Women directors, firm performance, and firm risk: A causal perspective

Norway was the first of ten countries to legislate gender quotas for boards of publicly traded firms. There is considerable debate and mixed evidence concerning the implications of female board representation. In this paper, we explain the main sources of biases in the existing literature on the effects of women directors on firm performance and review methods to account for these biases. We address the endogeneity problem by using a difference-in-differences approach to study the effects of women directors on firm performance with specific consideration of the common trend assumption, and we explicitly distinguish between accounting-based (i.e., operating income divided by assets, return on assets) and market-based (i.e., market-to-book ratio and Tobin's Q) performance measures in the Norwegian setting. The control group are firms from Finland, Sweden, and Denmark. We further extend the analysis of causal effects of women directors to firm risk. Our results imply a negative effect of mandated female representation on firm performance and on firm risk.