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Does boardroom gender diversity decrease credit risk in the financial sector? Worldwide evidence

Harald Kinateder, Tonmoy Choudhury, Rashid Zaman, Simone D. Scagnelli and Nurul Sohel

Journal of International Financial Markets, Institutions and Money, 2021, vol. 73, issue C

Abstract: Recent regulatory changes to promote boardroom gender diversity (BGD) around the globe have prompted academic debates about the risk and return preferences of gender quotas. However, most BGD literature has implications for the non-financial sector. We argue that peculiarities associated with the financial sector, such as complex regulations, economic sensitivity, and the quest for better risk management, merit more academic attention from gender diversity studies. This paper fills this literature gap by evaluating how BGD affects credit risk in the financial sector. For this purpose, we analyse a comprehensive sample of listed banks across 20 countries from 2006 to 2017. We find that a one standard deviation increase in BGD increases the distance to default, distance to insolvency and distance to capital by 39.80%, 50.97% and 38.61%, respectively. The role of the critical mass theory in boardroom diversity and bank-specific credit risk nexus is further tested. Our results show that three or more women on board (WOB) significantly reduce bank-specific credit risks. These findings remain robust to alternative methods that alleviate endogeneity concerns. The findings have important implications for practitioners, regulators and academics in the financial sector.

Keywords: Boardroom gender diversity; Critical mass theory; Distance to default; Distance to insolvency; Distance to capital; Tokenism; Women on board (search for similar items in EconPapers)
JEL-codes: G10 G34 M14 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:73:y:2021:i:c:s1042443121000664

DOI: 10.1016/j.intfin.2021.101347

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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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