Increasing gender diversity in the boardroom has been promoted as a way to enhance corporate governance and risk management. This study empirically examines whether boards with more female directors play a role in reducing R&D risk. We first show that female directors help to reduce the positive relationship between R&D investment and future performance volatility. We then report that firms with more gender-diverse boards exhibit a lower adverse effect of R&D on the cost of debt. These results are robust to endogeneity analysis, alternative measures of gender diversity and risky investment, and other sensitivity tests. Overall, our results suggest that female directors improve board effectiveness in risk management with respect to R&D investment.
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Using firms traded in HKEx as a sample, Mr. David Webb, a former director of HKEx, compares the firm performance between firms with female directors and firms with no female director. He finds evidence showing that firms with no female directors perform better than those with female directors from 2011 to 2013. The details of the analysis are available at http://webb-site.com/articles/boardgender.asp.
The Statistics are available at: http://nationalatlas.gov/articles/people/a_gender.html.
The details could be found in Kothari et al. (2002).
We also use other deflators such as assets and book value of equity to measure RD i,t and the results remain qualitatively the same (untabulated).
Similar to Bebchuk et al. (2009), we construct the BCF anti-takeover index based on six provisions: staggered boards, limits to shareholder bylaw amendments, limits to shareholder charter amendments, supermajority requirements for mergers, poison pills, and golden parachutes.
Consistent with previous literature (Francis et al. 2005; Ashbaugh-Skaife et al. 2006), we use firm-level credit ratings as the measure of the cost of debt because firm-level credit ratings are less likely to capture issue specific characteristics that protect lenders (Weber 2006). R&D is invested from firms’ perspective. It is more related to the overall default risk of the company rather than the default risk associated with a single bond issue. Therefore, it should be more appropriate to employ firm-level rather than issue-level credit ratings to capture the cost of debt related to R&D investments.
RiskMetrics (formerly Investor Responsibility Research Center, IRRC) covers directors of S&P500, S&P MidCaps, S&P SmallCaps firms starting in 1996. However, the data needed to compute some board characteristics are from 1998. Our initial sample from RiskMetrics includes non-missing board data on 3,714 firms (24,691 firm-year observations) from 1998 to 2013.
We also sample firms-years with decreasing percentage/number of female directors and run the regression. Similar to Gul et al. (2011), we do not find significant results in the decrease sub-sample.
We thank an anonymous referee for suggesting the propensity-score matching.
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We gratefully acknowledge generous research support from China Europe International Business School. Jamie Y. Tong also would like to express appreciation for the financial support of the National Natural Science Foundation of China (approval number: 71002058, 71202090, 71202091).
Appendix: Credit Rating Classifications
Appendix: Credit Rating Classifications
The table below shows the credit rating classifications schedule suggested by Ashbaugh-Skaife et al. (2006).
Firm credit ratings are the long-term issuer credit ratings compiled by Standard & Poor’s and reported on Compustat. The ratings range from AAA (highest rating) to D (lowest rating—debt in payment default). These ratings reflect S&P’s assessment of the creditworthiness of the obligor with respect to its senior debt obligations. For purposes of the analysis, the multiple ratings are collapsed into seven categories according to the schedule provided below.
S&P Debt rating
Assigned rating score
CCC + or CCC or CCC−
D or SD
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Chen, S., Ni, X. & Tong, J.Y. Gender Diversity in the Boardroom and Risk Management: A Case of R&D Investment. J Bus Ethics 136, 599–621 (2016). https://doi.org/10.1007/s10551-014-2528-6
- Female director
- Risk management