Gender Diversity and Financial Performance in Law Firms

Abstract

This thesis sets out to answer the question, “Does gender diversity among partners in law firms impact the financial performance of the firm?”. To address this, a dataset was created comprising the top 20 Norwegian firms ranked by revenue in 2023, tracking their financial performance over the period 2010–2023. The key financial metrics EBITDA Margin, Revenue per Partner, and Cost Ratio, are analysed using panel data regression models with the fraction of female partners in the firm as the key independent variable. Control variables included are the number of partners, the number of employees, and the yearly employee growth of the firm. Due to the absence of exogenous variation of the key independent variable, Fraction Female, the thesis focuses on identifying correlations rather than establishing causal relationships.

The findings reveal mixed results. While no meaningful correlation is observed between gender diversity and Revenue per Partner, a subtle negative relationship is detected for EBITDA Margin, which becomes statistically significant with a two-year lag. This suggests that increased female representation among partners may be associated with a slight decrease in profitability over time. Similarly, the Cost Ratio shows a delayed positive correlation with gender diversity, indicating higher costs after a two-year lag.

The study highlights several limitations, including the small sample size (280 observations), low explanatory power of the regression models, and the exclusion of potentially important control variables such as partner specialization and experience. While the results provide insights into the correlation between gender diversity and financial performance, they underscore the need for further research leveraging exogenous variation to assess causality.