Board Gender Diversity and Corporate Financial Performance: Is there an Economic Case in Australia?

Abstract

The main objective of this study is to understand the relationship between board gender diversity and financial performance. Australia offers a unique context as board quotas are not mandated and the governance code is principle-based rather than rule-based. Corporate firms in Australia are subject to corporate governance recommendations issued by the Australian Securities Exchange (ASX) in 2003. Additionally, ASX diversity initiatives introduced in 2010 require listed firms to incorporate additional recommendations from 2011. The Australian economy is characterised by large resources and financial sectors with each of these two dominated by a few large businesses. The gender pay gap is still considerable in Australia. Given these contextual considerations, an examination of the association between gender diversity of corporate boards of directors and corporate financial performance in Australia is likely to offer additional insights into the debate on the importance of gender diversity in the corporate sector. The sample of firms is derived from the constituents of S&P ASX 300 Index for the period from 2004 to 2016. At an aggregate level, empirical findings provide evidence that board gender diversity is not positively associated with corporate financial performance. However, a closer examination of the study period before and after gender diversity initiatives by ASX and consideration of sectoral differences shows that the association between gender diversity and financial performance varies over time and across sectors. In particular, board gender diversity has a significant positive association with financial performance of Australian firms in the financial and services sectors specifically after the diversity initiatives were introduced by ASX in 2010. In the resources sector, there is no evidence that gender diversity has a positive association with financial performance. This study therefore offers some support for an economic case for gender diversity initiatives particularly in the financial and services sectors.