Do female directors affect the cost of equity capital?

Md. Borhan Uddin Bhuiyan and Muhammad Nadeem

China Accounting and Finance Review, 2025, vol. 27, issue 5, 655-693

Abstract: PurposeWe investigate the effect of female directors on the firm cost of equity capital.Design/methodology/approachWe employ several analytical techniques, including univariate analysis, Ordinary Least Square regressions, and propensity score matching methodology. Our sample consists of US public firms from 2004–2018.FindingsWe find that firms can reduce their cost of equity capital when they have female directors on the board. We reveal that board gender diversity reduces the cost of equity by curbing firm information asymmetry. Our findings are consistent across several alternative contexts for a female director and are robust to endogeneity concerns. Also, we find a negative association between female directorship and the cost of equity capital is notably accentuated during the growth and mature stages of the firm life cycle. Our findings add to the growing literature on the business case for female representation on corporate boards.Research limitations/implicationsOur study shows that gender-diverse boards can reduce a firm’s cost of equity capital. Shareholders perceive female directors as enhancing governance quality and lowering expected returns. Firms can leverage these insights by increasing female representation on the board, influencing their cost of equity and capital structure decisions. This has significant implications for firms and regulators promoting gender diversity.Originality/valueExtant corporate governance research suggests that female directors improve firms’ governance and monitoring. Consistently, we have evidence that shareholders place value on gender diversity on boards and expect lower returns from firms with gender-diverse boards compared to those with all-male boards.

Keywords: Female director; Information asymmetry; Financial reporting quality; Cost of equity capital (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:cafrpp:cafr-07-2023-0073

DOI: 10.1108/CAFR-07-2023-0073

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