Board Gender Diversity and Its Risk Monitoring Role: Is it Significant?

Abstract

In recent years, there is an urgent call to strengthen board composition to safeguard against expropriation of shareholders' interest and to reinforce public confidence, specifically in a weaker governance setting. Board gender diversity receives considerable attention within the issues of corporate governance. This is because female directors are found to be more active in monitoring activities, cautious in decision making, less aggressive and risk averse as compared to male directors. We support this argument with evidence from a sample of listed firms in Malaysia. In line with the literature, we show that female directors play a significant monitoring role in reducing corporate risk taking behaviour. Our results are robust to endogeneity concern. Since board gender diversity plays a significant risk monitoring role, we recommend that there should be a continuous call to appoint female directors to the boardrooms among Malaysian listed firms to diversify the 'old boys club' corporate boardrooms.

Does board gender diversity matter in the banking sector? Evidence from Tunisia

“…The same finding is identified by García-Meca et al (2015). Such evidence is in support of the hypothesis that board monitoring is weak when a chair is also the CEO (Khaw & Liao, 2018). Similar to Pathan and Faff's (2013) finding, independent directors negatively impact the bank's performance only for the ROE measure.…”

“…They provide diversity in problem solving, market insights and risk reduction (Chan et al, 2016;Pucheta-Martinez et al, 2016). The negative association between gender diversity and firms' risk was found by Perryman et al (2015), Bernile et al (2018), Khaw and Liao (2018), and in the banking sector by Palvia et al (2014) for a sample of commercial US banks, Gulamhussen and Fonte Santa (2015) for a sample of 461 large banks from OECD countries, and Skała and Weill (2017) for Polish cooperative banks.…”

“…Improving female representation became a global challenge concerning not only developed but also developing countries (Adams & Ferreira, 2009; Conyon & He, 2017; Darmadi, 2013; García‐Meca et al, 2015; Liu et al, 2014). Some studies examine possible influences of these board memberships on firms’ performance and risk (Khaw & Liao, 2018; Pathan & Faff, 2013; Pucheta‐Martinez et al, 2016), but results remain inconclusive.…”

“…Behavioral finance is the theoretical framework used to investigate the relation between gender diversity and bank risk. It asserts that the individual's preferences for risk depend on their personal traits, especially gender differences (Fisher & Yao, 2017; Khaw & Liao, 2018; Lam, 2015). These studies consider that men tend to engage in more risk‐taking and to be more overconfident.…”

“…These studies consider that men tend to engage in more risk‐taking and to be more overconfident. Women are considered to be more emotional and cautious (Khaw & Liao, 2018). Therefore, they present greater risk aversion, relative to men, when making financial and investment decisions (Lam, 2015).…”