Boardroom dynamics: The power of board composition and gender diversity in shaping capital structure

This study investigates the impact of board composition and gender diversity on capital structure using a dataset comprising 30 publicly traded Ghanaian firms from 2008 to 2018. By employing the system generalized method of moments (GMM) as the analytical technique and controlling for firm size and profitability, the study unveils several noteworthy findings. Firstly, the presence of inside directors demonstrates a significant negative influence on leverage, aligning with the principles of agency theory, suggesting that inside directors with privileged access to internal information adopt a cautious approach to debt financing to minimize conflicts between managers and shareholders. Secondly, the positive and significant effect of independent or outside directors on leverage syncs with resource dependency theory, implying that these directors bring valuable expertise and perspectives to firms’ capital structure decisions. Surprisingly, the study reveals that gender diversity on boards exerts a significant positive impact on leverage, supporting resource dependency theory, as gender-diverse boards enhance a firm’s reputation and attractiveness to lenders. Moreover, firm size demonstrates a negative and significant effect on leverage, indicating that larger firms possess greater access to internal financing sources, reducing reliance on external debt. Overall, the study underscores the importance of carefully considering board composition for optimal capital structure decisions, highlighting the benefits of maintaining a balance between inside and outside directors and promoting gender diversity on boards for improved decision-making and enhanced firm value.