Women on Board: Does the Gender Diversity Reduce Default Risk?

55 Pages Posted: 25 Jan 2018 Last revised: 30 Jan 2018

See all articles by Searat Ali

Searat Ali

affiliation not provided to SSRN

Benjamin Liu

Griffith University - Department of Accounting, Finance and Economics

J.J. Su

Griffith University

Multiple version iconThere are 2 versions of this paper

Date Written: January 30, 2018

Abstract

We provide the first comprehensive and robust evidence on the causal effect of boardroom gender diversity on default risk for 831non-financial Australian firms over the period from 2008 to 2013. We show that the proportion of female directors have an overall negative effect on default risk. The inverse effect of gender diversity on default risk is robust to alternative measures of gender diversity and default risk, and to alternative econometric specifications including the control for time-invariant firm characteristics, instrumental variable approach, propensity score matching, difference-in-differences, models based on changes in variables, and dynamic panel data estimation techniques. We also find that gender diversity reduces default risk through the mechanism of decreased information asymmetry (i.e., improved information environment). Further, we show that the inverse effect of gender diversity on default risk is stronger for firms with weak external governance and strong internal governance, suggesting that gender diversity could act as partial substitute for weak external governance quality but complementary for internal governance quality. Since the benefits of adding more females to boards are under current discussion, these findings will enrich the regulatory debate and also provide a guideline to investors and firms in designing appropriate trading strategies and governance structures, respectively. Overall, our results support the recent calls for more females sitting on corporate boards.

Keywords: Women directors, gender diversity, default risk, information asymmetry, corporate governance.

JEL Classification: G12, G30, G34, J16

Suggested Citation

Ali, Searat and Liu, Benjamin and Su, J.J., Women on Board: Does the Gender Diversity Reduce Default Risk? (January 30, 2018). 9th Conference on Financial Markets and Corporate Governance (FMCG) 2018. Available at SSRN: https://ssrn.com/abstract=3109256 or http://dx.doi.org/10.2139/ssrn.3109256

Searat Ali (Contact Author)

affiliation not provided to SSRN

Benjamin Liu

Griffith University - Department of Accounting, Finance and Economics ( email )

PMB 50
Gold Coast Queensland 9726
Australia

J.J. Su

Griffith University ( email )

170 Kessels Road
Nathan, Queensland QLD 4111
Australia

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