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Cost of equity, debt financing policy, and the role of female directors

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  • Abdullah A. Aljughaiman
  • Mohammed Albarrak
  • Ngan Duong Cao
  • Vu Quang Trinh

Abstract

We examine the role of female directors on firm cost of equity in the context of US-listed firms, and further explore the mediating impact of debt financing policy on such association. Using a dataset of 4619 non-financial firm-year observations covering the period of 2008–2019, we find that firms with female directors on boards are likely to exhibit a lower cost of equity, through relying on a less risky financing decision. The indirect effect is found to take up around 45% of the female-cost of equity association. In addition, our analysis also indicates that the lower debt financing levels are realised only if female representation reaches a critical mass of around 28%. Our findings provide important implications for firms in balancing the gender ratio within their boards to level out their risk-taking through their financing decisions.

Suggested Citation

  • Abdullah A. Aljughaiman & Mohammed Albarrak & Ngan Duong Cao & Vu Quang Trinh, 2022. "Cost of equity, debt financing policy, and the role of female directors," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2109274-210, December.
    • Handle: RePEc:taf:oaefxx:v:10:y:2022:i:1:p:2109274
    DOI: 10.1080/23322039.2022.2109274
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