The relationship between board gender diversity and firm risk-taking among the S&P 500 firms
Mai, My Linh (2022-02-06)
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2022020818248
https://urn.fi/URN:NBN:fi-fe2022020818248
Tiivistelmä
This study examines the relationship between board gender diversity and the risk-taking of the S&P500 firms over the period 2004-2017, aiming to solve the question of whether women’s par-ticipation in the boardroom can reduce a firm’s level of risk-taking.
The theoretical framework is based on the background of corporate governance systems, the mechanism of the board of directors, and existing related theories including agency theory, re-source dependence theory, and tokenism theory. In the scope of the theoretical framework, we conduct an empirical review on the board gender diversity and risk-taking. The first section pre-sents empirical evidence of the behavioral differences between men and women in the work-place. In the next section, we focus on existing studies on the impact of board gender diversity on corporate governance. The last section goes through different opinions in the discussions about the relationship between gender diversity and firm risk-taking.
We apply panel data methodology to conduct the empirical part of the thesis. Board gender di-versity is measured by the presence of female members and their proportion on the board of directors. The proxy for the firm’s risk-taking is the volatility of profitability ratio (ROTA ratio). The regression model is controlled by multiple control variables, including board characteristics and firm performance indicators. Omitted firm characteristics are controlled through firm fixed effects and time fixed effects specifications. We further modify the regressions to address en-dogeneity concerns through two different approaches: lagged dependent variables with fixed effects and Generalized Moment Methods estimators. The models are verified against robust-ness by employing alternative measures of board gender diversity (Blau index and Shannon index for diversity) and alternative proxies of firm risk-taking (volatility of profitability adjusted by in-dustry benchmarks and profitability ratio gap).
The findings provide significant evidence that firms having a more gender-diverse board tend to be less risky than others. The presence of at least one woman on board appears to have no im-pact on corporate risk-taking, which might be explained by inappropriate variable choice and the tokenism theory. The dual position of CEO/ chairperson and the board independence level is negatively related to the volatility of profitability, while the higher leverage ratio is linked to the higher riskiness. However, the models perform poorly in addressing potential endogeneity issues and produce questionable results, which implies that the relationship between gender diversity and firm risk-taking is probably far more complicated than we assume.
The theoretical framework is based on the background of corporate governance systems, the mechanism of the board of directors, and existing related theories including agency theory, re-source dependence theory, and tokenism theory. In the scope of the theoretical framework, we conduct an empirical review on the board gender diversity and risk-taking. The first section pre-sents empirical evidence of the behavioral differences between men and women in the work-place. In the next section, we focus on existing studies on the impact of board gender diversity on corporate governance. The last section goes through different opinions in the discussions about the relationship between gender diversity and firm risk-taking.
We apply panel data methodology to conduct the empirical part of the thesis. Board gender di-versity is measured by the presence of female members and their proportion on the board of directors. The proxy for the firm’s risk-taking is the volatility of profitability ratio (ROTA ratio). The regression model is controlled by multiple control variables, including board characteristics and firm performance indicators. Omitted firm characteristics are controlled through firm fixed effects and time fixed effects specifications. We further modify the regressions to address en-dogeneity concerns through two different approaches: lagged dependent variables with fixed effects and Generalized Moment Methods estimators. The models are verified against robust-ness by employing alternative measures of board gender diversity (Blau index and Shannon index for diversity) and alternative proxies of firm risk-taking (volatility of profitability adjusted by in-dustry benchmarks and profitability ratio gap).
The findings provide significant evidence that firms having a more gender-diverse board tend to be less risky than others. The presence of at least one woman on board appears to have no im-pact on corporate risk-taking, which might be explained by inappropriate variable choice and the tokenism theory. The dual position of CEO/ chairperson and the board independence level is negatively related to the volatility of profitability, while the higher leverage ratio is linked to the higher riskiness. However, the models perform poorly in addressing potential endogeneity issues and produce questionable results, which implies that the relationship between gender diversity and firm risk-taking is probably far more complicated than we assume.