CC BY
47
https://doi.org/10.29013/EJEMS-20-2-21-26
Serena Zhou, 11 th Grade, Saint Mary's School, NC E-mail: serenazhou0108@gmail.com
DO WOMEN LEADERS IMPROVE FIRM PERFORMANCE?
Abstract. This paper reviews previous studies, data, and theories on the impact of women leaders on firm performances. Studies were done in different countries in various industries. While there is no unanimous conclusion, the studies show that at least women leadership doesn't hurt company performances, and under circumstances do lead to better business results. Factors such as the characteristics of the industry, the balance of gender on board, capability, and social or company norms play indispensable roles in the potential impact ofwomen leadership. Women leaders who are well-qualified and welcomed by both the firm and the country will benefit their company more than those who are not. In addition, reaching a threshold of the percentage of women leaders is critical for them to have an impact on firm performance. Besides firm performance, women leadership also has a positive impact on a firm's credit rating and its overall risks, which are also important aspects of the firm's overall performance.
Keywords: women leadership, company performance, gender balance, board diversity.
I. Introduction
Gender roles have evolved as human society advances. Early in history, although with some exceptions, women were generally determined to be responsible for baking, cleaning, making marriage more exciting, bearing children-all domestic affairs. Today, the perception of the role of women is completely different from the single-story told centuries ago. After countless protests, compromises, and sacrifices, women finally gained the recognition of "real citizen" with equal rights, freedoms, and opportunities to those of men. In fact, the change of the gender roles is about more than giving opportunities to individual women; more importantly, it is about giving the society a new way to communicate and develop. According to a recent study, women overscore men on 17 of the 19 key leadership capabilities that distinguish outstanding leaders from average ones, including "take initiatives" and "bold leadership", qualities that are usually expected to be found in men (Zenger [17]). However, although assessment
showing women are as capable as men, they are less confident than men in assessing themselves (Zenger [17]). Women are intrinsically different from men, and women leaders are different from men leaders. As women are given more education opportunities and career options, many women leaders advanced to the top of the pyramids of many organizations, including corporates and government agencies. Even though proportionally still a very low percent of the top positions have been occupied by women, it is becoming a strong trend. A controversial question is to ask whether women leadership really impacts a firm's performance. Previous studies show no concrete conclusions and do not agree with one another. This paper surveys the literature on women leadership and firm performance and explores the key factors toward successful women leadership.
II. Methodology
Seventeen papers in the literature were compared for their conclusion of whether women leadership leads to better performance, and also for the factors
they used. Results varied even for those who considered the same factors. For example, there were two opposite hypotheses on the effect of gender balance on board on firm performance; although no consensus was reached, more tended to conclude that a company must reach a gender-balanced board to a certain extent for it to have a noticeable change in performance. For papers that considered the capability of women, all of them suggested that the capability of female leaders had a rather strong impact on firm performance. However, when it comes to social norms and com-
pany characteristics, results could be more biased. Although the researchers considered comparing the effect under different circumstances and extents, they conducted studies in companies and countries that welcomed female leaders. As a result, more data are needed to make a more inclusive conclusion.
III. Results
Of the analyzed papers, seven found a positive impact on the company performance, while five found no clear impact and three found the impact variable depending on the specific scenario.
Figure 1. Number of Papers by Their Findings on Impact of Women Leadership
The following four key factors were considered There are two more aspects studied by fewer re-
by the researchers to have influence on how women searchers: women leaders' impact on credit rating
leaders would impact a firm's performance: 1) bal- and firm risk. These are impacts on the company but
ance of gender on board; 2) company policies and are not directly related to firm performance. How-
characteristics of the company; 3) social norms and ever, these positive impacts might have long-term
cultural background, and; 4) capability of women. positive impacts on companies.
Table 1. - Key Factors Used in the Papers
Factors Papers Using This Factor...
Total Positive Impact No Impact It depends
Balance of Gender 5 3 0 2
Company Characteristics 5 4 1 0
Capability 5 2 3 0
Social Norms and Cultural Background 3 1 1 1
Papers that were reviewed showed some similarities in their results. Although with limitations, researchers stated their limitations after giving their data and made hypotheses considering those varying conditions. While greater capability and better
firm performance have a very strong correlation, female impact on firm performance could still vary case by case given that female acceptance levels and industry types.
