Gender diversity and corporate risk-taking: Do women directors reduce corporate risk?

Abstract

Extant literature from psychology and economics suggests that women are more risk-averse compared to men. Given the progress in gender diversity in corporate boardrooms across the world in the last two decades, it raises questions on risk-taking in corporate firms as women start to influence board functioning and help shape corporate strategy. Do firms reduce risk when their boards are run by both men and women? The objective of this paper is to examine the association between gender diversity and corporate risk. For a sample of non-financial firms from the ASX300 Index for the study period of 2011 to 2018, corporate risk-taking is examined in terms of a book value based measure and three related market value based methods. Initial investigation employing ordinary least squares (OLS) and panel fixed effects methods (FE) yield mixed findings. While OLS methods show a significant negative association between gender diversity and all measures of corporate risk, panel fixed effects examination only shows a negative association between gender diversity and systematic risk. FE methods show a positive association between gender diversity and business risk and gender diversity and idiosyncratic risk. However, these initial findings need to be viewed sceptically given the weaknesses in OLS and panel FE methods. These methods particularly do not address the issue of interdependencies or reverse causality. To address the issue of reverse causality dynamic panel data models are employed. Further examination employing Generalised Momentum Method (GMM) finds that gender diversity has no significant association with corporate risk. This finding of no association between gender diversity and corporate risk is robust as alternative proxies for gender diversity (both Shannon Index and Blau Index) show no evidence of any significant positive or negative association with corporate risk. These findings suggest that even though women tend to be risk-averse in many instances their role on corporate boards do not lead to influencing the risk-taking of firms. Thus there is no economic justification for stalling progress on gender diversity on corporate boards.