University of Westminster
Gender-diverse organizations tend to outperform those that are homogenous in terms of financial performance. A study that was conducted by McKinsey found that companies with diversity in gender at their leadership teams level are 21% more likely to outperform their peers in terms of profitability (Noland et al., 2016). Furthermore, Peterson Institute for International Economics initiated research that found that companies with gender-diverse executive teams had a return on equity (ROE) that was 56% higher than those with no female executives (Noland and Moran, 2016).
One of the reasons why gender diversity is associated with better financial performance is that it leads to increased innovation and creativity. Women bring a different perspective and set of experiences to the workplace, which can help organizations better understand their customers and make more informed decisions (Chatterjee and Nag, 2022). Furthermore, gender diversity can improve the effectiveness of teams, as it leads to more robust and inclusive decision-making processes (Hoogendoorn et al., 2013).
Another reason why gender diversity is important for financial performance is that it can improve employee engagement and motivation. A study by Forbes found that employees who work in organizations that are diverse and inclusive are more likely to be satisfied with their job and more motivated to perform at a high level. This, in turn, can lead to increased productivity and better financial performance (Li et al., 2023).
However, gender diversity sits on the assumption of better HR policies and ethical standards of the organization, yet maintaining this ratio is difficult as succession planning and promotions are natural processes within an organization. Secondly, the top 500 organizations have robust setups to maintain this diversity and the impact may not be natural but enforced to maintain diversity. Therefore it is essential to understand the existing relationship between diversity and financial ratios in these firms.
In this literature review, the importance of gender diversity on boards will be explored through the examination of various studies and literature on the topic. Secondly, using recent research and studies, this literature review will examine how gender diversity on boards affects the financial success of any firm.
Gender diversity refers to the variation in gender identities and expressions among individuals in a particular group or society. It encompasses a wide range of differences including biological sex, gender identity, gender expression, and gender roles. Literature in this field suggests that gender diversity is an important aspect of human diversity that can lead to greater inclusiveness, creativity, and productivity in organizations (Bin Khidmat et al., 2020).
Studies have shown that promoting gender diversity in the workplace can lead to better business outcomes and Forensic Accounting, including increased revenue and improved customer satisfaction. This is because having a diverse workforce can bring different perspectives, skills, and approaches to problem-solving, leading to greater innovation and creativity (Audretsch et al., 2021).
However, despite the benefits of gender diversity, many organizations continue to face challenges in creating an inclusive work environment. A study by Deloitte found that gender bias, lack of supportive policies and practices, and a lack of diversity in leadership are among the main obstacles to achieving gender diversity in the workplace (Frank et al., 2018). Moreover, research by Catalyst (2021) found that women are still an underrepresented section of the workforce in leadership positions, with only 5.2% of Fortune 500 CEO positions held by women in 2020. To address these challenges, organizations need to implement policies and programs that support gender diversity, such as flexible work arrangements, family-friendly policies, and gender-sensitive training programs (Huang et al., 2018). Furthermore, promoting diversity and inclusion in leadership positions can help to create a supportive environment for gender diversity and ensure that diverse perspectives are represented in decision-making processes. By promoting gender diversity, organizations can tap into the benefits of a diverse workforce, leading to better business outcomes and a more inclusive and creative work environment.
The role of boards in shaping the future of organizations has become increasingly important in recent years. A board's ability to provide effective oversight, make informed decisions, and provide strategic guidance has a direct impact on the success of an organization. To maximize the effectiveness of boards, it is important to consider the diversity of their members, including gender diversity (Smith et al., 2008).
The presence of women working professionals on the boards also brings a different perspective to the table for the issues and decisions facing an organization. Research has shown that women bring unique skills, such as communication and collaboration, which can lead to improved decision-making and increased creativity (Cesario et al., 2022). This diversity of skills and perspectives can lead to better decision-making, as boards are better equipped to consider multiple perspectives and identify potential risks and opportunities.
Furthermore, having women on boards can help organizations better understand the needs of their customers and stakeholders. A report by the Credit Suisse Research Institute (2012) found that companies with more women on their boards outperformed their peers in terms of stock price performance and had a higher return on equity. This highlights the importance of gender diversity in shaping the direction of an organization and ensuring that the needs of all stakeholders are considered (Ionascu et al., 2018).
