does female representation in top management improve firm performance? a panel data investigation

Strategic Management JournalStrat. Mgmt. J., 33: 10721089 (2012)

Published online EarlyView in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.1955Received 17 August 2010; Final revision received 11 January 2012

DOES FEMALE REPRESENTATION IN TOPMANAGEMENT IMPROVE FIRM PERFORMANCE?A PANEL DATA INVESTIGATIONCRISTIAN L. DEZS 1* and DAVID GADDIS ROSS21 University ofMaryland, Robert H. Smith School of Business, College Park, Maryland,U.S.A.2 Columbia Business School, Columbia University, New York, New York, U.S.A.

We argue that female representation in top management brings informational and social diversitybenefits to the top management team, enriches the behaviors exhibited by managers throughoutthe firm, and motivates women in middle management. The result should be improved managerialtask performance and thus better firm performance. We test our theory using 15 years of paneldata on the top management teams of the S&P 1,500 firms. We find that female representationin top management improves firm performance but only to the extent that a firms strategy isfocused on innovation, in which context the informational and social benefits of gender diversityand the behaviors associated with women in management are likely to be especially importantfor managerial task performance. Copyright 2012 John Wiley & Sons, Ltd.

INTRODUCTION

For the past few decades, women have made con-siderable inroads into domains traditionally domi-nated by men. However, even though women nowaccount for over a third of U.S. managers overall(Bureau of Labor Statistics, 2007), women remainsignificantly underrepresented at the top of the cor-porate hierarchy, both in the boardroom (Hillman,Shropshire, and Cannella, 2007) and in top man-agement (Daily, Certo, and Dalton, 1999; Helfat,Harris, and Wolfson, 2006). For instance, in 2006,among the corporations included in the Standard& Poors (S&P) 1,500 index, which is designedto reflect the overall U.S. equity market,1 only

Keywords: gender; diversity; top management teams; firmperformance; innovation Correspondence to: Cristian L. Dezs , University of Mary-land, Robert H. Smith School of Business, 3347 Van MunchingHall, College Park, MD 20742, U.S.A.E-mail: [email protected] The S&P 1,500 combines the S&P 500 (large capitalizationstocks), the S&P MidCap 400, and the S&P SmallCap 600

30 percent had even a single woman among theirtop managers, and this figure has stagnated inrecent years. See Figure 1.

Beyond the social and ethical implications, thedearth of women at the top of the corporate hier-archy suggests that female representation in topmanagement may have important implications fora firms competitiveness, not merely as a reflectionof a more gender-neutral and, thus, more mer-itocratic recruitment and promotion process, butmore specifically because of the potential benefitsof gender diversity itself. With this in mind, thispaper asks the following questions: does femalerepresentation in top management have a positiveeffect on firm performance? If so, is the effect gen-eral or confined to particular contexts?

In addressing these questions, the paper makestwo distinct but related contributions. Our first

to cover approximately 90 percent of U.S. market capitaliza-tion. It is designed for investors seeking to replicate the per-formance of the U.S. equity market or benchmark against arepresentative universe of tradable stocks (Standard & Poors,2010).

Copyright 2012 John Wiley & Sons, Ltd.

Female Representation in Top Management and Firm Performance 1073

0%

10%

20%

30%

40%

1992 1994 1996 1998 2000 2002 2004 2006Year

S&P 1,500 Firms

Firms with One or More Women on Top Management TeamFirms with Two or More Women on Top Management TeamFirms with a Woman Chief Executive Officer

Figure 1. Female representation in top management across time

contribution is to draw on a range of managementliteratures to craft a theoretical model to explainhow female representation in top managementbrings informational and social diversity benefitsto the top management team, enriches the behav-iors exhibited by managers throughout the firm,and motivates women in middle management. Inconsequence, we argue that female representationin top management improves managerial task per-formance throughout the firm and should, accord-ingly, lead to better firm performance, even for afirm that has hypothetically eliminated barriers tomanagerial advancement by women.

Given the importance of identifying moder-ating contextual factors for both research andpractice vis-a`-vis organization theory (Lawrenceand Lorsch, 1967), upper echelons (Carpenter,Geletkanycz, and Sanders, 2004), and gender inorganizations (Butterfield and Grinnell, 1999), animportant aspect of our model is to theorize abouthow strategically relevant organizational contextsmoderate the impact of female representation intop management. In that connection, our theo-retical model predicts that the positive impactof female representation in top management onfirm performance is increasing in a firms innova-tion intensity, in which context the improvementsin group decision making associated with genderdiversity and the managerial attributes of womenmanagers themselves are likely to be especiallyimportant. We find, in fact, that innovation inten-sity does not merely positively moderate the effect

of female representation in top management onfirm performance but also that female representa-tion in top management benefits firm performanceonly to the extent that a firms strategy is focusedon innovation.

Our second contribution has both theoretical andempirical dimensions. Terjesen, Sealy, and Singh(2009) point out in a recent comprehensive sur-vey that existing empirical work on the relation-ship between female representation at the top ofthe corporate hierarchy and firm performance (thevast majority of which studies corporate boards)has produced decidedly mixed results and, moreimportantly, does not address the related issues ofcausality and endogeneity. Contrast, for instance,Lee and Jamess (2007) well-known finding thathiring a woman chief executive officer (CEO) isassociated with a negative stock price reaction,with Carter, Simpkins, and Simpsons (2003) resultthat gender diversity on boards is associated withbetter firm performance.

Likewise, a small number of pioneering studiesdraw on the resourced-based view (Shrader, Black-burn, and Iles, 1997), cultural diversity (Richardet al., 2004), and social identity and power shar-ing (Krishnan and Park, 2005) literatures to the-orize about and empirically study the relationshipbetween female representation at various levels ofmanagement and firm performance; yet, each ofthese studies finds no or inconsistent evidence forsuch a relationship. In addition, constrained bydata limitations, these studies do not control for

Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 10721089 (2012)DOI: 10.1002/smj

1074 C. L. Dezso and D. G. Ross

many observable factors that might influence firmperformance (e.g., leverage or firm age), and, moreimportantly, fail to account for (a) the unobserv-able heterogeneity associated with particular firmsor time periods that might simultaneously affectthe level of female representation in top man-agement and firm performance and (b) the relatedpossibility of reverse causality.

