Does diversity among directors contribute to reducing corporate misconduct? Evidence from Japan

Corporate misconduct occurs sequentially in Japan and there is much interest in how to deal with it. As such, there has been a movement to appoint outside directors to monitor management and prevent misconduct. More recently, policy discussions have emphasized the importance of diversifying board composition, including increasing the representation of women and foreign directors. Against this background, this study uses panel data on misconduct at Japanese listed companies from 2017 to 2022 and a fixed-effects logit model to examine the relationship between board diversity and misconduct, focusing on the presence of female and foreign directors. The results show that while the presence of outside directors and foreign directors does not have a robust within-firm effect on misconduct, a higher proportion of female directors is associated with a significantly lower likelihood of corporate misconduct. These findings suggest that gender diversity may strengthen ethical oversight, particularly in the Japanese context where boards have traditionally been homogenous.