Board Gender Diversity and Firm Performance: Recent Evidence from Japan

Abstract

Gender diversity is increasingly recognized as a critical element in corporate management. However, existing research on its impact on firm performance demonstrates inconsistency in a global context. This study employs 1990 publicly listed Japanese companies from 2006 to 2023 and examines the effect of board gender diversity on firm performance in Japan. Findings from the fixed-effects regression model revealed a significant negative impact of board gender diversity on firm performance. This adverse correlation is more pronounced in smaller firms, those with greater leverage and reduced institutional ownership, and regulated and consumer-focused industries, particularly pre-COVID-19. The detrimental impact of board gender diversity on firm performance is transmitted via corporate social responsibility and firm innovation instead of board independence or CEO duality. Notably, the two-stage least squares estimation addresses potential endogeneity, employing an equal opportunity policy as an instrumental variable. Moreover, the robustness of our results is affirmed via the substitution of return on equity for return on assets as an indicator of firm performance. Lastly, our analysis does not reveal a U-shaped nonlinear relationship between board gender diversity and corporate performance. As Japan progressively promotes women’s participation in corporate governance, this research bears significant implications for corporate leaders, investors, and policymakers in Japan.