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Does board gender diversity weaken or strengthen executive risk-taking incentives?

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  • Pattanaporn Chatjuthamard
  • Pornsit Jiraporn
  • Sang Mook Lee

Abstract

We investigate the effect of board gender diversity on managerial risk-taking incentives. Our results demonstrate that companies with stronger board gender diversity provide more powerful executive risk-taking incentives. It appears that female directors’ risk aversion exacerbates managers’ risk aversion, resulting in a sub-optimal level of risk-taking. To offset this tendency for too little risk, companies are induced to provide stronger risk-taking incentives. Specifically, an increase in board gender diversity by one standard deviation raises vega by 10.3%. Further analysis corroborates the results, including propensity score matching, entropy balancing, and an instrumental-variable analysis. Endogeneity appears to be unlikely, suggesting that female directors are not merely associated with, but probably bring about stronger risk-taking incentives.

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  • Pattanaporn Chatjuthamard & Pornsit Jiraporn & Sang Mook Lee, 2021. "Does board gender diversity weaken or strengthen executive risk-taking incentives?," PLOS ONE, Public Library of Science, vol. 16(10), pages 1-18, October.
    • Handle: RePEc:plo:pone00:0258163
    DOI: 10.1371/journal.pone.0258163
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    References listed on IDEAS

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    1. Harald Dale-Olsen & Pål Schøne & Mette Verner, 2013. "Diversity among Norwegian Boards of Directors: Does a Quota for Women Improve Firm Performance?," Feminist Economics, Taylor & Francis Journals, vol. 19(4), pages 110-135, October.
    2. Low, Angie, 2009. "Managerial risk-taking behavior and equity-based compensation," Journal of Financial Economics, Elsevier, vol. 92(3), pages 470-490, June.
    3. Adams, Renée B. & Ferreira, Daniel, 2009. "Women in the boardroom and their impact on governance and performance," Journal of Financial Economics, Elsevier, vol. 94(2), pages 291-309, November.
    4. Yakov Amihud & Baruch Lev, 1981. "Risk Reduction as a Managerial Motive for Conglomerate Mergers," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 605-617, Autumn.
    5. Sila, Vathunyoo & Gonzalez, Angelica & Hagendorff, Jens, 2016. "Women on board: Does boardroom gender diversity affect firm risk?," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 26-53.
    6. Kenneth R. Ahern & Amy K. Dittmar, 2012. "The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 137-197.
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    Cited by:

    1. Farzan Yahya & Li Meiling & Chien‐Chiang Lee & Muhammad Waqas & Zhang Shaohua, 2022. "Gender diversity, sustainability reporting, CEO overconfidence, and efficient risk‐taking: Evidence from South Asian agri‐food industry," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 70(3), pages 219-238, September.
    2. Bertrand, Jérémie & Burietz, Aurore & Perrin, Caroline, 2022. "Just the two of us, we can(’t) make it if we try: Owner-CEO gender and discouragement," Economics Letters, Elsevier, vol. 216(C).
    3. Khine Kyaw & Sirimon Treepongkaruna & Pornsit Jiraporn, 2022. "Board gender diversity and environmental emissions," Business Strategy and the Environment, Wiley Blackwell, vol. 31(7), pages 2871-2881, November.
    4. Lagle Laidoja & Xuanye Li & Wenyuan Liu & Ting Ren, 2022. "Female Corporate Leadership and Firm Growth Strategy: A Global Perspective," Sustainability, MDPI, vol. 14(9), pages 1-14, May.
    5. Chindasombatcharoen, Pongsapak & Chatjuthamard, Pattanaporn & Jiraporn, Pornsit, 2023. "Corporate culture, cultural diversification, and independent directors: Evidence from earnings conference calls," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    6. Chatjuthamard, Pattanaporn & Kijkasiwat, Ploypailin & Jiraporn, Pornsit & Lee, Sang Mook, 2023. "Customer concentration, managerial risk aversion, and independent directors: A quasi-natural experiment," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 358-368.
    7. Thunyanee Pothisarn & Pattanaporn Chatjuthamard & Pornsit Jiraporn & Suwongrat Papangkorn, 2023. "Sustainability, asset redeployability, and board gender diversity," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1738-1752, July.

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