The Influence of Board Diversity on Capital Structure Decisions: Examining Financial Risk Management Across Different Market Conditions in UK-Listed Firms

Hanan Elmoursy, Mohammed Bouaddi, Mohamed A. K. Basuony, Nariman Kandil and Rehab EmadEldeen ()
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Hanan Elmoursy: Faculty of Management Technology, German University in Cairo, Cairo 11835, Egypt
Mohammed Bouaddi: Onsi Sawiris School of Business, The American University in Cairo, Cairo 11835, Egypt
Mohamed A. K. Basuony: Onsi Sawiris School of Business, The American University in Cairo, Cairo 11835, Egypt
Nariman Kandil: Onsi Sawiris School of Business, The American University in Cairo, Cairo 11835, Egypt
Rehab EmadEldeen: Onsi Sawiris School of Business, The American University in Cairo, Cairo 11835, Egypt

JRFM, 2025, vol. 18, issue 4, 1-19

Abstract: This study examines how board diversity affects the capital structure decisions of United Kingdom (UK)-listed firms on the London Stock Exchange (LSE) under varying market conditions for the period from 2002 to 2021. Data were gathered from BoardEx, ORBIS, and DataStream databases. Linear regression and fixed-effect models were used, along with transition two- and three-regime regression models. The findings reveal that educational diversity consistently negatively affects capital structure across all market conditions. Gender diversity and board independence improve capital structure, except in extreme market states. However, age diversity negatively influences capital structure only in extremely bad market conditions, while board size positively impacts capital structure in good, moderate, and extremely good markets. Nationality diversity has no significant effect across all market conditions. These results align with pecking order, trade-off, and agency theories, emphasizing the need to balance debt and equity. This study highlights the importance of tailoring board composition to market conditions. Enhancing gender diversity and board independence can improve debt financing, especially in stable markets. Companies are encouraged to continually assess board diversity to align with shifting market dynamics for better capital structure decisions.

Keywords: corporate governance; board diversity; gender diversity; educational diversity; age diversity; nationality diversity; capital structure; financial risk management (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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