In fact, as discussed further below, there existsa range of reasons for expecting that a priori bet-ter firms are more likely to promote women totheir top management teams. As with other aspectsof the management of human assets, then, a fullpicture of the causal linkages between female rep-resentation in top management and firm perfor-mance can best be assessed by evaluating firmslongitudinal financial performance (Chadwick andDabu, 2009: 269). We are able to evaluate thesecausal linkages, because the richness of the paneldata we compiled from a variety of public andprivate sources on the S&P 1,500 U.S. corpora-tions over a 15-year period allows us to controlfor a wide array of firm and time specific observ-able and unobservable factors that may affect firmperformance, as well as address the possibilityof reverse causality. We are consequently able to

provide a significantly more robust analysis of thepotential benefits of female representation in topmanagement and the contingencies that moderatethese potential benefits than prior work in thisarea.

THEORETICAL FRAMEWORK

Figure 2 outlines our theoretical model for howfemale representation in top management mayimprove the performance of a firm, even a firmthat has a hypothetically gender-neutral recruit-ment and promotion process. We elaborate on ourtheoretical model below.

Top management team task performance

A firms behavior and performance are to a largeextent a function of its top management team,which makes most of the firms important strate-gic and organizational decisions (Hambrick andMason, 1984; Carpenter et al., 2004). Anythingthat improves the task performance of the topmanagement team should, accordingly, improvefirm performance.

Femalerepresentation intop management

Innovation intensity

Gender-relatednorms for

managerial behavior

Motivation offemale middle

managers

Middle managementtask performance

Top managementtask performance

Firm performance

H1+

H1+

H2+

H2+

Gender differencesin managerial

behavior

Informational andsocial diversity

Figure 2. Theoretical model


Female Representation in Top Management and Firm Performance 1075As shown in Figure 1, top management teams

are overwhelmingly composed of men. Accord-ingly, when a woman joins a firms top manage-ment team, the team becomes more diverse, bothin terms of social categorization and information(Van Knippenberg, De Dreu, and Homan, 2004).There are a number of distinct but related reasonswhy this diversity should improve the informa-tion processing and decision making of the team.Clearly, women add to the diversity of life experi-ences among a top management teams members.Women may, thus, have additional insight intoimportant strategic questions, especially those thatrelate to female consumers, employees, and tradingpartners (Daily et al., 1999). In general, more het-erogeneous groups have different points of viewand knowledge, consider a more comprehensiveset of solutions, and debate one anothers view-points more vigorously, leading to higher qualitydecisions (Hoffman and Maier, 1961; Wiersemaand Bantel, 1992), especially where, as with topmanagement team decision making, the group taskhas a high information processing component (VanKnippenberg et al., 2004).

Moreover, gender is salient and readily acces-sible for social categorization (Tsui, Egan, andOReilly, 1991; Westphal and Milton, 2000). Suchsurface-level diversity can trigger expectations thatinformational differences may be present and legit-imize the expression of divergent perspectivesamong the male majority even if the surface-leveldiversity is not, in fact, associated with greaterinformation diversity (Phillips, Liljenquist, andNeale, 2009; Phillips and Loyd, 2006). It followsthat even the presence of a woman with congruentinformation may stimulate a broader and richer dis-cussion of alternatives and, thus, improve decisionmaking within the top management team.

While diversity may become excessive andcause problems with communication (Wiersemaand Bantel, 1992), this concern is unlikely tobe empirically relevant for most top managementteams, because the number of teams with morethan a small minority of women is vanishinglysmall. Diversity may also negatively impact socialcohesion and, thus, employee satisfaction (Tsuiet al., 1991). However, affective discomfort doesnot necessarily imply inferior performance; indeed,research suggests that the affective discomfortassociated with diversity is intimately related to thesuperior decision making to which diversity cangive rise (e.g., Phillips et al., 2009). Intuitively,

some level of conflict, dissent, and cognitive costmay often accompany the full elaboration of alter-native perspectives that leads to better decisionmaking in diverse groups (Van Knippenberg et al.,2004). Researchers have argued that because ofthe nonroutine nature of the problems faced bycorporate boards, the benefits of gender diversityoutweigh the costs (Hillman et al., 2007). Thesearguments should, if anything, be more applicableto top management teams whose remit is, by def-inition, more specifically tied to managerial prob-lem solving than corporate boards, which primarilyact as monitors and sources of information (Hill-man and Dalziel, 2003).

Finally, a large body of field and laboratorywork suggests that there may be gender-baseddifferences in managerial behavioral tendencies.Based on surveys and interviews with female lead-ers, Rosener (1995) finds that women exhibit aninteractive leadership style that emphasizes inclu-sion. Specifically, women are said to encourageparticipation by soliciting input from others, sharepower and information by keeping open communi-cation channels with their subordinates, and bolstertheir subordinates sense of self-worth. Using sim-ilar methods, other authors find women to be lesshierarchical and more cooperative and collabora-tive than men (Book, 2000; Helgesen, 1990). Like-wise, meta-analytic investigations reveal that inorganizational settings, women tend to manage in amore democratic and participatory way (Eagly andJohnson, 1990). These behaviors, which we collec-tively call the feminine management style, areconveyed colloquially by Michael Landel, CEOof Sodexo: Women like power, but they liketo share it. They like to be more collaborative(Womenomics, 2009). Such managerial behaviorspromote the sharing of task-relevant information(Daily and Dalton, 2003), a key process underlyingthe positive effects of diversity (Van Knippenberget al., 2004).

We accordingly expect gender diversity, espe-cially in the form of adding a woman to an oth-erwise all-male top management team, to improvethe teams task performance. Better task perfor-mance by the top management team, in turn, leadsdirectly to better firm performance.

