Does board gender diversity weaken or strengthen executive risk-taking incentives?

PLoS One. 2021 Oct 11;16(10):e0258163. doi: 10.1371/journal.pone.0258163. eCollection 2021.

Abstract

We investigate the effect of board gender diversity on managerial risk-taking incentives. Our results demonstrate that companies with stronger board gender diversity provide more powerful executive risk-taking incentives. It appears that female directors' risk aversion exacerbates managers' risk aversion, resulting in a sub-optimal level of risk-taking. To offset this tendency for too little risk, companies are induced to provide stronger risk-taking incentives. Specifically, an increase in board gender diversity by one standard deviation raises vega by 10.3%. Further analysis corroborates the results, including propensity score matching, entropy balancing, and an instrumental-variable analysis. Endogeneity appears to be unlikely, suggesting that female directors are not merely associated with, but probably bring about stronger risk-taking incentives.

Grant support

The research was funded by Chulalongkorn University under the Ratchadapisek Sompoch Endowment Fund through Center of Excellence (CE) in Management Research for Corporate Governance and Behavioral Finance and Sasin School of Management through SASIN Major Grant for a research program.The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.