Skip to main content

Advertisement

SpringerLink
Log in

Gender Diversity in the Boardroom and Firm Performance: What Exactly Constitutes a “Critical Mass?”

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

The under-representation of women on boards is a heavily discussed topic—not only in Germany. Based on critical mass theory and with the help of a hand-collected panel dataset of 151 listed German firms for the years 2000–2005, we explore whether the link between gender diversity and firm performance follows a U-shape. Controlling for reversed causality, we find evidence for gender diversity to at first negatively affect firm performance and—only after a “critical mass” of about 30 % women has been reached—to be associated with higher firm performance than completely male boards. Given our sample firms, the critical mass of 30 % women translates into an absolute number of about three women on the board and hence supports recent studies on a corresponding “magic number” of women in the boardroom.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Fig. 1

Similar content being viewed by others

Notes

  1. The DAX reflects the segment of blue chips admitted to the Prime Standard segment and comprises the 30 largest and most actively traded companies which are listed at the Frankfurt Stock Exchange. The index portfolio of the MDAX comprises 50 mid-cap issues from traditional sectors which, in terms of market capitalization and trading volume, rank below the DAX. These companies are selected from the continuously traded companies in the Prime Standard segment. The SDAX comprises the next 50 issues from the traditional sectors within the Prime Standard segment that are ranked below the MDAX. The TecDAX tracks the 30 largest issues, in terms of market capitalization and trading volume, from the various technology sectors of the Prime Standard segment beneath the DAX.

  2. Owing to the internationalization of the German stock market, more and more German firms switched their financial reporting from the local German accounting standard HGB to the IFRS or U.S. GAAP during our period of observation.

  3. Outliners were defined as having an ROE of either more than 100 or less than −100.

  4. According to the Stock Cooperation Act (Aktiengesetz 2010), German supervisory boards have a minimum size of three and a maximum of 21 seats depending on statutory equity capital. A supervisory board consisting of only two members hints at a temporary vacancy.

References

  • Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94, 291–309.

    Article  Google Scholar 

  • Ahern, K. R., & Dittmar, A. K. (2012). The changing of the boards: The impact on firm valuation of mandated female board representation. The Quarterly Journal of Economics, 127, 137–197.

    Article  Google Scholar 

  • Aktiengesetz. (2010). http://bundesrecht.juris.de/aktg/index.html. Accessed 19 Nov 2012.

  • Alexander, J., Nuchols, B., Bloom, J., & Lee, S.-Y. D. (1995). Organizational demography and turnover: An examination of multiform and non-linear heterogeneity. Human Relations, 48(12), 1455–1480.

    Article  Google Scholar 

  • Apesteguia, J., Azmat, G., & Iriberri, N. (2012). The impact of gender composition on team performance and decision-making: Evidence from the field. Management Science, 58, 78–93.

    Article  Google Scholar 

  • Arnegger, M., Hofmann, C., Pull, K., & Vetter, K. (2010). Unterschiede in der fachlichen und demographischen Zusammensetzung deutscher Aufsichtsräte: Eine empirische Bestandsaufnahme für HDAX- und SDAX Unternehmen. Die Betriebswirtschaft, 70(3), 239–257.

    Google Scholar 

  • Bear, S., Rahman, N., & Post, C. (2010). The impact of board diversity and gender composition on corporate social responsibility and firm reputation. Journal of Business Ethics, 97(2), 207–221.

    Article  Google Scholar 

  • Bermig, A., & Frick, B. (2010). Who is the better monitor? The impact of female board directors. Board composition, and board size on earnings management. XI. In Symposium zur Ökonomischen Analyse der Unternehmung GEABA Conference, Goethe-Universität, Frankfurt, pp. 1–28.

  • Bermig, A., & Frick, B. (2011a). Determinanten der ‘Übergröße’ deutscher Aufsichtsräte’. Journal of Applied Social Science, 131(1), 169–194.

    Google Scholar 

  • Bermig, A., & Frick, B. (2011b). Mitbestimmung und Unternehmensperformance: Der Einfluss von Arbeitnehmervertretern im Aufsichtsrat auf den Unternehmenswert. Die Betriebswirtschaft, 71(3), 281–304.

    Google Scholar 

  • Blau, P. (1977). Inequality and heterogeneity: A primitive theory of social structure. New York: Free Press.

    Google Scholar 

  • Böhren, Ö., & Ström, R. Ö. (2010). Governance and politics: Regulating independence and diversity in the board room. Journal of Business Finance & Accounting, 37(9), 1281–1308.

    Article  Google Scholar 

  • Brammer, S., Millington, A., & Pavelin, S. (2009). Corporate reputation and women on the board. British Journal of Management, 20, 17–29.

    Article  Google Scholar 

  • Burgess, Z., & Tharenou, P. (2002). Women board directors: Characteristics of the few. Journal of Business Ethics, 37, 39–49.

    Article  Google Scholar 

  • Burke, R. J. (1997). Women on corporate boards of directors: A needed resource. Journal of Business Ethics, 16, 909–915.

