Publication Details

Ali, S., Liu, B. & Su, J. (2018). Women on Board: Does the Gender Diversity Reduce Default Risk?. Financial Markets and Corporate Governance Conference 2018 (pp. 1-55).


We provide the first comprehensive and robust evidence on the causal effect of boardroom gender diversity on default risk for 831 non-financial Australian firms over the period from 2008 to 2013. We show that the proportion of female directors have an overall negative effect on default risk. The inverse effect of gender diversity on default risk is robust to alternative measures of gender diversity and default risk, and to alternative econometric specifications including the control for time-invariant firm characteristics, instrumental variable approach, propensity score matching, difference-in-differences, models based on changes in variables, and dynamic panel data estimation techniques. We also find that gender diversity reduces default risk through the mechanism of decreased information asymmetry (i.e., improved information environment). Further, we show that the inverse effect of gender diversity on default risk is stronger for firms with weak external governance and strong internal governance, suggesting that gender diversity could act as partial substitute for weak external governance quality but complementary for internal governance quality. Since the benefits of adding more females to boards are under current discussion, these findings will enrich the regulatory debate and also provide a guideline to investors and firms in designing appropriate trading strategies and governance structures, respectively. Overall, our results support the recent calls for more females sitting on corporate boards.

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