Gender Diversity and Default Risk: A Global Perspective

Abstract

We are the first to investigate the effect of board gender diversity on default risk across countries, largely focusing on various aspects of institutional setting at country-level. Intuitively, board gender diversity is likely to influence default risk as women on the board improves the board effectiveness and mitigates information asymmetry between management and shareholders. Using a large panel of non-financial firms in 48 countries over the period 2004–2015, we find a significantly negative relationship between women on the board and default risk. This finding is statistically significant, economically meaningful and robust to a range of alternative proxies, to additional tests, and to a natural experiment setting. Moreover, we find that the negative effect of board gender diversity on default risk is more pronounced in countries with strong institutional setting. These findings not only have profound implications for the stakeholders of the firm but also are useful to the countries where government increasingly expect board gender diversity policies.

Keywords: board gender diversity, default risk, information asymmetry, institutional setting, and global markets

JEL Classification: G12, G30, G34, J16