Board diversity and financial performance: evidence from Norway

Abstract

This paper contributes to the growing body of research examining the link between gender diversity in decision-making organs and financial performance. Board diversity has been a hot topic in recent years, and a substantial body of literature point out that diversity in decision-making organs can have positive implications. Diversity induces a greater range of viewpoints and opinions, which is likely to enhance the quality of decision-making. We investigate whether there is a business case behind increasing the gender balance in corporate boards, and document that gender diversity in small boards have a sizeable impact on firm profitability. We take advantage of panel data methodology, which is powerful in controlling for unobserved heterogeneity in the data. The association we reveal is robust to various measures of firm profitability and diversity, and the inclusion of fixed effects. The results suggest that the mixture of men and women is the key to more effective boards.