Private firm performance: do women directors matter?

Abstract

This paper aims to examine the relationship between board gender diversity and private firm performance. The authors test the association between board gender diversity and private firm performance by estimating pooled multivariate regressions using an unbalanced panel data set of 115,253 firm-year observations. The authors find that younger, less busy and local women directors enhance private firm performance. Firms with 40% or more women directors report triple the economic benefits compared to boards with at least 20% women directors. Considering firm size, women directors significantly increase small firm profitability, and the effect is more pronounced for high-risk firms. Greater board gender diversity enhances small firm performance as the monitoring role of women directors benefits the firm even in the presence of busy men directors. Consistent with the agency theory framework, the authors find that women directors improve small firm profitability in the presence of agency costs. Due to the lack of availability of data about private firms, many factors are not directly observable. The analysis uses accounting-based performance measures that may be subject to managerial discretion. Nevertheless, the authors report highly significant results using cash-based performance measures that substantiate the overall findings. The results of the present study point to the need for private firms to increase board gender diversity and consider women director busyness, age, nationality and firm size when making board director appointments. This study adds to the scarce existent literature investigating private firms. The results contribute to the understanding of gender-diverse boards as well as the attributes of women directors that enhance private firm performance.