IV. Key Findings
A. Certain Proportion of Females Must be Met to Make a Difference
Some researchers examined factors and limitations in their studies and concluded that gender balance on board was a key factor influencing a firm's performance. However, there are different theories on this factor, and each is supported by different research.
Christiansen [1] concluded that women have a significant positive impact on a firm's performance that exchanging one male member of senior management for a female member would result in a 3-8 percent increase in profitability, and bringing gender balance in the senior team would be associated with 7-11 basis points higher Return on Assets (ROA). The researchers take the size of the board into account and find that the growth pattern is applicable to companies regardless of their types or sizes. In addition, the marginal effect of adding one female member to the current board is also a shared pattern.
Furthermore, most people who considered the balance of gender as a factor did not agree that one single woman was capable of making a difference. Linda-Eling Lee et al. [7] drew a different conclusion that for women to make a difference, more than three women are needed to result in an increase in firm profits. While analysis suggests that balanced gender composition may have the highest correlation with firm performance, researchers did further research on how gender-balanced a firm needed to be in order to improve its performance. Joecks [4] defined that 30% of females as a "critical mass" to positively affect a firm's performance.
Richard [12] studied possible outcomes under three different levels of gender diversity and proposed 1) homogeneous groups may not thrive in an environment requiring speed decision and competitive behaviors. 2) it may yield a positive effect as the diversity in management reached a moderate level, and 3) as diversity level exceeds a moderate level, cognitive biasing and communication problems may result in increasing conflicts.
The theory that having enough amount ofwomen leaders in management would result in increased firm performance was agreed by many experts, but further research explained possible consequences under different conditions. In Is Gender Diversity Profitable? Evidence from a Global Survey (Marcus Noland, 2016), Noland finds that women leadership has a positive correlation with a firm's performance, but he concludes that this increase in performance is not a consequence solely influenced by women in top management. In fact, creating a pipeline of female managers has a greater effect than simply getting females to the very top, and having a high gender diversity throughout the industry will stronger this effect.
B. High Demand for Creativity and Company Acceptance Increase the Impact
Company policies and the type ofindustry is another factor many considered when addressing the female impact on firm performance. When discussing the impact of women leaders on a company, we have to consider the current situation for women in the workplace. While there is no consensus on the female impact on company performance, almost no one debates over the fact that women are less likely to be promoted to the same position although having the same capabilities as men. As a result, before analyzing the impact ofwomen on companies, some did research on the effect of barriers for women in the workplace and effects on companies of such barriers.
In Christiansen's research (2016), women leadership on senior boards has a significantly positive influence on a firm's performance. He points out, however, this effect could vary and should be stronger if the industry hires more women employees and the industry itself has a greater demand for creativity and critical thinking.
Studying the effect of women's leadership on 153 banks in the U.S., Richard [12] concludes that women leadership has a marginal effect on a firm's performance, and banks that focus on innovation benefit from homogeneous management groups and highly heterogeneous management groups. Richard finds
only marginal effect in banks in America, while Krish-nan [6] studies Fortune 1000 firms and concluded that women leadership has a direct positive effect on firm performance overall in all industries in the world.
Kotiranta discusses a possible factor influencing firm performance after suggesting an overall positive relationship between women leadership and firm performance: a complex connection between the company's multi-dimensionality and its performance. She suggested that only a sufficiently tolerable and flexible organization would be able to benefit from the diversity on board. In addition, Kotiranta introduced the term "glass ceiling" which suggests that the possibilities of women to move up in an organization above a certain hierarchical level are hindered by gender discrimination. Since women are generally harder to move up into the management level, they have to have exceptional leadership skills to be promoted. Glass ceiling strongly limits a firm's ability to hire capable leaders and as a result restricts a firm's economic growth. However, breaking this glass ceiling is very beneficial to businesses. In an early study, Chusmir and Durand [2], considering the barriers for women to be promoted, concludes that a 12 percent productivity gain could be achieved among female employees by reducing barriers to advancement.
In summary, those industries that are more flexible and require more creativity would benefit more from gender diversity.
