Board Diversity on Bank Stability: The Impact of Cultural Openness to Diversity

This chapter examines how diversity in the board of directors (gender, nationality, and education level) influences bank stability (proxied by several measures of risk and financial performance) with the mediating effect of cultural openness to diversity in different countries. This study employs a unique sample from 14 countries from 2007 to 2017. The results show that women directors consistently promote high bank stability within countries that are more open to diversity. However, foreign directors and those holding a Ph.D. show a negative impact on bank stability in this set of countries. In the full sample, the results show a positive association between women directors and directors holding a Ph.D. and bank stability. However, foreign directors have a significantly negative association with bank stability. The findings offer new insights into board diversity and bank stability with important policy implications for regulators governing countries with dual banking systems in different cultures oriented toward diversity.