Cracks in the Boards : the Opportunity Cost of Governance Homogeneity

Does the composition of governance affect firm outcomes? We exploit the timings and thresholds of a gender quota in boards of directors and supervisory boards to causally determine the impact of a change in leadership on performance. Using a novel design and data on boards, we find that firms forced to comply with the 2011 gender quota in France increased their profit margin by 5.4 percent relative to firms with unchanged boards thereby limiting diminishing profitability. We identify a shift in their cost structure away from excessive purchasing of services such as out-sourcing and sub-contracting. The decision to only marginally increase this expenditure is more optimal as their revenue grows. We show that our effects are nearly entirely explained by the first newcomer in the board. The persistence of our estimates provide evidence for its role in updating knowledge and suggest the relevance of governance heterogeneity for performance