond to statstcal sgnfcance at the one, fve, and ten percent levels, respectvely.

19 J. Rsk Fnancal Manag. 2015, In Table 5 Panels C and D, we show that ndependent female drectors on the target board are postvely and sgnfcantly assocated wth the rank of the target advsors. Dependent female drectors are postvely and sgnfcantly assocated wth the rank of the target advsors. Based on these fndngs, we conclude that gender dversty on boards, not ndependence of boards, matter more n seekng hgh-qualty fnancal advce. In summary, our evdence suggests that both ndependent and dependent female drectors are sgnfcantly assocated wth boards engagement of hgh-qualty consultants n M&As. In unreported analyses, we employ an ndcator varable for the presence of female drectors on bdder (target frm) boards and fnd that ths bnary varable for the presence of female drectors on target boards s postvely and sgnfcantly assocated wth the lkelhood of these frms hrng top-ranked fnancal advsors, consstent wth our man fndngs (We thank two anonymous referees for suggestng these analyses.). We also nclude both an ndcator varable for a board to have only one female drector and a second ndcator varable for a board to have more than one female drector and fnd that there s no sgnfcant assocaton between the second ndcator varable for the presence of multple female drectors on target boards and the lkelhood of these frms hrng top-ranked fnancal advsors. We conclude that t s the presence of female drectors on target boards wth ther hgher propenstes to seek advce, not the presence of multple female drectors, that drves our results. To further explore the type of advce sought, we examne the relaton between the presence of female drectors and the lkelhood of frms hrng multple advsors [37] or seekng farness opnon [23] and fnd no sgnfcant assocaton between female drectors and frms lkelhood of hrng multple advsors or seekng farness opnon. One possble explanaton of our unsupportve fndngs s that, as Derren and Dessant [37] show, the rank of a bank nfluences ts future deal flow. Ths creates ncentves for banks to mprove ther ranks by sellng farness opnons and reducng fees when there are multple advsors for the same deal and the same clent. We also examne whether deal complexty, as measured by the sze of the deal, all stock payment, and dversfyng deals, changes the relaton between the presence of female drectors and the lkelhood of frms hrng top-ranked fnancal advsors and fnd no sgnfcant nteracton effects. In all cases, t s worth notng that our man fndngs on the sgnfcant assocaton between the presence of female drectors on target boards and target frms hrng top-ranked advsors reman. 7. Conclusons Consstent wth evdence from other contexts that women are more lkely than men to seek advce, ths paper nvestgates the assocaton between female board membershp n bdder and target frms and the advce sought n corporate takeovers. Our man fndng s that the representaton of female drectors on target boards s postvely and sgnfcantly assocated wth these boards employng hghly-ranked M & A fnancal advsors. Specfcally, each ten-percent of female drectors on a target board ncreases the lkelhood of the board consultng wth a top ten-ranked (top 20-ranked) advsor by 7.6 (1.7) percent. No such gender effect s observed for the bdder board. We argue that the presence of a gender effect for target boards but not for bdder boards may be due to less overconfdent female versus male drectors on bdder

20 J. Rsk Fnancal Manag. 2015, boards ntatng fewer bds, hgher ltgaton rsk facng target boards for acceptng too lttle, and the dfferent type of advce sought by bdders and target frms. Any fndng that supports the mportance of gender dversty on the prevalence of advce-seekng n M & As s hardly surprsng gven the mportance and complexty of these transactons. What we have demonstrated n ths paper s that the effect of gender n the form of female board representaton s consstent wth other contexts, such as seekng help from health professonals or askng for drectons when lost. We have also ndcated that care must be taken due to the possblty of unobserved effects of gender occurrng wthn the board, partcularly the bdder board, whch may be respondng to nvestment banks ptch to pursue deals. Women do make a dfference n busness. Wth more and more governments mandatng gender balance on corporate boards, we can expect ths mandate to have a szeable effect on fnancal ntermedares such as the top-ter members of the nvestment bankng ndustry. Acknowledgments We thank Mark Kamstra (the guest edtor for the specal ssue), two anonymous referees, and Mchael Meloche for helpful comments. Lev and L acknowledge fnancal support from the Socal Scences and Humantes Research Councl of Canada. We also acknowledge fnancal support from the Certfed Management Accountng Socety of Brtsh Columba. All remanng errors are our own. Author Contrbutons All authors contrbuted to all aspects of ths work. Appendx A. Fnancal Advsor Rankngs n Advsor name # Years Begnnng End # Deals Transacton Average Our Rank Rank advsor of actve of actve over value ($B) annual by s Perod perod actve over actve transacton Thomson actve perod perod value ($B) Reuter Goldman Sachs & Co Morgan Stanley & Co Ctgroup Bank of Amerca Merrll Lynch JP Morgan & Co Inc Credt Susse Group UBS Investment Bank Lazard Barclays Captal Deutsche Bank AG