Gender diversity on boards is a critical organizational issue, with many organizations striving hard to maintain the ratio of representation of women in leadership positions. The benefits of gender diversity on boards are numerous and well-documented. Research has shown that gender-diverse boards are more effective in decision-making, risk management, and strategy formulation, as they bring different perspectives, skills, and experiences to the table (Catalyst, 2021). These firms are better equipped to understand and respond to the needs of their customers and employees, who are becoming increasingly diverse (Catalyst, 2021). In addition, gender-diverse boards are more likely to engage in socially responsible practices, as they are more sensitive to the needs of the communities in which they operate (Catalyst, 2021).
Despite the numerous benefits of gender diversity on the top board levels, there are still significant barriers to its implementation. According to a report by McKinsey & Company (2022), women are underrepresented on boards in almost all countries, with the average global representation of women on boards being just 12%. This underrepresentation is due to various factors, including a lack of access to networks and opportunities for advancement, as well as cultural and societal norms that discourage women from pursuing leadership positions.
One of the major challenges is underrepresentation, which is a critical barrier to increasing gender diversity on boards. Women are often underrepresented in the talent pool from which boards select their directors, making it difficult for organizations to achieve gender diversity (Catalyst, 2021).
Another challenge is cultural and institutional biases that perpetuate gender inequality in the workplace. These biases can impact the selection and promotion to senior leadership level, as well as the support and opportunities that are available to them once they are in these positions (Catalyst, 2021).
Due to the growing importance of women in the workforce, gender diversity on corporate boards has recently been a critical concern. It has been reported that businesses with a more diverse board of directors do better financially, which has increased interest in examining the link between gender diversity and financial success (Cox and Blake, 1991).
The results of several research investigating the link between gender diversity and financial performance have been conflicting. While some studies have indicated a strong correlation between gender diversity on boards and improved financial success, others have found no such correlation. However, the most recent research has discovered a favorable correlation between gender diversity and financial performance (Dumitriu and Jianu, 2018). According to McKinsey's (2018) research, for instance, businesses with gender-diverse boards outperformed their competitors by 15%.
There is several theoretical understandings reason that why some companies with substantial gender/diversity ratios at the board level tend to have better financial performance. One theory is that gender-diverse boards bring a different perspective to decision-making, leading to better outcomes (Wu, 2020). This is because women tend to be more risk-averse, which can help to reduce the risk of financial loss. Additionally, women may be more likely to bring a different approach to problem-solving, which can lead to more innovative solutions (Lindeborg and Vgeli, 2021).
To carry the correlation studies, four models are developed in relation to four dependent variables of revenue, profits, ROA and ROE.
Revenue = Î²0 + Î²1 * Gender Diversity + Î²2 * Control Variable1 + Î²3 * Control Variable2 + ... + Î²k * Control Variable k + Îµ
Profits = Î²0 + Î²1 * Gender Diversity + Î²2 * Control Variable1 + Î²3 * Control Variable2 + ... + Î²k * Control Variable k + Îµ
ROA = Î²0 + Î²1 * Gender Diversity + Î²2 * Control Variable1 + Î²3 * Control Variable2 + ... + Î²k * Control Variable k + Îµ
ROE = Î²0 + Î²1 * Gender Diversity + Î²2 * Control Variable1 + Î²3 * Control Variable2 + ... + Î²k * Control Variable k + Îµ
There is also evidence that companies with gender-diverse boards are also better at considering the corporate governance standards of the firms. For example, studies have found that companies with diversity at the board level are less likely to engage in any sort of unethical behavior, such as insider trading (Carter et al., 2017). Additionally, companies with better diversity in boards are more likely to have a strong and conducive corporate culture, which can eventually help to improve financial performance.
According to studies, organizations that have gender-diverse boards do better than those that do not. Gender diversity on boards has a favorable influence on company performance. According to research, businesses with more women on their boards often do better financially, with greater levels of return on equity, return on assets, and return on sales (Catalyst, 2021). Gender-diverse boards are also more effective in decision-making and strategy formulation, as they bring different perspectives, skills, and experiences to the table. This leads to more innovative and effective solutions, which can contribute to improved firm performance (Catalyst, 2021).
