Female top managers, female owners and corporate financial sustainability: new evidence from a panel smooth transition regression model

Abstract

This study investigates the nonlinear link between gender diversity at various levels and business financial sustainability for a large sample of 54759 enterprises in 80 developing countries from 2015 to 2022. Previous studies have shown that female participation may bring both advantages and costs to businesses. The empirical evidence on whether it improves or degrades company results is inconclusive. This research attempts to improve our knowledge of the complicated link between gender diversity and company financial sustainability. It explains how female managers’ and female owners’ effects on business sustainability is dependent on their different levels of engagement in the firm. Results of the Panel Smooth Transition Regression model (PSTR) demonstrate a nonlinear relationship between gender diversity and firm sustainability. Depending on the measure of female participation, the model contains one threshold at 39% of female senior managers and 34% of female owners, as well as two extreme regimes. The results reveal that below these thresholds the relationship is negative. Misunderstandings and a lack of coherence between groups of different genders may affect decision-making and the capacity to come up with the best responses. However, increasing gender diversity has a favourable influence on firm sustainability above the projected thresholds. This research supports the theory that a critical mass condition is required before a minority group begins to alter organisational functioning. Our findings demonstrate that diversity has an influence on collective decision making and, hence, sustainability only when a critical mass is reached. These findings offer numerous managerial insights and policy recommendations for developing-country enterprises looking to improve their financial sustainability.