Gender diversity on corporate boards: does critical mass matter to investors

Abstract

Previous studies have been unable to establish a clear relationship between board gender diversity and firm performance. We argue that this could be due to the failure of these studies to account for both the endogeneity problem and the possible nonlinearity of the relationship between board diversity and firm performance. We overcome these problems by studying the investor reaction at the announcement of a female director's departure. We find a negative market reaction only when this departure drops the gender diversity below a critical level of three women. In all other cases, a director's departure has no significant impact on shareholder wealth. This result is consistent with the assumption of value in diversity and critical mass theory.