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Boardroom gender diversity and long-term firm performance

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Abstract

In this research study, we seek to examine whether US public companies with gender diverse boards report better long-term non-financial and financial performance. Using observations from 2003 to 2012, we find that gender diversity on corporate boards has a more positive impact on a firm’s non-financial performance after controlling for the simultaneous effects of board characteristics. However, using the same model for financial performance, our findings are mixed—a positive impact on accounting measure, no impact on market measures but mixed impact on Tobin’s Q. Our findings have policy implications for regulators globally seeking to mandate gender diversity in corporate boardrooms.

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Notes

  1. See SEC Final Rule 33-9089, issued on December 16, 2009, which requires all US public companies to disclose (1) whether a nominating committee considers diversity in building the nomination slate and if so how; and (2) whether the nominating committee or the board has a policy that requires it to consider diversity in identifying board nominees, and if so, how this policy is implemented and how nominating committee or the board assesses its effectiveness. Available at https://www.sec.gov/rules/final/2009/33-9089.pdf.

  2. H.R. 1611 can be accessed by clicking the following link: https://www.congress.gov/bill/115th-congress/house-bill/1611.

  3. SB 826 went into effect in the State of California on January 1, 2019. This law requires all public corporations that are either incorporated in California or have their principal executive offices there to have at least one female director on their boards.

  4. RiskMetrics, and to some extent, Corporate Library and KLD STATS databases collect qualitative information on various ESG variables based on their proprietary research of individual companies. Due to the extensive nature of this task, they may not be updating the ESG variables for all companies annually. Usually the larger and well-known companies attract frequent coverage while the smaller and more obscure companies are reviewed only once every so many years. To compensate for the missing data, we use the value in the most recent year for the year not covered. We also keep a record of the data year used for such a purpose because in our sensitivity analysis, we exclude the observations with missing data. We find that the results qualitatively remain the same as reported for our primary analysis.

  5. We refer to a firm’s performance on ESG (Environmental, Social and Governance) dimensions as its CSR (corporate social responsibility) performance.

  6. Correlations shown in bold in Table 3 are significant at 1% or better.

  7. To address the potential multicollinearity issue, the Variance Inflation Factor (VIF) scores are calculated for all variables in all the regression models. The VIF scores for all the variables are below five, indicating that there is no serious multicollinearity problem.

  8. In Table 4 board gender diversity (LPWDIR) and board-level characteristics (LBSIZE, LPINDDIR, and LDUAL) are all measured with 3-year and 5-year lags.

  9. These include two-digit SIC codes from 00 to 09 (agriculture and fishing), 10–14 (mining), 15–17 (construction), 35 (heavy machinery) and 49 (utilities).

  10. BCON is calculated from the information available in the ExcuComp database.

  11. There are however, exceptions. Consistently with our results above, our diversity measure does not have significant results on Corporate Governance. It has significant results on the strengths of Community but not on concerns.

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Acknowledgements

We would like to acknowledge the reviewer and participant comments from presentations at the following international conferences: 2015 Annual Congress of the European Accounting Association and the 2015 Annual Meeting of the American Accounting Association. We would also like to thank comments from participants from presentations at the research workshops held at the University of Texas at Arlington and at the University of Manitoba in Canada. We thank Bin Srinidhi for his insightful comments on the earlier versions of this paper. We also thank Romy L. Finkel, a Lehigh undergraduate student, for her research assistance.

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Authors and Affiliations

  1. Lehigh University, 621 Taylor Street, RBC #37, Bethlehem, PA, 18015, USA

    Parveen P. Gupta & Heibatollah Sami

  2. Hang Seng University of Hong Kong, Sha Tin, Hong Kong

    Kevin C. K. Lam

  3. The University of Texas – Rio Grande Valley, Edinburg, USA

    Haiyan Zhou

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  1. Parveen P. Gupta
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Gupta, P.P., Lam, K.C.K., Sami, H. et al. Boardroom gender diversity and long-term firm performance. Int J Discl Gov 20, 119–137 (2023). https://doi.org/10.1057/s41310-021-00114-4

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