Middle management task performanceWe also expect female representation in top man-agement to have positive reverberations throughout



a firms management hierarchy for a number ofreasons. Career progression through a firms man-agerial ranks may be likened to a succession ofcompetitions, each of which has implications fora managers subsequent upward mobility (Rosen-baum, 1979). Appropriate mentoring relationshipsand other social contacts are important in this pro-cess. Social relationships are heavily influencedand constrained by similarity on social attributes,which notably include gender. The paucity ofwomen in the upper echelons of managementthus creates a significant barrier to managerialadvancement by women (Ibarra, 1993; Noe, 1988),reducing their opportunity to acquire the experi-ence that is important for their own advancement,for example, by working in management traineeprograms (Sheridan et al., 1990) or in corporateoffice positions, which may be especially valu-able for women (Hurley and Sonnenfeld, 1998).Conversely, where women do occupy senior man-agerial positions, they have been found to focusmore than men on the development and mentoringof their subordinates, encouraging them to reachtheir full potential and rewarding them for goodperformance (Eagly, Johannesen-Schmidt, and vanEngen, 2003).

Thus, a woman has good reason to believe thatthe presence of women in top management posi-tions is a critical factor for her likely success at thefirm and adjust her commitment and motivationaccordingly. Indeed, researchers have argued thatthe presence of a woman on the corporate boardindicates that, whatever barriers to advancementby women may exist in society, the culture of thefirm is friendly to women and committed to theadvancement of women at all levels (Bilimoria,2000, 2006; Daily and Dalton, 2003), enhancingthe motivation and organizational commitment ofwomen in lower-level managerial positions. Giventhat the members of the top management teamare more likely than board members to have beenrecruited from within the firm, we would expectthe positive impact of female representation intop management on the motivation of lower-levelwomen managers to be stronger than the effect offemale board representation. It follows that femalerepresentation in top management should engendergreater motivation and organizational commitmentin lower-level women managers, leading them toimprove their individual performance and contri-butions to the managerial groups to which theybelong.

In addition, women managers may face a prob-lem of incongruity between expectations about theactual and ideal behavior of women and men onthe one hand, and the attributes typically associatedwith successful leaders on the other (Ely and Mey-erson, 2000). Specifically, based on the descrip-tive aspect of the female gender role, womenare deemed to possess inferior leadership abilities;when women fail to perform well on masculineaspects of competence, their failures are inter-preted as confirming these stereotypes. Meanwhile,based on the injunctive aspect of the female genderrole, women are evaluated less favorably or evendenigrated when their behavior fulfills the prescrip-tions of the leadership role, because this violatesthe female gender role.

However, empirical evidence suggests thatwomen experience this role conflict less and havea more positive view of their own gender in firmswith greater gender integration at senior levels ofthe management hierarchy (Ely, 1994, 1995). Inaddition, women (and possibly men) in gender-integrated firms are more apt to enact masculineor feminine behaviors according to the demands ofthe task, rather than in conformity with historicalgender norms (Ely, 1995).2 It follows that women(and possibly men) in lower-level managerial posi-tions may regard the presence of a woman on thefirms top management team as a signal that themanagerial behaviors associated with the femininemanagement style described above are valued bythe organization, effectively legitimizing the adop-tion of these behaviors by women (and possiblymen) when doing so would improve individual andgroup task performance.

We accordingly expect that female representa-tion in top management will not only improvethe task performance of the top management teamitself but also increase the motivation and commit-ment of women at lower managerial levels as wellas encourage the adoption of behaviors associatedwith the feminine management style, as and whenappropriate. Each of these effects should, in turn,improve individual and group task performance

2 One lawyer interviewed by Ely (1995: 613) put the matter thus:Women bring something to an all male institution when youintegrate it. . . . I think that men, when they run in packs, tendto act like small boys. I think theres a lot of the pecking-order-establishing and one-ups-manship and bravado. And I thinkwomen reduce the need for that somewhat. It still exists, butI think one thing women do is that they allow the existing menwho are above that to feel comfortable excusing themselves fromit because the women do, by and large.


Female Representation in Top Management and Firm Performance 1077throughout the firm and thereby improve firm per-formance itself. We accordingly propose:

Hypothesis 1: Female representation in topmanagement has a positive effect on firmperformance.

Strategic context and the benefits of genderdiversity

We expect the benefits of diversity to be con-text specific (Klein and Harrison, 2007). Genderdiversity, by leading to more thorough informationprocessing and consideration of divergent views,should be particularly valuable for tasks requiringcreative solutions (Van Knippenberg et al., 2004),such as the process of innovation, which relieson the insightful and unique recombination andreapplication of existing resources (Penrose, 1959;Schumpeter, 1934). Diversity has in general beenassociated with high levels of creativity and inno-vation (Wiersema and Bantel, 1992), and Hoffmanand Maier (1961) find that gender diversity in par-ticular facilitates creativity. It follows that femalerepresentation in top management should be espe-cially beneficial for firms for which innovation isimportant to strategy and thus is more relevantto the activities of managers throughout the firm(Ginsberg, 1994).

Differences in managerial behavior may alsoprovide context specific benefits. In general,innovation leaves managers more latitude to makedecisions, thereby amplifying the importance ofmanagerial effectiveness for firm performance(Castanias and Helfat, 2001). Motivation is alsoa key contributor to creativity (Oldham and Cum-mings, 1996). The positive implications of femalerepresentation in top management for the moti-vation and organizational commitment of womenmanagers at lower levels in the hierarchy shouldaccordingly be particularly beneficial where thesewomen managers are more heavily engaged ininnovation-related tasks.