C. Social Acceptance of Female Leaders Helps their Positive Effect
Reguera-Alvarado [11] reported her findings on women leadership by examining the relation between board gender diversity and economic results in Spain, which was the second country in the world to legally require gender diversity at the management level. Her findings suggested that women leadership, in this case, the mandatory laws, resulted in an efficient framework and overall economic growth.
Dale-Olsen [3] found different results while studying companies in Norway, a country that had a tradition of using quotas and whose female citi-
zens had a high average education level. However, he found the effect of women on board on firm performance not significant and concluded that such a conclusion could not be drawn for other countries because of possible different policies and traditions.
In An Institutional Approach to Gender Diversity and Firm Performance [17], Zhang brought up a new factor: social acceptance of gender diversity. The finding suggests that the more normatively accepted gender diversity is in a country or industry, the more it benefits a company.
D. Capable Women Leaders Result in Positive Effect
According to Women In Management And Firm Financial Performance: An Exploratory Study (Charles B. Shrader, [13]), women are generally better at supporting relationships and generating ideas and innovation. Shrader's conclusion is that utilizing high percentages of females at all managerial levels benefits companies, especially large companies.
Smith [14] found that women leadership has an ambiguous effect on firm performance among 2500 Danish companies. However, she suspected that the effect depends on not the gender, but the individual women leaders themselves. Positive effects are mainly related to female managers with a university degree while those who do not have a university degree have a smaller, more insignificant effect on the companies. In addition, when comparing individual women leaders, Smith found that leaders who were selected by the staff bring profits to the company, while others who typically have family ties to the company owners were not as capable and as a result did not have a positive effect on firm performance.
Unite [15] also found no clear connection between female leadership and firm performance in his research and concluded that female leaders generally have the same managerial skills with male leaders and thus gives no material effect on firm performance.
In contrast, Kotiranta proposed a different theory after explaining the term "glass ceiling." According to her, since the glass ceiling makes it harder for women
to reach the same position as men, the female leaders who were promoted were in fact more capable. In such situations, female leaders are more capable than male leaders, benefiting the company more.
In Women on Boards and Firm Performance, Mijntje Lückerath-Rovers [8] finds no clear relation between women leadership and firm performance. However, he proposed that companies that hire women leaders merely based on capabilities would benefit more than those who consider other factors.
V. Other Impacts of Female Leaders on Companies
Even though in some cases, women leadership did not show direct impact on company performance, they do have other impacts on a company. These impacts, although lacking sufficient evidence, are potential factors that may improve company performance in the long run.
Women leadership may promote better corporate credit rating
According to Does Gender Diversity Make a Difference in the Boardroom? (Vikram K. Nanda, [9]), gender diversity - women on board - has a positive association with several factors that potentially influence a company's performance. It is found that the proportion of independent female directors has a significant positive impact on credit rating. Following associations are found: 1) the positive association between the proportion of female directors and the change in pension value is driven by noncorporate female directors; 2) directors with more frequent board meeting attendance will have a greater effect on board decisions; a positive association between independent female directors and pension compensation is driven by attentive female directors;
pension compensation is driven by compensation committee female directors.
Gender Diversity on Board Lowers Firm Risk
Yang [16] discussed the effect of gender diversity in the boardroom on firm risk and found that the firms that are affected by the Norwegian gender-balancing quota score lower in terms of performance but are characterized by less risk - which might positively affect firms' long-term success and survival. However, a low risk might be seen as positive or not as optimal depending on various perspectives. As a result, the effect of women on board regarding risk remains unclear in the long run.
VI. Conclusion
There is no definite answer to the question of whether women leadership has a positive impact on the companies' performance. Many researchers agree that women leadership could bring positive impact, while some studies found no definitive positive correlation. The hypothesis was that women's impact may not have directly shown on company performance, but in other aspects also benefits the company. Furthermore, the relation between women leadership and company performance is non-linear. Overall, females bring much more than merely gender diversity but diversity in thinking, communication, and working methods. Female leaders will have a significant positive impact if a country has a history of hiring a high percentage of both female employees and female leaders, hires enough amount of female leaders so their voices could be heard, and make sure the leaders have the capability and managerial skills. Ultimately, while the answer to whether women leaders improve firm performance remains unclear, it is worthwhile for companies to employ women leaders not just for general equality but also for potential economic benefits.
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