Open AccessDoes board gender diversity weaken or strengthen executive risk-taking incentives?
Author(s) -
Pattanaporn Chatjuthamard,
Pornsit Jiraporn,
Sang Mook Lee
Publication year - 2021
Publication title -
plos one
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.99
H-Index - 332
ISSN - 1932-6203
DOI - 10.1371/journal.pone.0258163
Subject(s) - incentive , gender diversity , endogeneity , instrumental variable , risk aversion (psychology) , diversity (politics) , business , executive compensation , actuarial science , demographic economics , economics , public economics , econometrics , microeconomics , finance , political science , financial economics , corporate governance , expected utility hypothesis , law
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.