Supervisory behavior is another important influ-ence on employee motivation. For example, infor-mational verbal rewards have been found toincrease intrinsic motivation while controllingverbal rewards do not (Pittman et al., 1980; Ryan,Mims, and Koestner, 1983). Supportive manage-rial behaviors have been found to bolster feel-ings of self-determination and personal initiativeand thereby increase intrinsic motivation, whereas

controlling supervisory behaviors undermine in-trinsic motivation (Oldham and Cummings, 1996).Research also finds that intrinsic motivation is bol-stered by autonomy support, which leads to betterconceptual learning, itself a contributor to creativ-ity (Deci and Ryan, 1987). Lastly, empowering andparticipatory leadership styles have been linked tointrinsic motivation and creativity (Zhang and Bar-tol, 2010), as well as to more sharing of informa-tion in group discussions (Larson, Foster-Fishman,and Franz, 1998), which should lead to the gen-eration of more ideas. It follows that innovationsuccess is a product of bargaining and negotiationto accumulate information and coalition build-ing, not domination of others (Kanter, 1983:157, 1988).3

Intriguingly, these more cooperative, nurturing,and collaborative managerial behaviors overlapconsiderably with the feminine management styleas described above. To the extent that femalerepresentation in top management promotes suchmanagerial behaviors, either as directly manifestedby the women on the top management team oras a response by women (and possibly men) atlower levels of the firms hierarchy to a less male-dominated work environment, we would expectfemale representation in top management to be par-ticularly beneficial for firms for which innovationis important to strategy. These various argumentsall imply the following hypothesis:

Hypothesis 2: The effect of female representa-tion in top management on firm performance ispositively moderated by innovation intensity.

METHODS

Data and variable definitions

Our source for the size and gender compositionof top management teams is S&Ps ExecuCompdatabase, which contains information on seniormanagers from proxy statements and other public

3 Experimental evidence supports this general proposition. In anR&D context, for instance, both Andrews and Farris (1967)and Amabile (1988) find that freedom for employees is posi-tively associated with innovation. Oldham and Cummings (1996)obtain similar results among technical teams in manufacturingfacilities. Scott and Bruce (1994: 584) show that the degreeto which interactions between a supervisor and subordinate arecharacterized by trust, mutual liking, and respect is positivelyrelated to the subordinates innovative behavior.



filings of the S&P 1,500 firms, a widely used indexof public companies designed to reflect the broadU.S. equity market (Standard & Poors, 2010);our sample covers the years 1992, the first yearof the ExecuComp data, through 2006. Althoughthe rules have changed modestly since 1992, ingeneral, U.S. public companies have been andcontinue to be required to report information on theCEO and four other most highly paid managers.We accordingly have information on at least fivemanagers for the substantial majority of firm yearsin the data, and some firms report informationfor a small number of additional managers. Wetake the managers reported in ExecuComp to bea firms top management team. At 5.9, the meansize of a top management team in our data is inline with studies in the upper echelons literature,which typically report the inner circle of topmanagement teams to number between three andseven people (Carpenter and Sanders, 2002). Ourdefinition of the top management team is broaderthan that of the dominant coalition of the earlyupper echelons literature, which typically includedonly managers who also serve on the board ofdirectors (Carpenter et al., 2004).

We use S&Ps CompuStat database as a sourceof financial information about the firms in oursample. CompuStat collects financial informationfrom firms public filings. We use the Center forResearch in Securities Prices (CRSP) as a sourceof firms initial public trading date. CRSP pro-vides stock trading information for firms whoseshares trade on the NYSE, AMEX, and NASDAQexchanges.

Female representationWhile, in principle, women could account for anypercentage of the top management team of a givenfirm, (a) the fraction of firms with even a singlewoman on the top management team never reachesa third in any year and is usually substantiallylower, and (b) the number of firms with morethan one woman on the top management teamnever exceeds 8.5 percent. (See Figure 1.) Weaccordingly operationalize female representation intop management using a dummy variable, femalerepresentation, which takes the value 1 (0) if any(none) of the managers reported in ExecuComp fora given firm in a given year is female. (We con-sider alternative measures of female representationin top management below.)

Firm performanceWhile we consider accounting measures of per-formance in an extension to our base case anal-ysis, our primary measure of firm performance isTobins q, which is defined as the ratio of the mar-ket value of a firms assets to their replacementvalue (Tobin, 1969). The idea is that better firmscreate more economic value from a given quan-tity of assets. Importantly, Tobins q is a forward-looking measure that captures the value of a firmas a whole rather than as the sum of its parts andimplicitly includes the expected value of a firmsfuture cash flows, which are capitalized in the mar-ket value of a firms assets (i.e., the combinedmarket value of a firms debt and equity).4 Bycontrast, accounting rates of return are backward-looking and, because of biases in their calculation,may diverge significantly from true economic ratesof return (Benston, 1985). Moreover, accountingnumbers may be distorted by differences in risk,tax laws, and latitude in interpreting accountingregulations (Wernerfelt and Montgomery, 1988),as well as by earnings management (Healy andWahlen, 1999). Tobins q implicitly uses the cor-rect risk-adjusted discount rate, imputes equilib-rium returns, and minimizes the distortion from taxlaws and accounting conventions (Wernerfelt andMontgomery, 1988). We also note that investors,who ultimately determine the market value of afirm in the calculation of Tobins q, are increas-ingly focused on diversity as a driver of value;in fact, the Securities and Exchange Commissionpromulgated new rules requiring public firms toreport board diversity from early 2010, largely inresponse to overwhelming demand from individualand institutional investors (Aguilar, 2009).5

We follow Bertrand and Schoar (2003) in calcu-lating Tobins q: market value is the book value ofa firms assets plus the market value of the firmscommon equity minus the book value of commonequity and deferred taxes; replacement value isthe book value of the firms assets. We use a log

4 For these reasons, Tobins q has long been favored as a measureof overall firm performance in management, economics, andfinance (e.g., Lang and Stulz, 1994; Berger and Ofek, 1995;King and Lennox, 2001; Durnev, Morck, and Yeung, 2004.)5 Large investment funds that have campaigned publicly forgreater gender diversity at the top of the corporate hierarchyinclude CalPERS, CalSTRS, and Pax World Funds, which spon-sors the Global Womens Equality Fund, a mutual fund thatfocuses on investing in companies that promote gender equalityand womens empowerment.


Female Representation in Top Management and Firm Performance 1079transformation of Tobins q in our analysis toreduce skewness.

