The relationship between gender diversity and corporate profitability : the top 100 companies on the JSE Ltd

M.Comm.Although there has been some improvement over the last decade, the representation of women on corporate boards in many countries, including South Africa, is still alarmingly low. In the quest for gender equality in top corporate ranks and for better corporate governance, legislators and institutional investors have both called for greater diversity on corporate boards. This study determines whether the desired increase in gender diversity on boards, measured as the proportion of women on the board, is linked to greater corporate profitability, in an attempt to establish if there is any justification for appointing women to the board on the grounds of firm financial profitability. The study uses the Top 100 companies listed on the JSE to examine the nature of the relationship between board gender diversity and corporate profitability, for the period 2004 to 2008. Findings from correlation and regression analyses both portray a positive association between gender diversity in the boardroom and corporate profitability, but a negative association for gender diversity in the executive suite. Industry comparative analysis also shows that, on average, companies with one or more female directors outperform other companies on all three measures of profitability: return on assets, return on equity, and return on sales, whereas companies with one or more female executives show lower average profitability. Therefore, the study can advocate the appointment and inclusion of women on corporate boards from a financial or company profitability perspective, but it cannot do the same for female executives. Key words Gender diversity, corporate profitability, gender equality, corporate governance, board of director