According to a study by Catalyst, a non-profit organization focused on increasing diversity in the workplace, women hold just 16.9% of board seats in the top 500 global companies. This is a small improvement from the previous year when women held just 15.8% of board seats.
Despite the progress, many countries and regions still lag when it comes to gender diversity on boards. In North America, women hold just 19.3% of board seats, while in Europe, women hold just 20.7% of board seats. In Asia, women hold just 8.9% of board seats, the lowest of any region (Catalyst, 2021).
However, some companies are leading the way in gender diversity on boards. In Norway, where a quota system has been in place for over a decade, women hold 40% of board seats in the top 500 companies. In Sweden, women hold 38.7% of board seats, the second-highest of any country. Companies with more women on their boards had a return on equity that was 53% higher than those with fewer women on their boards (News European Parliament, 2019).
Research conducted by McKinsey & Company (2022) found that companies with a higher proportion of women on their boards outperformed those with fewer women by 15% in terms of return on equity and by 34% in terms of total return to shareholders. Furthermore, companies with gender-diverse boards are better equipped to make informed decisions and provide a fresh perspective, which can result in improved financial performance.
In addition, gender diversity on boards has been linked to improved corporate governance practices, which is an important factor in determining financial performance. Women tend to bring a different perspective to the boardroom, often highlighting the importance of ethical and socially responsible decision-making. This can result in companies being better equipped to navigate challenges, as well as make informed decisions that positively impact their financial performance (Ciftci et al., 2019).
However, despite the positive correlation between gender diversity on boards and financial performance, many top global companies still struggle with gender diversity. According to a report by Catalyst, women make up only 22.8% of board directors in the top 500 global companies. This lack of representation not only affects financial performance but also undermines the concept of equal representation in the workplace (Hitt et al., 2017).
In conclusion, diversity on the board's level has a significant impact on financial performance such as profits, and ratios, in top global companies. Companies with gender-diverse boards tend to have better financial performance and improved corporate governance practices, compared to those with homogeneous boards. Despite this, many companies still struggle with gender diversity, which underscores the need for continued efforts to increase the representation of women on boards.
The literature review and past studies on gender diversity on boards and firms' performance in terms of revenues and profits suggest that organizations that have gender-diverse boards are more likely to achieve better financial performance, improved decision-making, and increased innovation. However, there are also several challenges that organizations face in achieving gender diversity on boards, including the underrepresentation of women employees at senior positions such as top leadership and boards level along with cultural and institutional biases that perpetuate gender inequality in the workplace. Further research is needed to better understand the relationship between gender diversity on boards and firm performance and to explore ways to overcome the challenges of achieving gender diversity in the corporate world, specifically among the top 500 companies at the global level.
There are less literature that has evaluated the variables of finance dissertation performance in terms of revenues, profits, ROE & ROA predicted by the gender diversity among the boards. Therefore correlation studies are needed to understand the relationship. Secondly, the top 500 companies have relatively changed in the new decade where IT companies has significantly positioned itself on the list. Therefore, the new cluster of companies are less explored and there is gap in the literature to identify the latest trends.
However, despite the benefits, there are still significant barriers to the implementation of gender diversity on boards. It is important for organizations to actively work to overcome these barriers and ensure that their boards are diverse and reflective of their stakeholders. One of the primary questions is:
â€œHow does gender diversity in boards of 500 S&P listed companies impact their financial performance?â€
This research takes an exploratory approach to understand the relationship between gender diversity and its direct impact on the financial performance of companies therefore the primary objective of the study is
â€œTo understand the influence of Gender Diversity on the Executive Board of top 500 global companies on their financial performance.â€
The constructivist research philosophy is centered around the idea that reality is constructed through human interpretation and perception, rather than being objectively observable. In this context, gender diversity on boards can be seen as a social construct that is shaped by societal norms and beliefs, as well as individual perspectives and experiences (Williamson, 2006). A constructivist approach would allow for an examination of the subjective experiences of board members and stakeholders, as well as an exploration of the cultural, social, and historical factors that have influenced the underrepresentation of women employees at senior positions such as top leadership level.