Innovation intensity and other controlsWe measure innovation intensity as the ratio ofresearch and development (R&D) expense to assetsfrom the prior year and use it as a control inour analysis. We also use the interaction betweenfemale representation and innovation intensity totest Hypothesis 2. We use a broad set of additionalcontrol variables, many of which are commonlyfound in research on top management teams:(i) size, as measured by book assets from the prioryear; (ii) firm age (in years), with firm birth deter-mined by the earlier of the firms first year inCompuStat or CRSP; (iii) leverage, or the ratioof debt to assets; (iv) CapEx intensity, the ratioof capital expenditures to assets from the prioryear; (v) marketing intensity, the ratio of advertis-ing expense to assets from the prior year; (vi) ageof capital stock, which we measure indirectly as theratio of depreciation expense to net property, plant,and equipment, since the book value of assets witha longer remaining useful life should be higher inrelation to current depreciation expense; and (vii)the number of managers on the top managementteam reported in ExecuComp, as larger teams maybe more likely to have a woman manager simplyby dint of their size. (Size, innovation intensity,CapEx intensity, marketing intensity, and age ofcapital stock are log transformed to reduce skew-ness.) If R&D expense or advertising expense isnot material, a firm is not required to disclose it asa separate line item. Accordingly, if one of theseitems is not separately disclosed, we impute thevalue of 0 to it.

Statistical analysisAs noted, we test our hypotheses regarding theeffect of female representation in top manage-ment on firm performance, while controlling forthe many idiosyncratic and unobservable factorsthat may simultaneously affect a firms perfor-mance and make the firms work environmentmore or less congenial to women managers. Thelongitudinal nature of our data allows us to dothis by including firm fixed effects in all of ourregressions. By including a separate dummy vari-able for each firm, our statistical tests implicitlycompare each firm with itself, that is, when the

firm has female representation in top managementwith when it does not, as well as for the indus-try in which a firm competes, since industries arecomposed of firms.

Figure 1 shows that female representation in topmanagement increased steadily from 1992 untilleveling off early in the 2000s. Social and eco-nomic trends over time may simultaneously affectfirm performance and the propensity of firms tohire and promote senior women managers, forexample, due to the diffusion of specific humanresources practices that accommodate the personalcommitments of women (Bloom, Kretschmer, andVan Reenen, 2009). Again, we use the longi-tudinal nature of our data to control for thesetrends by including year fixed effects in all of ourregressions.

RESULTS

Table 1 provides descriptive statistics for the vari-ables used in the study, as well as their corre-lations. The low mean of female representationreflects the large number of firms without womenin top management. The majority of firms are lessthan 30 years old, although a small number aresignificantly older.

Although most of the correlations are rela-tively small in magnitude, female representationdoes have a correlation of 0.32 with the inter-action between female representation and inno-vation intensity. To ensure that this and otherpotential sources of colinearity are not affectingour results, we calculated variance inflation fac-tors for these two variables and all of the con-trols described above. Female representation andthe interaction between female representation andinnovation intensity had variance inflation factorsof 1.20 and 1.50, respectively, and none of the con-trol variables had a variance inflation factor over1.61. As these figures are well below Kutner andNachtscheims (2004: 409) suggested cutoff valueof 10, we conclude that colinearity is not a signif-icant issue in our analysis.

Base case analysisTable 2, Column 1 reports the results of a fixedeffects regression of Tobins q on the control vari-ables. All the controls are highly significant exceptfor marketing intensity and number of managers.


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.03 Size and age of capital stock are negatively related

to Tobins q, whereas innovation intensity andCapEx intensity are positively related to Tobinsq. In each case, the result can be explainedby the positive association between Tobins qand growth opportunities (Lang, Ofek, and Stulz,1996). Leverage has a negative association withTobins q, as slow-growth cash rich firms havemore capacity to make regular debt payments.Interestingly, firm age is positive and significant.This may be the converse of the liability of new-ness (Stinchombe, 1965: 148).

Hypothesis 1 predicts that firms with femalerepresentation in top management will enjoy supe-rior performance. Table 2, Column 2 tests thisproposition by adding female representation to theregression in Column 1. The coefficient on femalerepresentation is positive and statistically signif-icant at the five percent level, even in the pres-ence of over 2,500 firm dummies to account forunobservable firm-level heterogeneity. This resultprovides indicative support for Hypothesis 1.

Female representation is also economically sig-nificant. The coefficient on female representationof 0.0119 means that, ceteris paribus, Tobins qis approximately 1.19 percent higher with femalerepresentation in top management than without.6More precisely, the mean value of book assets is$1.239 billion while the mean of value of Tobinsq is 1.83,7 implying a firm value of $2.263 billion($1.239 billion multiplied by 1.83). The coeffi-cient on female representation of 0.0119 impliesan increase in Tobins q to about 1.868 and in firmvalue to $2.305 billion ($1.239 billion multipliedby 1.86). Thus, female representation in top man-agement leads to an increase of $42 million in firmvalue at roughly the midpoint of the data.

Innovation intensity

Hypothesis 2 predicts that innovation intensitywill positively moderate the relationship betweenfemale representation in top management and firm

6 Since the dependent variable, Tobins q, is log-transformed, thecoefficients on the independent variables can be interpreted asrepresenting approximate percentage changes in the underlyingdependent variable.7 The figures are obtained after reversing the log transformationof the mean size of 7.122 and mean Tobins q of 1.039 inTable 1.8 This figure is obtained after adding the effect of female repre-sentation to the mean of Tobins q, yielding 1.051 (1.039 plus0.0119), and then reversing the log transformation.


