How Many Female Seats on a Board? Board Gender-Diversification, Power, Risk-Taking, and Financial Performance

Abstract

Using quasi-natural experiments, we study how directors’ relative power or influence modulates the effects of board gender diversity. At low levels of influence, female directors have no significant impact on firm risk-taking and financial performance. However, as their influence increases (via greater numerical strength or non-token aggregate position), female directors tend to prevent excessive firm risk-taking, leading to increases in profitability and firm value, especially if the gender-diversification process is non-disruptive. Notably, our results are associated not with the market timing of equity issues but with the sale of less productive physical assets, paid-down debt, and less cash flow volatility.

Keywords: boards, directors, gender diversity, inclusion, voice, impact, economic case, business case, gender-diversification, tokenism, corporate behavior, power, influence, risk-taking, financial performance

JEL Classification: G18, G28, G30, G32, G33, G34, G35, G38