Director Fit Matters: Evidence from Board Gender Quota in France

There are three opposing perspectives regarding the contribution of board gender diversity to the firm’s financial performance (FP): positive impact, negative impact, and no relationship. Scholars have suggested several factors explaining these contradictory results. However, a significant omission is regarding how the board’s social dynamics shape the contribution of female directors to board decision-making, and ultimately to the firm’s FP. Our study attends to this issue by employing the theories of similarity-attraction, social identity, and person-group fit. Using the board gender quota law in France as an exogenous policy shock, we find a differential negative cross-country impact of women on corporate boards on FP (measured either byTobin’s Q or return-on-assets) after the introduction of the gender quota.This impact is explained by the fit between new female directors and existing directors, which is defined as the similarity between them in terms of demographics (age and nationality), human capital (top executive, functional and industrial background), and social capital (educational and elite school background). Overall, our results suggest that a decrease in fit of the female directors following the gender quota contributed to a negative effect of women on boards on FP.We shed new light on the challenge of leveraging board gender diversity by offering a new explanation for the contradictory empirical results related to women on corporate boards and FP.