Female Representation in Top Management and Firm Performance 1081Table 2. Female representation in top management and firm performance

Tobins q

1 2 3

Innovation intensity 0.4461 0.4470 0.3803(0.0335) (0.0335) (0.0350)

Size 0.1304 0.1302 0.1300(0.0034) (0.0034) (0.0034)

Firm age 0.0097 0.0094 0.0095(0.0008) (0.0008) (0.0008)

Leverage 0.0266 0.0266 0.0276(0.0089) (0.0089) (0.0089)

CapEx intensity 0.1531 0.1528 0.1571(0.0221) (0.0221) (0.0221)

Marketing intensity 0.0058 0.0068 0.0125(0.0552) (0.0552) (0.0551)

Age of capital stock 0.2578 0.2581 0.2586(0.0147) (0.0147) (0.0147)

Number of managers 0.0002 0.0003 0.0004(0.0014) (0.0014) (0.0014)

Female representation 0.0119 0.0020(0.0056) (0.0060)

Female representation innovation intensity 0.3698(0.0566)

Year fixed effects Y Y YFirm fixed effects Y Y YNumber of observations 21,790 21,790 21,790R2 0.72 0.72 0.72

p 0.01, p 0.05, p 0.10. Standard errors are reported under each coefficient in parentheses.

performance. To test this, Column 3 adds the inter-action between female representation and innova-tion intensity to the regression in Column 2. InColumn 3, the coefficient on female representationrepresents the simple effect of female representa-tion in top management on firm performance, thatis, the effect when a firms strategy is not at allrelated to innovation, because innovation intensityis zero (Echambadi and Hess, 2007; Jaccard andTurrisi, 2003); this coefficient is not statisticallydifferent from zero. In contrast, the coefficient onthe interaction term is positive and highly statis-tically significant. Thus, the more a firms strat-egy is focused on innovation, the more femalerepresentation in top management improves firmperformance.9

9 If we mean-center innovation intensity, the sign and magnitudeof the interaction between female representation and innovationintensity and the precision of the fit between the data andmodel are both identical. After mean-centering, the coefficient onfemale representation is larger, because it is a main effect, thatis, the effect of female representation in top management at theaverage value of innovation intensity. The main effect of femalerepresentation can be derived directly from the regression we

This result strongly supports Hypothesis 2 andestablishes an important boundary condition forthe benefits of female representation in top man-agement: While we find no evidence that femalerepresentation in top management may impairfirm performance, in order for female represen-tation in top management to have a positiveimpact on firm performance, the firms strategymust be focused to some positive degree oninnovation.

Again, the effects are economically significant.We demonstrate this by decomposing the simpleand interaction effects of female representationand innovation intensity. The implied coefficienton female representation is equal to 0.3698 multi-plied by the level of innovation intensity. Thus,if innovation intensity is zero, female represen-tation in top management does not have a sta-tistically significant effect on firm performance.

report using a simple calculation (Echambadi and Hess, 2007).Because we consider the untransformed regression to have amore natural interpretation in this setting, we report regressionswithout mean-centering.



Table 3. Female representation in top management and firm performance: alternative measures of female representation

Measure

Percent of women on topmanagement team

Dummy variable excludingfemale CEOs


Female representation innovation intensity 1.6224 0.3670(0.2706) (0.0569)


However, at the mean level of innovation inten-sity of 0.034, the implied coefficient on femalerepresentation is 0.0126, implying an increase infirm value from female representation in top man-agement of about $44 million when calculated asabove.

ROBUSTNESS AND EXTENSIONS

Alternative measures of female representationin top management

In our base case analysis, we measure female rep-resentation in top management using a dummyvariable. Given that a small number of firms in oursample have more than one woman on the top man-agement team, we redefine female representationas the percentage of a firms top management teamaccounted for by women, and repeat the regres-sion from Table 2, Column 3. The first Column inTable 3 presents an excerpt of the results, whichare qualitatively unchanged.10

By its nature, the CEO position would seemto have unique leadership attributes. Indeed, Leeand James (2007) find that firms stock pricesreact negatively to the appointment of a womanCEO but exhibit no reaction to the appointment ofwomen to other senior positions. We accordinglyredefine female representation to exclude womenCEOs and repeat the regression from Table 2,Column 3, with an excerpt of the results in the

10 The coefficient on the interaction between female represen-tation and innovation intensity of 1.6224 implies that adding awoman to a five-person top management team would increaseTobins q by 20 percent of 1.6224, which is 32.4 percent. Thatimplies an increase in firm value of approximately $39 millionwhen calculated as in the Results section above. Extrapolat-ing this calculation should be done with caution, however, asvery few top management teams in the data have a majority ofwomen.

Table 4. Female representation in top managementand firm performance: accounting measures of firmperformance

Measure

Return onassets

Return onequity


Female representation 0.1592 0.2585innovation intensity (0.0234) (0.0787)

p 0.01, p 0.05, p 0.10. Standard errors are re-ported under each coefficient in parentheses.

second Column of Table 3. The results are againqualitatively unchanged.

Alternative measures of firm performanceWhile we have focused on Tobins q as a per-formance measure because it is forward-lookingand holistic, there may be some interest in therelationship between female representation in topmanagement and accounting measures of firmperformance. We accordingly repeat the analy-sis in Table 2, Column 3 using return on assetsand return on equity as dependent variables andreport an excerpt of the results in Table 4.11 Inline with the base case analysis, the simple effectof female representation is insignificant, whereasthe coefficient on the interaction between femalerepresentation and innovation intensity is posi-tive and highly statistically significant. Thus, theperformance implications of female representation

11 Return on assets is defined as operating income over assetsfrom the prior period, and return on equity is defined as incomebefore extraordinary items over common equity from the priorperiod. As with Tobins q, we apply a log transformation toreduce skewness.


Female Representation in Top Management and Firm Performance 1083Table 5. Female representation in top management and firm performance: endogeneity and reverse causality

Tobins q

1: Fixed effects OLS 2: Arellano-Bond

Tobins q [t-1] 0.4040 0.3596(0.0006) (0.0107)

Innovation intensity 0.0610 0.1081(0.0362) (0.0813)

Size 0.1029 0.1609(0.0032) (0.0077)

Firm age 0.0077 0.0583(0.0007) (0.0019)

Leverage 0.0018 0.0817(0.0077) (0.0127)

CapEx intensity 0.0144 0.4457(0.0285) (0.0721)

Marketing intensity 0.1538 0.7068(0.0770) (0.1738)

Age of capital stock 0.1423 0.0979(0.0133) (0.0183)

Number of managers 0.0037 0.0026(0.0013) (0.0028)


Female representation innovation intensity 0.2172 0.3269(0.0549) (0.1089)


in top management are reflected in firms account-ing data.

