Women in the boardroom: a bottom-up approach to the trickle-down effect

This paper argues that role modeling can explain the impact of boardroom gender diversity on corporate performance. It theorizes that female workers are boosted by female leadership, gain increased motivation, and achieve greater productivity, thereby making their female directors more effective. We test this bottom-up approach to the trickle-down hypothesis on data hand-collected among local cooperatives providing microcredit in Senegal. All the organizations surveyed are similar and small, which allows us to use a homogenous performance metric. All of them outsource their human resource management to the same third party, which mitigates the risk of endogeneity. The data cover over 100,000 triads composed of gender dominance on the board, gender of CEO, and gender of credit officer. A better financial performance is achieved when the triad is gender-uniform-be it male or female-confirming the importance of role modeling and suggesting that the performance of female board members depends on the gender composition of the workforce. Plain English summary Women's leadership styles differ from men's. But we still ignore whether the styles adopted by male and female directors make any difference in terms of financial performance. Scholars hold controversial views about whether and how the financial performance of firms depends on gender diversity in the boardroom. This article speculates that female directors act as role models on their subordinates ("trickle-down effect") and their impact is "bottom-up" in the sense that female workers gain increased motivation when working under female leadership. We hand-collected data from financial cooperatives in Senegal. These organizations enabled us to observe the unlikely situation of boards including over 50% of women. We measured financial performance with loan repayment. Our results confirm that female-dominated boards achieve a better financial performance when they work with female CEOs and female subordinates. The principal implication is that the performance of female board members depends on the gender composition of the workforce.