Board gender diversity, financial decisions and free cash flow: empirical evidence from Malaysia

Abstract

Purpose This study aims to explore the role of board gender diversity in enhancing the allocation of free cash flow (FCF). It examines the direct effect of board gender diversity, as well as its indirect effect, through debt and dividend policies, on the level of FCF. Design/methodology/approach This study applies a three-stage least squares regression analysis for a sample of 367 Malaysian listed firms over the period 2011–2019. Findings The results show that female directors significantly deter the opportunistic behavior of managers. The authors find that gender diversity – as measured by the percentage of women on the board and the percentage of female independent directors are likely to reduce excess funds. Moreover, the results reveal a significant indirect effect of board gender diversity, through dividend payouts, on the efficient allocation of FCF. The results are consistent with those in prior studies that document the benefits of board gender diversity. Practical implications The research findings are beneficial to policymakers, as it allows them to assess the importance of diversity on boards in the monitoring of the managers, particularly as it pertains to the allocation of excess funds. Furthermore, these findings have implications for regulators as they shed light on the importance to undertake measures and reforms to promote board effectiveness by the introduction of gender diversity. Originality/value While prior research has examined the effect of board gender diversity on firm performance, the study is the first to investigate both the direct and indirect effect of board gender diversity on the allocation of FCF.

Does gender diversity on boards reduce the likelihood of financial distress? Evidence from Malaysia

“…These findings highlight the role of female directors in improving the supervision of the board and the quality of its decisions. Our results strongly reinforce the argument that female directors are more effective monitors and play a vital CG role (Benkraiem et al, 2017;UlAin et al, 2020;Guizani and Abdalkrim, 2022). This research offers several theoretical and practical implications.…”

“…Benkraiem et al. , 2017; Guizani and Abdalkrim, 2022). Women directors also encourage power not to be concentrated in single interest stakeholders, which results in a low probability of dual power structures (Nielsen and Huse, 2010).…”

“…Previous studies have documented that board independence is considered as a CG device that reduces opportunistic behavior and supervises board decisions (e.g. Benkraiem et al, 2017;Guizani and Abdalkrim, 2022). Women directors also encourage power not to be concentrated in single interest stakeholders, which results in a low probability of dual power structures (Nielsen and Huse, 2010).…”

“…Female directors are considered as a governance tool that could improve governance quality, transparency, monitoring and the protection of shareholders' rights. This control role is advocated by the agency theory that considers that women's presence on boards monitors strategy implementation to ensure that shareholders' interests are protected and aligned with those of managers (Guizani and Abdalkrim, 2022). Another benefit of having more female directors is that they are likely to be less overconfident and more risk-averse than men, implying caution in decision-making (Garcia and Herrero, 2021).…”

Female directors and working capital management: aggressive vs. conservative strategy

“…In addition to gender equality, the impact of female directors on WCM is likely to be contingent on the composition of the board. Previous studies have documented that the value of women's behavioral attributes as board members is likely to be enhanced as board is more independent (Benkraiem et al, 2017;Guizani and Abdalkrim, 2022). According to Abdullah et al (2016), independent boards tend to monitor management closely and, in doing this, instill an environment whereby women's monitoring ability can be impactful.…”