Restrictive and Supportive Mechanisms for Female Directors’ Risk-Averse Behavior: Evidence From South Asian Health Care Industry

Abstract

This article aims to understand the impact of gender diversity on a firm’s equity volatility along with the moderating effect of chief executive officer (CEO) pay–performance sensitivity, institutional activism, and corporate social responsibility (CSR) activities. The sample consists of 200 South Asian health care firms over the period 2010 to 2018. After confirming the prevalence of endogeneity, we rely on the results of system generalized method of moments (GMM) rather than any static model. The results show that a higher representation of women on the board can mitigate the firm’s equity volatility. The findings of the study also purport that CEOs with higher pay–performance sensitivity exploit female directors to take the excessive risk, whereas institutional investors support the risk-averse behavior of these directors. However, we find no statistical evidence that CSR activities moderate the relationship between gender diversity and firm’s equity volatility. Our results theoretically support both stakeholder and agency perspectives that South Asian capital markets should enhance the representation of women on board to mitigate agency conflicts and to improve long-term firm’s sustainability.

Gender diversity, sustainability reporting, CEO overconfidence, and efficient risk‐taking: Evidence from South Asian agri‐food industry

“…Prior studies favor System GMM over Difference GMM due to its ability to estimate models simultaneously in both first differences and levels (Sila et al., 2016; Yahya et al., 2020). It allows the estimator to use more valid and powerful instrumental variables to mitigate the dynamic endogeneity (Roodman, 2009).…”

Women in monitoring positions and market risk. Are the stocks of companies with gender diverse boards less volatile?

“…Furthermore, to test the robustness of the results, we performed additional estimations. First, considering that the use of the lagged dependent variable as a regressor could cause autocorrelation problems, a second-order generalized method of moments (GMM) model was used in order to deal simultaneously with endogeneity and autocorrelation problems ( Arellano and Bover, 1995 ; Yahya et al, 2020 ). Second, we applied lagged fixed effects using the Blau index as a proxy for gender diversity on the board, with the intention of isolating the causal relationship between this variable and risk ( Adams and Ragunathan, 2017 ).…”

“…Studies on companies in the United States ( Baixauli-Soler et al, 2015 ; Hurley and Choudhary, 2020 ), China ( Jebran et al, 2020 ), South Asia ( Yahya et al, 2020 ), Canada ( Chakraborty et al, 2019 ), Italia ( Rossi et al, 2017 ), and the U.K. ( Jizi and Nehme, 2017 ) found that the percentage of female board members shows a negative relationship with the total risk of the company’s shares in the stock market. Analogous results are found in two studies conducted on a sample of international banks ( Birindelli et al, 2020 ) and a sample of banks in the Arabian Gulf States ( Abou-El-Sood, 2019 ).…”

“…According to Agency Theory, managers (agents) might make decisions that are for their own benefit but detrimental to the interests of shareholders (principals), since agents and principals do not always have common interests ( Jensen and Meckling, 1976 ; Fama and Jensen, 1983 ). Board gender diversity strengthens monitoring ( Achour, 2022 ) by restricting opportunities for managers and limiting risky behavior ( Jia, 2019 ; Yahya et al, 2020 ). Moreover, it reduces the possibility of earnings management practices and manipulation of financial statements ( Qayyum et al, 2021 ).…”

Boosting Sustainability in Healthcare Sector through Fintech: Analyzing the Moderating Role of Financial and ICT Development

“… 82 We ensured the validity of instruments through the Hansen- J test while the insignificant AR(2) test shows that model may not suffer from second-order autocorrelation. 85 There is also no issue of instrument proliferation as the number of instruments is less than the number of groups. 86 Since our study combines macro-level and firm-level data, GMM is also appropriate for such types of datasets.…”