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

Abstract

Using a novel combination of empirical tools and analyses, we demonstrate that if a female director is unlikely to have any personal power or influence on the board, her addition to the board will have no significant impact on firm risk-taking and performance. However, with increasing power/influence on the board (via greater numerical strength or non-token aggregate position), female directors will tend to reduce the excessive risk-taking behavior of the firm and, to the extent that the gender-diversification process is non-disruptive, this effect can feature significant increases in profitability and firm value. We also show that the increases in profitability and firm value are driven not by the market timing of equity issues but by the sale of less productive physical assets, more retained earnings, paid-down debt, and less cash flow volatility. Overall, our results show that board gender diversity affects corporate risk-taking culture and firm performance in a value-maximizing manner, mainly when gender diversification is non-tokenistic and non-disruptive.