Women in the Boardroom and Their Impact on Governance and Performance

This post comes to us from Renée B. Adams of the University of Queensland and ECGI, and Daniel Ferreira of the London School of Economics, CEPR and ECGI.

In our paper “Women in the Boardroom and Their Impact on Governance and Performance”, which is forthcoming in the Journal of Financial Economics, we investigate the hypothesis that gender diversity in the boardroom affects governance in meaningful ways. Our initial sample consists of an unbalanced panel of director-level data for S&P 500, S&P MidCaps, and S&P SmallCap firms collected by the Investor Responsibility Research Center (IRRC) for the period 1996-2003. Once we supplement this data with other director and financial information, we have a final sample of 86,714 directorships (director firm-years) in 8,253 firm-years of data on 1,939 firms.

We find that gender diversity has significant effects on board inputs. Women are less likely to have attendance problems than men. Furthermore, the greater the fraction of women on the board is, the better is the attendance behavior of male directors. Holding other director characteristics constant, female directors are also more likely to sit on monitoring-related committees than male directors. In particular, women are more likely to be assigned to audit, nominating, and corporate governance committees, although they are less likely to sit on compensation committees. Women also appear to have a significant impact on board governance. We find direct evidence that more diverse boards are more likely to hold CEOs accountable for poor stock price performance: CEO turnover is more sensitive to stock return performance in firms with relatively more women on boards. We also find that directors in gender-diverse boards receive relatively more equity-based compensation. We do not find a statistically reliable relationship between gender diversity and the level and composition of CEO pay, which is consistent with our findings that female board members are underrepresented on compensation committees and thus have less involvement in setting CEO pay.

The evidence on the relationship between gender diversity on boards and firm performance is more difficult to interpret. Although the correlation between gender diversity and either firm value or operating performance appears to be positive at first inspection, this correlation disappears once we apply reasonable procedures to tackle omitted variables and reverse causality problems. Our results suggest that, on average, firms perform worse the greater is the gender diversity of the board. This result is consistent with the argument that too much board monitoring can decrease shareholder value. Thus, it is possible that gender diversity only adds value when additional board monitoring would enhance firm value. Using additional tests, we find that gender diversity has beneficial effects in companies with weak shareholder rights, where it is plausible that additional board monitoring can enhance firm value, but detrimental effects in companies with strong shareholder rights.

The full paper is available for download here.

Both comments and trackbacks are currently closed.


  1. Brian Dialwa
    Posted Wednesday, November 12, 2008 at 2:05 am | Permalink

    I entirely agree that women are good at attending meetings and can be involved in sub – Committees of the Board.

    During my studies in Corporate Governance under ICSA (also known as CIS ) i observed this practice.


  2. Tory Clarke, Partner, Bridge Partners LLC
    Posted Wednesday, November 12, 2008 at 1:49 pm | Permalink

    The study conducted by Adams and Ferreira is an important contribution to the ongoing discussion of corporate governance and broad diversity (gender, ethnicity, international exposure, functional background, etc).

    While the study makes a very interesting correlation between gender diversity and either firm value or operating performance, this should not be seen as to diminish the basic business case for diversity on boards:

    First, there is a strong case that good governance requires diversity, not just in relation to attendance and level of monitoring (both of which the article states increase with greater gender diversity), but also in relation to a more overarching level of accountability and responsibility to protect shareholder interests. The more uniform a corporate board is, the more likely its members will think and act the same, making them less likely to challenge the status quo.

    Second, many institutional investor groups are now including the diversity of the board of directors as a desired “good governance” policy in that there is representation of the interests of all stakeholders (shareholders, customers, employees, suppliers, etc.).

    Third, stakeholder groups (including investors, employees, consumers, suppliers, regulators, communities, and consumer advocacy and activist groups) require companies to contribute to broader societal goals as well as deliver bottom-line results. Therefore, if a company’s Board of Directors illustrate a natural inclination towards inclusiveness of new ideas and approaches, it will experience a significant positive impact on the perception of the company as an employer and on the product/service it provides. All of which will ultimately be reflected in a company’s bottom-line.

    As noted previously, diversity refers to more than gender alone. But gender is an important indicator and, upon reading the recent Wall Street Journal’s Top 50 Women to Watch Out For, it is difficult to ignore the fact that the number of women serving on boards of directors is decreasing, despite employment gains for some high-powered professional women.

    Given the clear business case for diversity on Boards, it is crucial for nominating committees and key stakeholders to encourage diversity and proactively seek a diverse range of potential board candidates.

    As an executive search firm that focuses on the recruitment and retention of high-caliber diverse senior executives, Bridge Partners LLC published a discussion of boards and diversity in 2007. This edition and all others are available on our website (http://www.bridgepartnersllc.com).

    We also provide a service that aims to help organizations connect with senior diverse professionals who have a desire to sit on boards. Please visit http://www.directorshipinsights.com for more information.

  3. company law ireland
    Posted Monday, November 24, 2008 at 5:51 am | Permalink

    very interesting point thanks for sharing it

One Trackback

  1. By Women and corporate governance | CIPE Development Blog on Thursday, January 27, 2011 at 10:35 am

    […] For instance, recent research by Renee B. Adams and Daniel Ferreira from the European Corporate Governance Institute (ECGI) shows a number of ways in which companies benefit from women’s participation on boards: […]