Women on boards, firm risk and the profitability nexus: Does gender diversity moderate the risk and return relationship?

Muhammad Nadeem, Tahir Suleman and Ammad Ahmed

International Review of Economics & Finance, 2019, vol. 64, issue C, 427-442

Abstract: The risk and return implications of women on boards (WOB) are generally discussed in the arena of individuals’ risk preferences, and most previous studies conclude that women are risk-averse. If this argument is true, then firms with gender-diverse boards are likely to be less competitive in industry because they make less risky decisions. We explore another mechanism called “group dynamics”, through which WOB may moderate the firm risk and return relationship. Based on a relatively large dataset of UK listed firms for the period of 2007–2016, our results reveal a negative relationship between WOB and firm risk, but a positive impact of WOB and firm risk on profitability. Furthermore, we report a positive significant impact of WOB on observable dynamics of the board. Our findings support the group dynamics mechanism through which WOB may reduce risk but improve profitability, nullifying the stereotypical misconception of women as being risk-averse. This is further supported by a positive significant impact of WOB on firm leverage. Our results are robust to endogeneity issues, alternative gender diversity and risk measures. This study endorses recent regulatory changes, worldwide, that promote gender diversity on corporate boards. The study recognizes the group dynamics mechanism that may alter the risk-return relationship.

Keywords: Women on boards; Firm risk; Group dynamics; Risk-aversion; Board gender diversity (search for similar items in EconPapers)
JEL-codes: G3 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:64:y:2019:i:c:p:427-442

DOI: 10.1016/j.iref.2019.08.007

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