Key Points:
- Firm size plays a significant role in the relationship between board gender diversity and firm performance.
- Smaller firms tend to have a stronger positive relationship between board gender diversity and company performance compared to larger firms.
- Women directors have a greater impact on the performance of smaller firms compared to larger firms.
- Previous studies on board gender diversity and firm performance have yielded conflicting results, suggesting that the benefits may be limited for some firms.
- Organizations of all sizes must better leverage the skills, knowledge, and ideas of their women board members.
- Board gender diversity has the strongest impact on performance in financial services, consumer staples, utilities, and real estate.
- Policies to increase board gender diversity in large firms may sometimes be detrimental to performance, as women may be perceived as less competent or qualified.
- Firm size moderates the relationship between board gender diversity and performance.
- Further research is needed to explore the influence of other factors, such as ethnicity and age, on firm performance and how firm size may moderate that influence.
- The role of firm size in the context of corporate social responsibility and sustainability issues requires further analysis.
Sana Mohsni and Alia Shata of Carleton University won the 2021 Hillsdale Investment Management – CFA Society Toronto Investment Research Award for their paper titled “Board Gender Diversity and Firm Performance: The Role of Firm Size.” Their research focused on 371 Canadian companies listed on the S&P / TSX Composite Index from 2010 to 2019 and examined the relationship between board gender diversity, measured by various indicators, and firm performance, measured by return on assets (ROA) and return on equity (ROE).
Their findings revealed that firm size significantly affects the relationship between board gender diversity and firm performance. Smaller firms showed a stronger positive relationship between gender diversity on the board and company performance compared to larger firms. This suggests that smaller companies may offer a better environment for women directors to realize their potential.
Previous studies on board gender diversity and firm performance have yielded conflicting results. Mohsni and Shata’s research suggests that the benefits of gender diversity may be limited for some firms and that the context of the organization must be taken into consideration to better assess and leverage the benefits. Larger companies must find ways to better utilize the skills, knowledge, and ideas of their women board members by reassessing their organizational structures and communication methods to facilitate better discussions and decision-making.
The research also found that the impact of board gender diversity on performance varies across different industries. It has the strongest positive impact in financial services, consumer staples, utilities, and real estate, while it has a negative correlation in the industrials sector. Firm size moderates the relationship between gender diversity and performance, with larger organizations experiencing a stronger negative effect in the industrials sector.
The authors caution that policies aiming to increase board gender diversity in large firms may sometimes have a detrimental effect on performance. Women who are included on boards due to policy enforcement or quotas may be perceived as less competent or qualified, undermining the effectiveness of these initiatives.
Further research is needed to explore the influence of other factors, such as ethnicity and age, on firm performance and how firm size may moderate that influence. Additionally, the role of firm size in the context of corporate social responsibility and sustainability issues requires further analysis.
Overall, the research highlights the importance of considering firm size and context when assessing the relationship between board gender diversity and firm performance. It suggests that smaller firms may offer a more conducive environment for women directors to contribute to company success, but larger firms must find ways to effectively leverage the skills and ideas of their women board members.