Endogeneity and reverse causality

While our theoretical model holds that femalerepresentation in top management improves firmperformance, there are also rarely articulated butstill valid theoretical reasons for believing that,conversely, improved firm performance may leadto female representation in top management. Thescarcity of women with experience in senior man-agerial positions (Hillman, Cannella, and Harris,2002) may allow those women to self-select intomore successful firms (Farrell and Hersch, 2005).More successful firms may be more likely torespond to pressure to conform to the aspirationalnorm of gender diversity, because they have agreater need for legitimacy (Meyer and Rowan,1977), or because they have greater latitude andexcess resources to do so (Pfeffer and Salancik,1978). These theoretical arguments suggest thatfemale representation may endogenously dependon recent firm performance and, thus, that thepositive association between female representation

and firm performance may be driven by reversecausality. If so, then once we control for priorfirm performance, the positive association betweenfemale representation and firm performance shoulddisappear.

Accordingly, as a robustness check, we addthe lagged value of Tobins q to the regressionin Table 2, Column 3 and report the results inTable 5, Column 1. Even in this demanding spec-ification, we obtain qualitatively similar results.While the lagged value of Tobins q is positive andsignificant, as expected, the simple effect of femalerepresentation is not significant, and the interac-tion between female representation and innova-tion intensity is positive and highly statisticallysignificant.

Adding the lagged value of the dependent vari-able to a panel data regression can give rise toproblems with autocorrelation. Moreover, the othercontrol variables associated with firm policies mayalso be endogenous. Arellano and Bond (1991)propose a dynamic panel generalized method ofmoments estimator to account for these issues.We accordingly repeat the analysis in Table 5,



Column 1 in Column 2 using their estimator.12 Weobtain qualitatively the same result: the laggedvalue of Tobins q is positive and significant, thesimple effect of female representation is not sig-nificant, and the interaction between female rep-resentation and innovation intensity is positive,highly statistically significant, and larger than inColumn 1. Our results are thus robust to control-ling for endogeneity and reverse causality.

DISCUSSION AND CONCLUSION

ContributionsIn this paper, we develop a theoretical model toexplain how and under what circumstances femalerepresentation in top management improves firmperformance. We test our theory using 15 yearsof data on a large and comprehensive sample ofpublic U.S. corporations and find that (a) femalerepresentation in top management leads to betterfirm performance but (b) only to the extent that afirm is focused on innovation as part of its strategy.

Gender diversity has been identified as repre-senting a needed innovation for top managementresearch (Carpenter et al., 2004: 771), because it issalient and readily accessible for group categoriza-tion even without necessarily reflecting cognitivedifferences (Tsui et al., 1991; Westphal and Mil-ton, 2000). By elaborating on the benefits associ-ated with gender diversity and the contingenciesunder which these benefits are likely to be ampli-fied, this paper not only contributes to our under-standing of gender in management but also extendsthe literature on top management teams beyond thewell-established fact that managerial demograph-ics, broadly construed, matter for firm outcomes.

The papers results also have important ramifi-cations for policy and practice, in which contextthe persistent underrepresentation of women in theupper echelons of management has received sig-nificant attention. While arguments in favor ofequality of opportunity have generally carried theday as an abstract principle, redressing the under-representation of women in management has beenfrustrated by the perception among many malemanagers that efforts to promote gender diversity

12 The specification treats variables that could be influenced byfirm policy in period t as endogenous and those that are not inthe control of the firm or are calculated exclusively with respectto t-1 values as exogenous.

are motivated, inter alia, by political correctnessor a goal of favoring women at the expense of men(Catalyst, 2009). Indeed, the very word diversityprovokes strong emotional reactions in many peo-ple (Milliken and Martins, 1996). To overcomesuch resistance, as well as to capture the atten-tion of senior managers who may be sympatheticto gender equity but may also be extremely busy,making a compelling business case for diversityis critical (Catalyst, 2009; Conrad, 2009). How-ever, while scholars have advanced many argu-ments extolling the benefits of gender diversityin top management, rigorous systematic evidenceregarding how and in what circumstances femalerepresentation in top management improves firmperformance has been lacking.

We address this gap in the literature using a richpanel dataset, which allows us to control for awide range of observable and unobservable fac-tors that influence firm performance as well as forthe possibility of reverse causality. In essence, oureconometric specification compares each firm withitself, that is, when the firm has female represen-tation in top management with when it does not.We find that, ceteris paribus, a given firm gener-ates on average one percent (or over $40 million)more economic value with at least one woman onits top management team than without any womenon its top management team and also enjoys supe-rior accounting performance. Moreover, while thebenefits of female representation in top manage-ment are increasing in the innovation intensity ofa firms strategy, even firms without any signif-icant emphasis on innovation do not experienceimpaired performance as a result of female rep-resentation in top management. Thus, our resultssuggest that even CEOs who believe their firmshave gender-neutral recruitment and promotionprocesses should ensure that their firms maintainat least some level of gender diversity in top man-agement. We believe that these results make apowerful business case for gender diversity andsuggest that a CEO who goes the extra mile tohelp women overcome barriers to their managerialadvancement will often be rewarded with improve-ments in firm performance.

Caveats and directions for future researchThis study is not without limitations, many ofwhich may indicate fruitful avenues for futureresearch. While the empirical approach in this


Female Representation in Top Management and Firm Performance 1085study has clear strengths, we nonetheless acknowl-edge that the small sample field studies employedin other research domains may offer a richer under-standing of context than our large sample methodscan. In particular, such studies may provide sup-porting anecdotal evidence regarding the mecha-nisms that we theorize are behind the benefits offemale representation in top management for firmperformance. We regard that work and ours asmutually complementary. It is only through a will-ingness to cross paradigmatic boundaries that wewill gain the best appreciation of how to accom-modate the needs of women managers as well asdeepen our understanding of the contribution theycan make to firm performance.