    Article  Google Scholar 

  • Campbell, K., & Mínguez-Vera, A. (2008). Gender diversity in the boardroom and firm financial performance. Journal of Business Ethics, 83(3), 435–451.

    Article  Google Scholar 

  • Campbell, K., & Mínguez-Vera, A. (2010). Female board appointments and firm valuation: Short and long-term effects. Journal of Management and Governance, 14, 37–59.

    Article  Google Scholar 

  • Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity and firm value. The Financial Review, 38(1), 33–53.

    Article  Google Scholar 

  • Celis, K., Childs, S., Kantola, J., & Krook, M. L. (2008). Rethinking women’s substantive representation. Representation, 44, 99–110.

    Article  Google Scholar 

  • Charness, G., & Gneezy, U. (2012). Strong evidence for gender differences in risk taking. Journal of Economic Behavior & Organization, 83, 50–58.

    Article  Google Scholar 

  • Childs, S., & Krook, M. L. (2006). Should feminists give up on critical mass? A contingent yes. Pol Gender, 2(4), 522–530.

    Article  Google Scholar 

  • Childs, S., & Krook, M. L. (2008). Critical mass theory and women’s political representation. Political Studies, 56, 725–736.

    Article  Google Scholar 

  • Childs, S., & Krook, M. L. (2009). Analysing women’s substantive representation: From critical mass to critical actors. Government and Opposition, 44(2), 125–145.

    Article  Google Scholar 

  • Croson, R., & Gneezy, U. (2009). Gender differences in preferences. Journal of Economic Literature, 47(2), 1–27.

    Article  Google Scholar 

  • Deutsche Börse (Eds.). (2010). DAX International, Supersektoren und breite Branchenindizes. http://www.boerse-frankfurt.de/DE/index.aspx?pageID=44&-NewsID=2348. Accessed 12 Feb 2010.

  • Dittmann, I., Maug, E., & Schneider, C. (2010). Bankers on the boards of german firms: What they do, what they are worth, and why they are (still) there. Review of Finance, 14(1), 35–71.

    Article  Google Scholar 

  • Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board director diversity and firm financial performance. Corporate Governance, 11(2), 102–111.

    Article  Google Scholar 

  • Farrell, K. A., & Hersch, P. L. (2005). Additions to corporate boards: The effect of gender. Journal of Corporate Finance, 11, 85–106.

    Article  Google Scholar 

  • Fauver, L., & Fuerst, M. E. (2006). Does good corporate governance include employee representation? Evidence from German corporate boards. Journal of Financial Economics, 82(3), 673–710.

    Article  Google Scholar 

  • Fenwick, G. D., & Neal, D. J. (2001). Effect of gender composition on group performance. Gender, Work and Organization, 8(2), 205–225.

    Article  Google Scholar 

  • Fich, E. M., & Shivdasani, A. (2006). Are busy boards effective monitors? Journal of Finance, 61(2), 689–724.

    Article  Google Scholar 

  • GCGC. (2010). German Corporate Governance Code in the version of May 26th, 2010. http://www.corporate-governance-code.de/eng/download/kodex_2010/German-Corporate-Governance-Code-2010.pdf. Accessed 19 Nov 2012.

  • Grey, S. (2006). Numbers and beyond: The relevance of critical mass in gender research. Politics & Gender, 2(4), 491–530.

    Article  Google Scholar 

  • Grosvold, J., Brammer, S., & Rayton, B. (2007). Board diversity in the United Kingdom and Norway: An exploratory analysis. Business Ethics: A European Review, 16(4), 344–357.

    Article  Google Scholar 

  • Hambrick, D. C., Cho, T. S., & Chen, M. J. (1996). The influence of top management team heterogeneity on firms’ competitive moves. Administrative Science Quarterly, 41(4), 659–684.

    Article  Google Scholar 

  • Haslam, S. A., Ryan, M. K., Kulich, C., Trojanowski, G., & Atkins, C. (2010). Investing with prejudice: The relationship between women’s presence on company boards and objective and subjective measures of company performance. British Journal of Management, 21, 484–497.

    Google Scholar 

  • He, J., & Huang, Z. (2011). Board informal hierarchy and firm financial performance: Exploring a tacit structure guiding boardroom interactions. Academy of Management Journal, 54(6), 1119–1139.

    Article  Google Scholar 

  • Holst, E., & Schimeta, J. (2011). 29 von 906: Weiterhin kaum Frauen in Top-Gremien großer Unternehmen. Wochenbericht des DIW, 3, 2–10.

    Google Scholar 

  • Jianakoplos, N. A., & Bernasek, A. (1998). Are women more risk averse? Economic Inquiry, 36, 620–630.

    Article  Google Scholar 

  • Kanter, R. (1977a). Men and women of the organization (pp. 206–242). New York: Basic Books.

    Google Scholar 

  • Kanter, R. (1977b). Some effects of proportions on group life: Skewed sex ratios and responses to token women. American Journal of Sociology, 82(5), 965–990.

