Board gender diversity, power, and bank risk taking

Heba Abou-El-Sood, Zayed University College of Business

Document Type

Article

Source of Publication

International Review of Financial Analysis

Publication Date

5-1-2021

Abstract

Having female board members brings ethical/societal perspectives and new resources to decision making. However, there is lack of evidence on whether it mitigates bank excessive risk-taking; hence, this paper addresses this question. It complements the normative corporate governance literature by combining agency theory and approach/inhibition theory of power from social psychology. For a sample of 195 U.S. commercial banks during 2002–2018, banks invest in more risky assets when female directors perceive the positive rewards of risky investments (in banks that have larger regulatory capital ratios and/or are well-capitalized) and when power shifts away due to CEO equity ownership. On the other hand, banks invest in less risky positions when female directors perceive the penalties inherent in a risky investment during the financial crisis. This paper provides novel evidence on the effect of gender diversity, as a governance mechanism, on risk taking in a social-psychology context. It offers insights on the effect of gender diversity on bank riskiness.

ISSN

1057-5219

Publisher

Elsevier BV

Volume

75

Disciplines

Business

Keywords

Bank risk taking, Board gender diversity, Corporate governance, Female directorship, Power

Scopus ID

85102760726

Indexed in Scopus

yes

Open Access

no

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