The Impact of Boardroom Diversity on Company Performance Using Propensity Score-Based Estimators (PSM)

Abstract

Clement Uwizeye

This study investigates the impact of boardroom diversity on firm performance utilizing propensity score- based estimators (PSM). Drawing from a comprehensive literature review, it is established that gender diversity in boardrooms positively influences firm performance, particularly in the financial sector. Using panel data from 503 UK firms over the period of 2015-2017, the analysis focuses on key performance indicators such as market capitalization and leverage. Employing various econometric models, including binary treatment and augmented inverse-probability weighting, the study reveals significant positive effects of female board- room participation on firm performance. Specifically, an increase in female representation is associated with higher market capitalization and an increased leverage ratio, indicating a propensity for riskier investments. Furthermore, the study explores the nuanced effects of different levels of female director representation, highlighting the importance of substantial gender diversity for optimal firm performance. Despite potential limitations such as treatment selection bias and omitted variable bias, the models demonstrate robustness and contribute to the existing literature by providing empirical evidence supporting the positive impact of boardroom diversity on company performance.

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