Gender Diversity in the Boardroom and Firm Performance: What Exactly Constitutes a 'Critical Mass'?

The under-representation of women on boards is a heavily discussed topic – not only in Germany. Based on critical mass theory and with the help of a hand-collected panel data set of 151 listed German firms for the years 2000-2005, we explore whether the link between gender diversity and firm performance follows a U-shape. Controlling for reversed causality, we find evidence for gender diversity to at first negatively affect firm performance and – only after a “critical mass” of about 30 percent women has been reached – to be associated with higher firm performance than completely male boards. Given our sample firms, the critical mass of 30 percent women translates into an absolute number of about three women on the board and hence supports recent studies on a corresponding “magic number” of women in the boardroom.