The Business Case for Board Gender Diversity: Evidence from Swedish Firms

Abstract: Gender diversity has gained a lot of attention in the corporate governance literature, reaching conflicting results whether board gender diversity has an impact on financial performance. As a consequence, we set out to investigate how board gender diversity affects financial performance through innovation using a mediation technique. We constructed three hypotheses grounded in the resource dependency theory and the agency theory arguing that board gender diversity will have an impact on a board’s capability to execute the two main functions of a board; resource provision and monitoring. Our study was applied in a Swedish context by studying 118 companies listed on OMXS over the years of 2008 to 2014. This implied a balanced micro panel data set, which enabled us to mitigate the risks of omitted variable bias and reversed causality. With the intention to investigate the mediation relationship, we used the Blau and the Shannon indices as our measures of board gender diversity, R&D expenses for innovation, and Tobin’s Q and ROA for financial performance. Our findings indicated that there were no significant relationships between board gender diversity and innovation or financial performance, or innovation and financial performance, that were robust for reversed causality. Therefore, we had to reject all hypotheses and could not sustain a mediation relationship. From a theoretical viewpoint, we concluded that RDT is too simplistic as it neglects how potential upsides of board gender diversity should be utilized while AT lacks sensitivity to account for contextual factors. For practitioners, practical tools are needed in order to benefit from board gender diversity. From a wider perspective, we concluded that the lack of significant results could be due to that gender diversity is irrelevant for a board’s performance or that the board in itself lacks an influence on firm outcomes, making studies on demographic characteristics redundant since there is no relationship to discover. Additionally, while the business case of board gender diversity could not be supported, it may still exist positive effects of board gender diversity from other perspectives. This made us conclude that increased board gender diversity provides non-negative outcomes and thus, is desirable on a societal level.