(FORTUNE Magazine) – Ever since we launched FORTUNE's Most Powerful Women list in 1998, we've noticed that many top-performing companies--such as Citigroup, Southwest Airlines, Viacom, and Avon--have an above-average population of women at the top. Now there's some hard evidence that gender diversity and financial performance are linked. A just-released study of FORTUNE 500 companies by Catalyst, the research firm that tracks corporate women, shows that companies with the highest representation of senior women had a 35% higher return on equity and a 34% higher return to shareholders than companies with the fewest women near the top. Catalyst looked at both the management teams and financial performance of 353 FORTUNE 500 companies from 1996 to 2000.

While the study suggests a connection between female power and financial prowess, does one actually cause the other? Catalyst's researchers hazard that gender-balanced companies fish the entire talent pool and manage to avoid the sort of herd mentality that can stunt creativity--both competitive advantages. "Good companies manage well in multiple areas," figures Catalyst president Ilene Lang. "If you're doing a good job with your talent, you're probably doing a good job around marketing and sales and product development too." --Patricia Sellers