Gender diversity and its impact on firms’ financial performance

Abstract

In this research, we examine if there exists a link between board gender diversity and financial performance, hereunder what is believed to be the very worst of financial performance – bankruptcies. After the gender balance law was introduced in Norway in 2003, researchers found a negative link between gender diversity and ASA-firms’ financial performance. Firms with the organizational form of AS has in the same period experienced a natural increase in female board members but have not been researched against the financial performance until now. We therefore provide valuable additions to the literature on this topic and our findings show that the increased female presence positively affected financial performance of ASfirms (which is the opposite result on ASA-firms). This result is robust to various means of measure and prove that, when not forced by law, gender diversity creates more value for the shareholders. We therefore suggest that the gender balance law on ASA-firms is ready for modification, and that the Norwegian government should be careful trying to implement the quota for AS-companies in the future. Besides, we find that gender diversity is positively linked to the long-term survival of ASfirms. The results show that if the board is all-female or all-male, the predicted probability for bankruptcy is larger than for firms with gender diverse boards. This result indicates that zero gender diversity increases the chance of being a bankrupt firm, and therefore, we in addition prove that gender diversity is a positive factor in long-term survival of firms.