Women's Empowerment and Financial Performance

At Pax World, we believe that investing in companies that advance and empower women is a smart investment strategy. Why?  Because companies that take advantage of the talents, ideas and contributions of women are likely to reap the benefits in terms of improved corporate governance and improved long-term financial performance compared with their less enlightened competitors. 

Our view is supported by numerous academic studies examining board and executive diversity, corporate governance, and inclusion of women at all levels of corporations, and the effect that this gender empowerment has on financial performance.  The studies highlighted below are just a few of the many examples of this rich literature.

Board and Executive Diversity

  • Thomson Reuters analyzed the status of women in management and on boards among large companies globally, and concluded that companies with greater numbers of women perform better in volatile or declining financial markets.  Over the course of 2011, companies in the STOXX 600 ( European index of large companies) with more than 30% women managers outperformed those with less than 20% women managers by nearly 8%.  Also, companies in the MSCI World Index1 whose boards were made up of at least 30% women outperformed companies whose boards were less than 20% women by 6% during the period of greater market volatility (April through December 2011).2
  • Catalyst, a leading nonprofit organization dedicated to expanding opportunities for women and business, found that those companies with the highest percentage of women on their board of directors outperformed those with the lowest percentage in terms of two widely-used measures of financial performance:  return on sales and return on invested capital.3
  •  A study of Australian companies’ announcements of new board appointments shows that the financial market consistently reacts more positively to the appointments of female directors than male directors after controlling for director, board, form and industry.4
  • Several studies have found that firms having female senior executives, particularly Chief Financial Officers, tend to have higher earnings quality and more favorable terms in bank loans.5
  • A 2008 study found that “firms operating in complex environments do generate positive and significant abnormal returns when they have a high proportion of women officers.”6
  • Another 2008 study found that there is a positive association between financial value (Tobin’s Q, another widely used financial measure) and female management participation, which is driven by the fact that diverse groups do a better job of eliciting creativity and collaboration.7 
  • Companies with greater numbers of women in senior management scored higher than lower-ranked counterparts on nine dimensions of organization such as leadership, accountability and organization and those higher-scoring companies are more likely to have above average earnings and financial valuations.8
  • Several studies report that companies with greater gender diversity in leadership positions—boards and senior management—have higher earnings quality than companies whose leadership is more dominated by men.  Earnings quality is highly valued by financial markets, which see high-quality earnings as more reliable and better indicators of fundamental business performance.9


We embrace gender diversity in our business for the same reason that we promote gender diversity among the companies we invest in: we believe that when women are at the table, the discussion is richer, the decision-making process is better, and the organization is stronger. Companies that effectively incorporate gender diversity into their boards, management teams and workforces are not only better able to attract and retain talented women, but are more likely to be successful in an increasingly competitive global marketplace. We think such companies are better long-term investments—and at Pax World, we want our shareholders to share in their success.

We believe investing in women is not only the right thing to do; it’s also the smart thing to do. Gender equality is not only a moral imperative; it’s an investment concept. At Pax World, we are committed to advancing this concept—and to providing investors the opportunity to make a difference for women and girls around the world.

1Effective January 1, 2012, the performance benchmark of the Global Women's Equality Fund changed from the MSCI World Large Cap (Net) Index to the MSCI World (Net) Index. The Fund believes that the MSCI World Index is more reflective of the portfolio characteristics of the Global Women's Equality Fund and its global focus. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Performance for the MSCI World Index is shown “net,” which includes dividend reinvestments after deduction of foreign withholding taxes. Investors cannot invest directly in any index.

2André Chanavat, “Women in the Workplace:  Latest Workforce Trends in Gender Equality,” Thomson Reuters Special Report, 2012, http://updates.thomsonreuters.com/ebook/#0

3Catalyst, “The Bottom Line:  Corporate Performance and Women’s Representation on Boards (2004-2008),” 2011.
 
4Renee Adams, Stephen Gray and John Nowland, “Does Gender Matter in the Boardroom?  Evidence from the Market Reaction to Mandatory New Director Announcements,” 2011. 

5See, for example, Gopal V. Krishnan and Linda M. Parsons, “Getting to the Bottom Line:  An exploration of Gender and Earnings Quality,” no date), Ferdinand A Gul, Gin Srini dhi and Judy Tsui, “Do Female Directors Enhance Corporate Board Monitoring?  Some Evidence from Earnings Quality,” September 2007, and Bill Frances, Iftekhar Hasan and Quang Wu, “The Impact of CFO Gender on Bank Loan Contracting,” Bank of Finland Research Discussion Papers 18, 2011.

6Claude Francoeur, Réal Labelle, and Bernard Sinclair-Desgagné, “Gender Diversity in Corporate Governance and Top Management,” Journal of Business Ethics, 2008. 

7Cristian L. Dezsö and David Gaddis Ross, “’Girl Power’: Female Participation in Top Management and Firm Performance,” August 2008, posted at http://ssrn.com/abstract=1088182.

8Georges Desvaux, Sandrine Devillard-Hoellinger, and Mary C. Meaney, “A Business Case for Women,” McKinsey Quarterly, September 2008.

9See, for example, Gopal V. Krishnan and Linda M. Parsons, “Getting to the Bottom Line:  An Expkoration of Gender and Earnings Quality,” Journal of Business Ethics 78:1-2, and Ferdinand A Gul. Gin Srini dhi and Judy Tsui, “Do Female Directors Enhance Corporate Board Monitoring?  Some Evidence from Earnings Quality,” September 2007. 

The Pax World Women's Empowerment Platform

At Pax World, we believe that the status and role of women is also an excellent clue to a company’s growth potential.

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