Board gender diversity and firm risk: international evidence

Abstract

Purpose This paper aims to uncover the global trend on the relationship between board gender diversity and firm risk. In addition, this paper investigates how country characteristics affect the relationship between board gender diversity and firm risk. Design/methodology/approach This study uses a large sample of firms in 45 countries for the period from 2002 to 2018. Ordinary least square regression is used as a baseline methodology, along with firm fixed effects. Difference-in-differences regression, two-stage least squares regression (instrumental variables approach) and change-on-change regression are adopted to better mitigate endogeneity. Findings This study finds that board gender diversity is associated with lower firm risk worldwide. In addition, the negative effect of board gender diversity on firm risk is more pronounced for firms that can more easily attract female directors, and for countries with lower power distance and greater preference for individualism. Practical implications The findings offer insights into the intense debate in recent years among academics and practitioners on the effect of board gender diversity on firm outcomes. Shareholders and directors may take the findings into account when they consider appointing female directors. The findings should be of interest to policymakers in countries that have not yet promoted board gender diversity. Originality/value By using an international sample with board gender quotas in different countries, this paper provides novel and persuasive evidence regarding the impact of board gender diversity on firm risk. This paper also adds to the literature by showing that the relationship between board gender diversity on firm risk is influenced by country characteristics.

Women on boards, firm earnings management (EM) and performance nexus: does gender diversity moderate the EM–performance relationship?

“…(2019) revealed a negative relationship between women on boards and firm risk, but a positive impact of women on boards and firm risk on profitability. The study further reported a positive significant impact of women on boards on observable dynamics of the board, thus supporting the group dynamics mechanism through which women on boards may reduce risk but improve profitability, and hence nullifying the stereotypical misconception of women as generally being risk averse (Li et al, 2022;Ozdemir and Erkmen, 2022). Janssen (2019) also demonstrated in his thesis how EM and gender diversity complement in explaining firm performance, in that, EM mediates as well as moderates the relationship between gender diversity and performance of firms sampled from ten countries of the European Economic Area without a gender quota.…”

“…Boadi et al (2022), whose study supports pro-gender diversity on boards, demonstrate that greater boardroom gender diversity generates technical efficiencies for banks in Ghana. Li et al (2022) also found that board gender diversity is associated with lower firm risk worldwide. The results of Guizani and Abdalkrim (2022) also show that board gender diversity could help to improve board effectiveness by preventing corporations from being too exposed to financial distress and bankruptcy.…”

Board Gender Diversity and its Impact on Firm Risk-Taking

“…Firm risk-taking is measured by the stock return volatility as a proxy for firm risk, which captures total risk, including firm-specific risk and market risk. Previous finance studies have frequently adopted stock return volatility as a proxy of firm total risk (Hurley & Choudhary, 2020;Achour, 2021;Mastella et al, 2021;Li et al, 2022). Board gender diversity is measured by: (1) Gender variety in a board is formulated by the Feblau Index, (2).…”

The Effect of Board Gender Diversity on the Company: A Literature Review

“…Abou-El-Sood, (2021) Finding the Board's gender diversity positively influences corporate risk-taking. Li et al, (2022) It found the board's gender diversity was negatively associated with corporate risk.…”