This approach uses a hypothesis as a starting point and tests it through empirical data. Forming a hypothesis concerning the association between gender diversity on boards and the performance of the top global corporations would be part of the deductive method in this study and consequently testing it through quantitative data analysis (McNeill, 2006). A quantitative study involves the collection and analysis of numerical data. This approach is well-suited for testing hypotheses and exploring cause-and-effect relationships (McNeill, 2006). The data collected for this study could include demographic information about the composition of boards in top global companies and measures of their financial performance.
An exploratory design is a type of research design that is used to gather preliminary data and gain a better understanding of a phenomenon and also the data will reveal how diversity has enabled the companies to better perform financially. For this study, an exploratory approach would be suitable since it would enable researchers to acquire preliminary information on the association between gender diversity on boards and the success of top global firms. This data could then be used to formulate hypotheses for further testing in a more rigorous study. The research will also provide insights for the policy makers and managers to understand how diversity can improve the performance of the firm.
The data for this study will be collected from publicly available sources such as financial statements, annual reports, and other relevant reports from 500 S&P-listed companies from Bloomberg and annual reports of the companies.. The data will include financial performance measures such as revenue, net income, return on equity, and return on assets for the selected companies from financial year 2012 to 2022. The data on gender diversity in boards will be obtained from the same sources and will include information on the gender composition of boards and executive management teams. The sample for this study will consist of 500 S&P-listed companies selected based on their financial performance and the level of diversity of males and females on their boards. The data collected will be analyzed using regression analysis to examine the relationship between the diversity of employees on boards and financial performance. The analysis will also consider other factors such as industry, company size, and geographical location that could impact the results. The results of this study will provide insights into the influence or association of diversity of gender in boards on financial performance (ratios, profits, revenues) of selected 500 S&P listed companies.
Table: Timeline of the Project
Timeline (in weeks)
Developing research proposal
Conducting literature review
Data collection and analysis
Writing research findings
Preparing the final report
This study is expected to show that companies with gender-diverse boards tend to have better financial performance compared to those with less gender diversity. This research will suggest that gender diversity leads to better decision-making, improved risk management, and enhanced innovation. Women bring a different perspective and skill set to the boardroom, which can lead to a more diverse and inclusive approach to business. This can result in a more sustainable business model and stronger financial performance.
Furthermore, gender diversity can also lead to increased investor confidence and higher brand reputation, both of which are critical factors for a company's financial success. Companies with a diverse board are viewed as being more socially responsible and in line with the values of their stakeholders, which can increase their ability to attract investment.
Net Income: Companies with a higher representation of women on their boards are expected to show to have higher net incomes compared to those with lower representation. This is because women bring a unique perspective and approach to decision-making, which can lead to better outcomes and profitability.
Return on Equity (ROE): Companies with gender-diverse boards are expected to have higher ROE compared to those with less gender diversity. This is because having a mix of male and female perspectives and experiences can lead to better decision-making, which can in turn increase profitability and lead to a higher ROE.
Return on Assets (ROA): Companies with gender-diverse boards are expected to have higher ROA compared to those with less gender diversity. This is because having a mix of male and female perspectives can lead to better risk management and more efficient use of resources, which can result in higher profitability and a higher ROA.
In conclusion, having a gender-diverse board can lead to better financial performance for a company, as it can bring a range of experiences, perspectives, and approaches to decision-making.
The findings will be useful for companies, investors, and policymakers in understanding the role of gender diversity in the decision-making process of the board and its impact on financial performance.
The implications of studying gender diversity on boards in top global companies are significant for several reasons:
Improved Corporate Performance
The research will show that companies with gender-diverse boards have better financial performance, increased innovation, and improved decision-making.
Better Representation Of Society
Companies that have gender-diverse boards are more representative of the broader society and can better understand the needs of their customers and stakeholders.
Companies with gender-diverse boards are more competitive, as they can draw from a wider range of skills, perspectives, and experiences.
Improved Company Reputation
Companies with gender-diverse boards are viewed as more progressive and socially responsible, which can enhance their reputation and attract new customers and employees.
Many countries have introduced quotas or other regulations requiring companies to have gender-diverse boards, making it important for companies to understand the implications of these laws and regulations.
Overall, the study of gender diversity on boards in top global companies can help companies to improve their performance, increase competitiveness, and comply with legal requirements.
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