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 dataset 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 % women has been reached-to be associated with higher firm performance than completely male boards. Given our sample firms, the critical mass of 30 % 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.