The Effect of Female Directors on Firm Performance: Evidence From the Great Recession

Abstract

Empirical evidence suggests that the effect of board gender diversity on firm performance remains inconclusive. We argue that, during the times of crisis, firms likely need more monitoring and different advice than they normally do, thereby highlighting the role of female directors, who bring new ideas and different perspectives to the table. Consistent with this argument, the results show that the presence of female directors on the board significantly improved firm performance during the Great Recession of 2008, but such benefits from board gender diversity are not found outside the crisis period. In particular, during the Great Recession, an increase in the percentage of female directors by one standard deviation raised the return on assets (ROA) by 8.41%. Several robustness checks confirm the results, including an instrumental-variable analysis and a dynamic panel generalized method of moments (GMM). There is also evidence that the beneficial role of female directors during the crisis is not sufficiently reflected in the stock markets.

Keywords: board gender diversity, female directors, financial crisis, corporate governance, firm performance

JEL Classification: G32, G34, M14