Boardroom Gender Diversity and Performance of Listed Companies in Italy: A Natural Experiment

The proportion of women in boardroom has traditionally been low around the world. Over the last decades, several jurisdictions have adopted legislative actions in order to trigger a tangible progress in female representation, on the basis of the assumption that gender balanced boards result in improved corporate governance and performance. The investigation of the relationship between female boardroom representation and firm value is therefore key on policy grounds. The empirical evidence gathered so far is however inconclusive, given that potential reverse causality may bias results.

In Italy, the Law 120/2011 (the ‘Law’) imposed mandatory quotas for the three board appointments subsequent August 2012, by setting out a minimum objective of one-third of the corporate board seats for members of the under-represented gender, lowered to one-fifth for the first term. The Italian law has introduced an exogenous shock in board composition, which sets up a natural experiment and enables to overcome the endogeneity problem potentially impairing the analysis of boardroom diversity.

Our paper ‘Boardroom gender diversity and performance of listed companies in Italy’ analyzes the effects of the Law for all listed Italian firms over the period from 2008 to 2016. First, our paper evaluates the effectiveness of the Law, namely its impact on boardroom gender diversity. In particular, it assesses whether Italian listed firms have applied the law going beyond the minimum threshold set forth by the Law or whether they have strictly followed the minimum standards imposed., The paper also evaluates whether the entry of new female directors pursuant to the Law has modified other board characteristics, such as the level of education, the average board age, the diversity in terms of age and professional background, the presence of interlocker directors. Secondly, our study assesses the impact of women representation on corporate performance, as proxied by various variables, such as the return on equity (ROE), return on assets (ROA), return on invested capital (ROIC) and return on sales (ROS) of Italian listed companies.

As for the first question, results show that, following the entry into force of the Law, the presence of women directors increased by 17 percentage points at the first board appointment (instant reform effect) and by 11 percentage points at the second appointment (follow-up effect). Indeed, since 2012 gender diversity has been steadily advancing. By the end of June 2017, nearly all listed companies have gender diverse boards, while women directors represent over one-third of all board members (33.6%), marking the highest figure ever recorded and reaching the mandatory gender quota.

The analysis also shows that the law has affected some other boards attributes. In particular, there was an increase in the presence of graduated directors, a marginal decrease in the average age after the first post-reform election and a significant positive instant effect in the diversity of age. The reform also seems to have reduced the percentage of managers in the board in favor of consultants/professionals. Finally, the reform seems to have significantly reduced both the average number of directorships for director and the average number of interlockers in the boardroom. However, the percentage of women interlockers has increased steadily after the law with instant and follow-up effects that are significantly positive and equal, respectively, to 16-17 percentage points and 20 percentage points. This result could be due to the fact that the pool of women which could be selected as directors in Italian listed firms is limited and hence the same women end up with having multiple directorships.

As for the impact of the enhanced gender diversity on firm performance, findings show a significant U-shaped impact of gender-diversity on corporate variables such as ROA, ROE, ROIC and ROS, with marginal effects being positive when the proportion of women in the boardroom goes beyond 17%–20%. Hence, female representation yields a positive impact when it exceeds a threshold ranging between about 17% and 20% of the board members, depending on the specification. Given the average board size, ie around ten members over the time period considered, this would imply that a significant effect of gender diversity on corporate performance starts to emerge when at least two women hold a board seat. This evidence supports the idea underpinning the critical mass theory, ie, the hypothesis according to which women minorities in groups are subjective to discriminating behavior, and hence are not able to influence group. Two or more women may be needed to catalyze female effective activeness.

Giovanni SF Bruno is a tenured researcher at the Department of Economics, Bocconi University.

Angela Ciavarella is a member of the Economic Research Unit at the Commissione Nazionale per le Societa e la Borsa (CONSOB), Italy.

Nadia Linciano is Head of the Economic Research Unit at the Commissione Nazionale per le Societa e la Borsa (CONSOB), Italy.