Empirical Studies on Gender Diverse Boards: Be Aware of the Value Bias in Corporate Debt
20 Pages Posted: 17 Feb 2019 Last revised: 27 Mar 2019
University of Tuebingen - Department of Banking
University of Tuebingen
Date Written: March 22, 2019
We analyze if the empirical research on the consequences of a board’s gender diversity is affected by a specific measurement bias in Tobin’s Q: the value bias in corporate debt (VBCD). Book values of corporate debt are a more downward biased proxy of the market values of debt if increased board’s gender diversity comes with a reduction in corporate risk-taking. Nevertheless, the market values of corporate debt are frequently approximates by their book value when measuring Tobin’s Q.
We first show the VBCD using bond market data and its link to higher board’s gender diversity. Second, we replicate two recent studies on the link between a board’s gender diversity and the firm’s performance. We show how the VBCD impacts the estimations and inferences. Coefficient sizes and significance levels are both affected by the VBCD. Third, we recommend an easy-to-implement correction that explicitly accounts for risk changes in the values of corporate debt.
Keywords: Female Board Members, Book Value Bias, Performance, Risk, Tobin’s Q
JEL Classification: G38, G32, M14
Suggested Citation: Suggested Citation