It could be argued that our results may be partlydriven by a human capital advantage. Women man-agers face many barriers to their advancementincluding, but not limited to, overt discrimina-tion (Oakley, 2000) and social pressure leading tounintentional discrimination by colleagues (Altonjiand Blank, 1999). Some firms may have unob-servable attributes like cultures (Barney, 1986) orroutines (Nelson and Winter, 1982) that reducethese barriers, leading to a sustained human cap-ital advantage (Coff, 1997) from a superior man-ifestation of female managerial talent and, thus,to a higher quality managerial workforce overall.Women may also need to be that much better toovercome barriers to their advancement, implyingthat senior women managers are of higher averagequality than their male counterparts. Finally, effec-tive management of human assets is a key successfactor for innovative high technology firms (Baner-jee and Campbell, 2009), and human assets are oneof the most coveted resources and a key objec-tive of acquirers in technical industries (Ranft andLord, 2000, 2002). So, a human capital advantagemay be more important in those contexts.

However, these arguments relate primarily todifferences among firms. To wit, firms where oneis more likely to observe women on the top man-agement team are precisely those where the barri-ers to womens advancement are lower and, thus,where the presence or absence of women on the topmanagement team would be more likely to reflectrandom idiosyncratic factors than the quality ofthe managers who compose the team. Therefore,any positive association between female represen-tation in top management and firm performancethat is driven by an advantage in the managementof human capital should disappear in the empirical

specification we use herein, which implicitly com-pares firms with themselves by including a separatefixed effect for each firm, in addition to a fixedeffect for each year. By contrast, our theoreticalmodel provides a comprehensive explanation forwhy a given firm, even one that has a hypothet-ically gender-neutral recruitment and promotionprocess, would benefit from female representationin top management.

There may be a similar explanation for whywe find that a firms strategy must be at leastsomewhat focused on innovation for female rep-resentation in top management to benefit firm per-formance. By including a separate fixed effect foreach firm in our data, our empirical testing strat-egy creates a high hurdle for finding a statisticallysignificant effect of female representation in topmanagement. Firms where one is more likely toobserve a woman on the top management teamare also those that are more likely to have womenat senior levels just below the top managementteam in years when there is no woman on thetop management team. Female representation justbelow top management may provide these firmssome of the benefits that we hypothesize arise fromfemale representation in top management, reduc-ing the power of our statistical tests. If so, then,the performance benefits from female represen-tation in top management would be even largerthan our analysis implies and could accrue evento firms for which innovation is not important tostrategy.

It is also possible that there are countervailingaspects of gender diversity that reduce the bene-fits of female representation in top management.The full elaboration of alternative points of viewand sources of information to which gender diver-sity in the top management team gives rise mayactually be counterproductive for routine tasks (DeDreu and Weingart, 2003). In general, homogenousgroups may perform slightly better on simple tasks,even though heterogeneous groups do better on dif-ficult tasks (Bowers, Pharmer, and Salas, 2000;Hambrick and Mason, 1984). Tsui et al. (1991)find, moreover, that diversity in gender and racehas deleterious effects on the psychological com-mitment, absenteeism, and intention to stay of menworking in operating units, suggesting that gen-der diversity may reduce the overall motivationof male managers. Where innovation is not at allimportant to a firms strategy and the functions ofthe top management team are accordingly highly



routinized, these potential negative effects of gen-der diversity may be sufficient to offset the benefitswe hypothesized.

There is, likewise, ample scope for future re-search to consider other factors that may mod-erate the impact of female representation in topmanagement on firm performance. For instance,the alternative perspectives of senior women man-agers may be especially valuable for firms thathave a disproportionately large number of femalecustomers. The size, structure, and composition ofa firms workforce may also influence the effect offemale representation in top management, althoughthe direction of the influence is not clear. On theone hand, the enhanced motivation of women man-agers engendered by female representation in topmanagement may be especially beneficial for firmswith a large percentage of women managers atlower levels in the hierarchy; on the other hand,firms without a large percentage of women at lowerlevels may benefit from hiring senior women man-agers to assist in recruiting women to lower lev-els. Similarly, while senior managers may have agreater relative effect in firms with smaller work-forces, the nature of the senior managers job andthe degree to which women are underrepresentedin senior management may also differ with the sizeof a firms workforce. The degree to which inno-vation activities are distributed throughout a firmsorganizational structure rather than being compart-mentalized into specialized units may also affectthe degree to which a firms focus on innovationmoderates the impact of female representation intop management.

Lastly, there is reason to believe that the resultsof this study may vary in other places and set-tings. To wit, research suggests that new prac-tices are initially adopted by firms seeking tobenefit from the overt purpose of these prac-tices but that later adopters are more interestedin gaining legitimacy (Westphal and Zajac, 1994;Zucker, 1983). It is also possible that as a youngergeneration of managers rises to the top of thecorporate world, the effects of female representa-tion on firm performance may change. It wouldtherefore be interesting to examine whether thebenefits of female representation in top manage-ment will persist if, at some future time, thereis greater gender equality in the upper echelonsof U.S. corporations. These and other questionssuggest the need for more research on gender andmanagement.

ACKNOWLEDGEMENTS

Many people have contributed to the developmentof this paper. We especially thank Associate EditorJames Westphal and two anonymous referees. Wealso thank Maura Belliveau, Benjamin Campbell,Wilbur Chung, Alice Eagly, Connie Helfat, andCharles Williams, as well as seminar participants atthe 2008 Annual Meeting of the Academy of Man-agement, the 2008 Atlanta Competitive AdvantageConference, Columbia Business School, LudwigMaximilian University, the National University ofSingapore, the 2009 Strategy Research Forum, theUniversity of Maryland, the University of Michi-gan, and Yonsei University.

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does female representation in top management improve firm performance? a panel data investigation

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