Board Gender Diversity in the STEM&F Sectors: The Critical Mass Required to Drive Firm Performance

Abstract

This study investigates the link between board gender diversity (BGD) and firm performance (FP). The analysis is conducted using Fortune 500 firms in the Science, Technology, Engineering, Mathematics, and Finance (STEM&F) sectors covering a period of seven years, from 2007 to 2013. The theoretical framework combines several theories that give shape to the critical mass effect of BGD on FP. This shape shows that below the critical mass threshold, BGD may represent a disadvantage to the board as it may facilitate the formation of subgroups, dysfunctional conflicts, and distrust. However, at or above the critical mass threshold, BGD facilitates better monitoring of management, greater resource provisions, and divergent thinking. To ensure sound results, this study addresses endogeneity concerns regarding omitted variable bias, reverse causality, and dynamic endogeneity. These results support a significant U-shaped relationship between the number of female directors and FP in the STEM&F sectors. That is, BGD yields higher FP when there is a critical mass of women on the board. This finding remains robust when alternative proxies for BGD and FP are employed and is consistent with the predictions of our theoretical framework. Our analysis also reveals that the positive effect of BGD on FP increases when there is at least a critical mass of 30% of women on a corporate board. This finding suggests that boards that have reached a critical mass of 30% of women present a favorable environment to capitalize on innovative ideas arising from BGD.