Does gender diversity in the boardrooms affect bank financial performance: Evidence from European banks.

Abstract

Traditionally the financial sector has been led by men but during the 21st century gender diversity has increased also in the financial sector. Due to the banks' important role in society, it is essential that banks are governed by a competent board of directors and banks perform well. This study examines the impact of board gender diversity on European banks' financial performance over the period from 2011 to 2017. During this sample period, the percentage of women on the board of directors increased by 90.23 %. Using panel data analysis, I find a statistically significant correlation between the percentage of female board members and banks' financial performance measured by return on assets (ROA) and by Tobin’s Q. Furthermore, I find a statistically significant and inverse relationship between the percentage of female board members and banks’ financial performance measured by net interest margin. In addition, the impact of Basel III regulation on banks with different level of board gender diversity is examined. Applying the difference-in-differences estimation model, I find that after the prescription of Basel III, banks with a higher percentage of women on their boards had 1.76 % higher values of Tobin’s Q. The results of this study suggest that the composition of the board of directors impacts on the bank's financial performance and the development toward more gender diversified boards support the companies' success in the business.