Female directors and the cost of debt: does gender diversity in the boardroom matter to lenders?

Abstract

Purpose This paper aims to investigate the question concerning whether gender diversity in the boardroom matters to lenders or not? Design/methodology/approach To answer this question, the authors use the data from 2009 to 2015 of all A-share listed companies on the Shanghai and Shenzhen stock exchanges. The authors use ordinary least squares regression and firm fixed effect regression to draw our inferences. To check and control the issue of endogeneity the authors use one-year lagged gender diversity regression, two-stage least squares regression, propensity score matching method and Heckman two-stage regression. Findings The results suggest that the presence of female directors on the board reduces managerial opportunistic behavior and information asymmetry and, consequently, creditors’ perceptions about the probability of loan default and the cost of debt. The authors find that lenders charge 4 per cent less from borrowers that have at least one female board member than they do from borrowers with no female board members. The authors also find that the board structure (i.e. gender diversity) of government-owned firms also matters to lenders, as government-owned firms that have gender-diverse boards have a lower cost of debt (i.e. 5 per cent lower interest rate). Practical Implications The findings have implications for individual borrowers and for regulators. For example, borrowers can get debt financing at lower rates by altering their boards’ composition (i.e. through gender diversity). From the regulatory perspective, the results support recent legislative initiatives around the world regarding female directors’ representation on boards. Originality Value This paper makes several contributions. First, beyond the recent studies on boardroom gender, the authors investigate the relationship between gender diversity in the boardroom and the cost of debt. Second, the authors extend the literature on the association between government ownership and cost of debt by first time providing evidence that the board composition (e.g. gender diversity) of government-owned firms also matters to the lenders. The other contributions are discussed in the introduction section.

Gender Diversity in Boards of Directors: A Bibliometric Mapping

“…By searching the Web of Science with the keywords diversity, board and gender, the results show that only 11 articles were published in 2009 on the general subject of gender diversity, while there were more than 280 publications recorded in 2019. In general, the issue addressed in most of the scientific articles that deal with this subject is whether the presence of women in boards of directors is associated with improved company performance [20], which is measured by financial results [21], the company's level of debt [22] and corporate social responsibility [23]. Other authors have studied the subject from different perspectives, including: the gender pay gap [24], work-life balance [25] and gender quotas [26].…”

Gender board diversity and the cost of bank loans

“…First, we examine the extent to which female board representation reduces information asymmetry between lenders and borrowers with implications for the cost of bank lending. Previous empirical studies find that female CFOs reduce the cost of bank loans (Francis, Hasan and Wu (2013)), while Pandey, Biswas, Ali and Mansi (2019) and Usman, Farooq, Zhang, Makki and Khan (2019) conclude that female presence on the board is negatively associated with the cost of debt, as proxied by interest expense over debt. The latter approach relies on approximating the cost of debt and, due to the aggregation, it can be influenced both by increases in expenses (numerator) and reduction in debt (denominator).…”

Capital Structure and Board Characteristics in Firm Performances of Indonesian LQ45 Companies

“…It can position the diversity of board gender and educational background to be moderating variables in the influence of capital structures on firm performances. The debtholders consider that the quality of corporate governance mechanism my control the manager's opportunistic behavior, and regard that the heterogeneity in the board composition as a reliable source of assurance of the firm's economic performances (Usman et al, 2019). Regarding leverage, funding in debts is more favorable.…”

“…Female directors tend to use less debt or external financing since they are more risk-averse (Faccio et al, 2016). When external financing is needed, women's representation in the board can make the lenders charge fewer costs for the debts (Usman et al, 2019;García-Sánchez et al, 2017); thus, it can improve the firm's financial performances. Diversity in the board, such as higher education level and business, finance education background, increases the board's monitoring and supervision functions (Hillman & Dalziel, 2003)…”