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Female directors and agency costs: evidence from Chinese listed firms

Author

Listed:
  • Qurat Ul Ain
  • Xianghui Yuan
  • Hafiz Mustansar Javaid
  • Muhammad Usman
  • Muhammad Haris

Abstract

Purpose - The purpose of this research is to examine whether board gender diversity reduces the agency costs of firms in the context of Chinese listed firms. Design/methodology/approach - This paper uses a large sample of 23,340 firm-year observations of Chinese listed companies during 2004–2017. The authors use ordinary least squares regressions as the primary methodology with a wide range of methods to control for endogeneity and to check robustness, including the fixed-effect method, instrumental variable approach, lagged gender diversity measures, propensity score matching, Blau index, Shannon index and industry-adjusted measures of agency costs. Findings - The evidence reveals that the participation of female directors in corporate board reduces agency costs, which correlates with conflicts of interest. Moreover, gender-diverse boards are more effective in state-owned enterprises (SOEs), in which agency issues are more severe. Female directors also provide better monitoring roles in more-developed areas. Finally, corporate boards that have a critical mass of female directors have a greater tendency to reduce agency costs as compared to their token participation. Overall, all findings support the validity of agency theory. Practical implications - This study shows the economic benefit of female directors in the boardroom by reducing agency costs and by improving firms' governance structure. Regarding the government, which is gradually introducing board gender diversity policies, this study provides valuable pragmatic information for Chinese regulators on this issue. Originality/value - This study extends the literature by providing evidence that gender diversity in boardroom matters for shareholders' wealth maximization. It provides novel evidence that a critical mass of female directors is more effective in reducing agency costs compared to a single female on the board, and that the effect of gender diversity varies in relation to ownership structure and region.

Suggested Citation

  • Qurat Ul Ain & Xianghui Yuan & Hafiz Mustansar Javaid & Muhammad Usman & Muhammad Haris, 2020. "Female directors and agency costs: evidence from Chinese listed firms," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 16(8), pages 1604-1633, July.
    • Handle: RePEc:eme:ijoemp:ijoem-10-2019-0818
    DOI: 10.1108/IJOEM-10-2019-0818
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    Citations

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    Cited by:

    1. Fang Lee Cooke, 2023. "Changing Lens: Broadening the Research Agenda of Women in Management in China," Journal of Business Ethics, Springer, vol. 184(2), pages 375-389, May.
    2. María Consuelo Pucheta‐Martínez & Inmaculada Bel‐Oms & Isabel Gallego‐Álvarez, 2023. "Corporate social responsibility reporting and capital structure: Does board gender diversity mind in such association?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1588-1600, July.
    3. Zhe Ji & Radouane Abdoune, 2023. "Corporate Social Responsibility Disclosure and Performance in China: Does the Background of Foreign Women Directors Matter?," Sustainability, MDPI, vol. 15(13), pages 1-23, June.
    4. Sun, Guanglin & Li, Ting & Ai, Yongfang & Li, Qinghai, 2023. "Digital finance and corporate financial fraud," International Review of Financial Analysis, Elsevier, vol. 87(C).
    5. Hafiz Mustansar Javaid & Qurat Ul Ain & Rita D’Ecclesia, 2023. "Female directors in the boardroom and intellectual capital performance: Does the “critical mass” matter?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-24, December.

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