Gender Diversity in the Boardroom

Abstract

Although some argue that tokenism drives the selection of female directors, we show that they have a significant impact on board effectiveness. Amongst others, we find in a large panel of data on publicly-traded firms from 1996-2003 that (1) the likelihood a female director is named in a proxy as having attendance problems is 0.29 lower than for a male director, (2) male directors have fewer attendance problems the greater the fraction of female directors on the board, and (3) firms with more diverse boards provide their directors with more pay-performance incentives. We instrument for gender diversity using the fraction of male directors connected to female directors through other board seats. In IV regressions, we find that the average effect of gender diversity on Tobin’s Q and ROA is negative. However, this negative effect is driven by companies with good corporate governance. In weak corporate governance firms, gender diversity has positive effects. Our results suggest that diverse boards are tougher monitors. Nevertheless, mandating gender quotas in the boardroom may not increase board effectiveness on average, but may reduce it for well-governed firms where additional monitoring is counterproductive.