Threshold effects of board gender diversity on firm performance: panel smooth transition regression model

Abstract

Purpose This study aims to investigate whether threshold effects exist in the relationship between board gender diversity and firm performance. Design/methodology/approach This study applies the panel smooth threshold regression model (PSTR) to a sample of 284 non-financial French firms listed on Euronext Paris over the period 2009–2017. Firm performance proxies are Tobin’s Q and return on assets (ROA). The board gender diversity is measured by the percentage of women participation in board. Findings Threshold effects in the relationships between board gender diversity and firm performance measures are found. For Tobin’s Q, the model has one threshold at the 34.17% of women directors’ appointment on boards. Similarly, for ROA, the model has one threshold at the 38.28% of women presence in the board. The results show that above the estimated threshold, women directorship has a positive impact on firm performance. However, below the threshold, there is a neutral relationship. The findings support the critical mass view that a minimum of one third women representation in board is compulsory to achieve the desired effect of gender diversity. Practical implications This study’s finding provides useful insights to managers, investors and policymakers. Managers and investors can identify the adequate board gender diversity levels that enhance firm performance. Policymakers are divided on whether mandatory or voluntary board gender quota should be adopted. This study suggests that a quota of one third can be used in policy implementation. Originality/value Unlike prior studies that consider the relationship between firm performance and board gender diversity as linear, to the best of the authors’ knowledge, this study is the first to investigate the threshold effects in this relationship using a new econometric approach.

Women on boards, firm earnings management (EM) and performance nexus: does gender diversity moderate the EM–performance relationship?

“…We found out that the results were still robust, with board gender diversity showing a significant negative relationship with firm performance. Our findings appear to support the critical mass theory where a sufficient number or proportion of women on corporate boards are required to favourably affect corporate outcomes (Torchia et al, 2011;Gharbi and Othmani, 2022). Moreover, this finding largely corroborates those of prior studies that report women on corporate boards to have a negative impact on accounting performance in 3) through the use of SGMM approach (Column 2).…”

“…Those that report of negative or insignificant relationship between gender diversity and firm performance mostly adduce it to the "reduced powers of female directors on corporate boards", for example, by not making them serve on any advisory or monitoring committees (Zalata et al, 2019b), which often culminates in a weaker monitoring and advisory role (Alshirah et al, 2022;Post and Byron, 2014;Vuong, 2021;Simeonescu, 2021). Besides, studies thta report of nonlinear or threshold effects (Gharbi and Othmani, 2022) often support the critical mass theory, which posits that a sufficient number of women on boards are required so that they can have real influence on board decisions and consequently affect corporate outcomes favourably (Torchia et al, 2011;Gharbi and Othmani, 2022). It stands to reason that, without a sufficient number or proportion of women on corporate boards, their influence on corporate outcomes may be negligible or even adverse.…”

“…This implies that under the critical mass theory perspective, women on corporate boards can have a positive impact on firm performance only if there is a sufficient number of women on boards such that they can have real influence on board decisions (Torchia et al , 2011). Studies supporting the critical mass theory (Torchia et al , 2011) find that the relationship between women on boards and accounting performance has changed from negative to positive in firms that have increased their women on boards proportion from below to equal or more than 30% (Arena et al , 2015; Elmagrhi et al , 2018; Joecks et al , 2013; Wiley and Monllor-Tormos, 2018; Gharbi and Othmani, 2022). It is worth noting, however, that the critical mass of women on corporate boards for a positive impact on corporate outcomes is still an ongoing theoretical and empirical debate because existing studies from different contexts have shown different results, such as critical mass being 20% rather than 30% (Gröschl and Arcot, 2014).…”

What determines the presence of women on corporate boards? Empirical evidence from emerging markets

“…In recent years, board gender diversity has become a topic of interest in corporate governance (Kanadlı et al , 2022; Gharbi and Othmani, 2022; Torchia et al , 2011). The literature has generally found a positive and statistically significant relationship between female representation on boards of directors and firm outcomes (Isidro and Sobral, 2015; Low et al , 2015).…”

“…These studies point out that board gender diversity positively impacts firm performance, including accounting and market performance (Issa et al , 2021; Mastella et al , 2021), firm efficiency (Ali et al , 2021; Ullah et al , 2020), financial reporting quality (Dobija et al , 2021), financial distress (Guizani and Abdalkrim, 2022) and risk level (Khan and Vieito, 2013; Perryman et al , 2016). Interestingly, a recent study by Gharbi and Othmani (2022) concluded that there is a threshold effect in this relationship, suggesting that a minimum of one-third female presence on boards is required to achieve the desired effect of board gender diversity. It has also been put forward that board gender diversity contributes to nonfinancial performance by fostering shareholders’ trust in the firm (Perrault, 2015), increasing corporate innovation in the form of R&D expenditure (Miller and Del Carmen Triana, 2009) and leading to better reputation (Brammer et al , 2009).…”