Three studies over the past six years have found that firms with meaningful female presence on the Board and/or in Management tend to outperform those firms with little or no female leadership.

First, a 2011 study by the non-profit Catalyst found that higher corporate performance is positively correlated to having women on the Board and/or in leadership positions. The study found that the companies with the most women board directors outperform those with the least in terms of return on sales, invested capital and equity by a material margin.

Source: Catalyst. 2011

Second, in 2013 Credit Suisse performed a similar study of 3,000 businesses and also found better financial performance was positively correlated with the proportion of Women Board Members and top management teams. The CS study found “companies with more than one woman on the board have returned a compound 3.7% a year over those that have none since 2005.”

Finally, in 2015 Quantopian, a quantitative research firm, found that the firms in the Fortune 1000 with female CEOs (80 of them on average) outperformed the S&P 500 by 226% between 2002 and 2014. (Quintopian’s simulation invested in a firm when a female was made CEO and sold their position if the female ceased being CEO in favor of a male.)

Quintopian Study. 2015.

As compelling as these studies are, should all companies rush out and hire female leaders and board members? Not so fast. These studies merely found correlation. Is there a causal connection? Maybe.

Correlation does not equal causation: Alice Eagly of Northwestern University has studied this issue and questions whether increased female leadership drives financial performance or whether increased profits leads to the hiring of female board members and management. More on this below. Additionally, Eagly has found that “social processes get in the way of diversity’s potential” and thus adding gender diversity to boards has a very small effect (sometimes negative).

Why might there be a causal connection? According to the article Why Boards Need More Women in the Harvard Business Review, some experts “believe that companies with women directors deal more effectively with risk. Not only do they better address the concerns of customers, employees, shareholders, and the local community, but also, they tend to focus on long-term priorities. Women directors are likely to be more in tune with women’s needs than men, which helps develop successful products and services. After all, women drive 70% of purchase decisions by consumers in the European Union and 80% of them in the United States.” Another argument is that it is more difficult for women to rise to leadership positions (a.k.a. “glass ceiling”) and, thus, if they achieve such a position they are truly the cream of the crop.

On the other hand, similar to Alice Eagly, other experts, such as James Thompson, point out that the correlation may be non-causal:  “successful companies are able to spend money on public relations, of which appointing a few women to top posts would be part, a cynical measure like giving to selected charities or implementing policies to encourage the recycling of company reports.” Yes, cynical. But possible.

Given these recent studies, more research is underway to determine whether there is a causal link between female leadership and company performance.

Don’t want to wait for further studies? A way to invest in this type of strategy* is through the Pax Ellevate Global Women’s Index Fund [PXWEX]. Over the past 10 years it has handily outperformed global stocks but has under-performed the S&P 500.

*note: I am not endorsing this fund by mentioning it. Past performance is not indicative of future returns. Etc.