    Article  Google Scholar 

  • Konrad, A. M., & Kramer, V. (2006). How many women do boards need? Harvard Business Review, 84(12), 22.

    Google Scholar 

  • Konrad, A. M., Kramer, V., & Erkut, S. (2008). Critical mass: The impact of three or more women on corporate boards. Organizational Dynamics, 37(2), 145–164.

    Article  Google Scholar 

  • Lindstaedt, H., Wolff, M., & Fehre, K. (2011). Frauen in Führungspositionen-Auswirkungen auf den Unternehmenserfolg. German Federal Ministry of Family, Senior Citizens, Women and Youth, Aug 2011.

  • Lückerath-Rovers, M. (2011). Women on board and firm performance. Journal of Management & Governance, 1–19. doi:10.1007/s10997-011-9186-1.

  • Magjuka, R. J., & Baldwin, T. T. (1991). Team-based employee involvement programs: Effects of design and administration. Personnel Psychology, 44(4), 793–812.

    Article  Google Scholar 

  • Mahadeo, J. D., Soobaroyen, T., & Hanuman, V. O. (2012). Board composition and financial performance: Uncovering the effects of diversity in an emerging economy. Journal of Business Ethics, 105, 375–388.

    Article  Google Scholar 

  • Miller, T., & del Carmen Triana, M. (2009). Demographic diversity in the boardroom: Mediators of the board diversity-firm performance relationship. Journal of Management Studies, 46(5), 755–786.

    Article  Google Scholar 

  • Niederle, M., & Vesterlund, L. (2007). Do women shy away from competition? Do men compete too much? Quarterly Journal of Economics, 122(3), 1067–1101.

    Article  Google Scholar 

  • Oehmichen, J., Rapp, M. S., & Wolff, M. (2010). Der Einfluss der Aufsichtsratszusammensetzung auf die Präsenz von Frauen in Aufsichtsräten. Schmalenbachs Zeitschrift für betriebswirtschaftliche Forschung (ZFBF), 32, 503–532.

    Google Scholar 

  • Randöy, T., Oxelheim, L., & Thomsen, S. (2006). A Nordic perspective on corporate board diversity. working paper, Nordic Innovation Centre, pp. 1–32.

  • Rhode, D., & Packel, A. K. (2010). Diversity on corporate boards: How much difference does difference make? Rock center for corporate governance working paper series 89 SSRN Journal, pp. 1–24. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1685615. Accessed 19 Nov 2012.

  • Rose, C. (2007). Does female board representation influence firm performance? The Danish evidence. Corporate Governance, 15(2), 404–413.

    Article  Google Scholar 

  • Sarkar, J., & Sarkar, S. (2009). Multiple board appointments and firm performance in emerging economies: Evidence from India. Pacific-Basin Finance Journal, 17(2), 271–293.

    Article  Google Scholar 

  • Shrader, C. B., Blackburn, V. B., & Iles, P. (1997). Women in management and firm financial performance: An exploratory study. Journal of Managerial Issues, 9(3), 355–376.

    Google Scholar 

  • Siciliano, J. I. (1996). The relationship of board member diversity to organizational performance. Journal of Business Ethics, 15, 1313–1320.

    Article  Google Scholar 

  • Smith, N., Smith, V., & Verner, M. (2006). Do women in top management affect firm performance? A panel study of 2500 Danish firms. International Journal of Productivity and Performance Management, 55(7), 569–593.

    Article  Google Scholar 

  • Spangler, E., Gordon, M. A., & Pipkin, R. M. (1978). Token women: An empirical test of kantar’s hypothesis. American Journal of Sociology, 84(1), 160–170.

    Article  Google Scholar 

  • Torchia, M., Calabrò, A., & Huse, M. (2011). Women directors on corporate boards: From tokenism to critical mass. Journal of Business Ethics, 102(2), 299–317.

    Article  Google Scholar 

  • Tsui, A. S. T., Egan, D., & O’Reilly, C. A. (1992). Being different: Relational demography and organizational attachment. Administrative Science Quarterly, 37, 549–579.

    Article  Google Scholar 

  • Webber, S. S., & Donahue, L. M. (2001). Impact of highly and less job-related diversity on work group cohesion and performance: A meta-analysis. Journal of Management, 27(2), 141–163.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Human Resource Management and Organization, School of Business and Economics, Eberhard Karls Universität Tübingen, Nauklerstr. 47, 72074, Tübingen, Germany

    Jasmin Joecks, Kerstin Pull & Karin Vetter

Authors
  1. Jasmin Joecks
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Kerstin Pull
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Karin Vetter
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jasmin Joecks.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Joecks, J., Pull, K. & Vetter, K. Gender Diversity in the Boardroom and Firm Performance: What Exactly Constitutes a “Critical Mass?”. J Bus Ethics 118, 61–72 (2013). https://doi.org/10.1007/s10551-012-1553-6

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-012-1553-6

Keywords

JEL Classification

Search

Navigation