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Does board gender diversity weaken or strengthen executive risk-taking incentives?
Pattanaporn Chatjuthamard1, Pornsit Jiraporn2, Sang Mook Lee2
1Center of Excellence in Management Research for Corporate Governance and Behavioral Finance SASIN School of Management Chulalongkorn University Bangkok, Bangkok, Thailand.
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.
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