The critical mass of female directors on the board of US firms

Abstract

Following Kanter's critical mass theory, this paper argues that the relationship between gender-diverse boards and firm performance is curvilinear and that free cash flows and firm complexity moderate the relationship. Fixed effect regression and two-stage system GMM estimator are used to model the relationships and effectively control for unobservable firm and governance factors, using a sample of S&P 1500 firms, spanning from 1998 to 2018. We also use the Heckman selection model to test for the possibility of a self-selection bias. We find evidence that women directors self-select firms in which they are appointed as directors based on profitability, the firm's stock performance, and the firm's growth potential. We also find that complex firms with more than 30 per cent female representation on the board are more likely to reduce firm risk than firms with a lesser proportion of women. Theoretical and practical implications, as well as areas for further research, are discussed.