Gender diversity on bank board of directors: How women reduce risk

Gender diversity on bank board of directors:How women reduce risk Giuliana Birindelli, University of Chieti-Pescara Helen Chiappini, University of Chieti-Pescara Marco Savioli, University of Salento, RCEA 60ª RSA - Università di Palermo - 24-26 ottobre

BACKGROUND AND RATIONAL FOR THE ANALYSIS • The global financialcrisishasresulted in: • the strengthening of corporate governance mechanisms(De Laroisièr Committee 2009; Basel Committee on Banking Supervision 2010) • the implementation of diversified boards, atleast in terms of age, professionalexperience and gender (European Directive 2013/36/EU) • Manygovernmentshavemeanwhileestablishedgender quotasby law over the last years (e.g. Norway, Spain, France, and Italy) • These events havebeenaccompanied by a strong academicdebateon the impact of gender diversity on firm risk • Board diversity • Pros: diversitybrings a variety of backgrounds, skills and perspectives to the boardroom, therefore directors and companies may benefit from diversity in terms of social and occupationalexperiences (Anderson, Reeb, Upadhyay, & Zhao 2011) • Cons: the cost of diversity – in terms of communication, coordination and conflictamong directors with different backgrounds – mayexceedits benefits (Putnam 2007) Gender diversity on bank board of directors. How women reduce risk

LITERATURE REVIEW • Fewstudies on effects of diversity in the banking sector • Thosestudies (generally) focus on a specific country • Results are mixed • Non-linear relationshipbetween gender and risk isunderinvestigated like the impact of gender diversity on different levels of a bank’s risk Women and firm risk taking Gender diversity on bank board of directors. How women reduce risk

LITERATURE REVIEW Women and bank risk taking Critical mass of women and bank risk taking Critical mass of women, bank risk taking, and well managed banks Gender diversity on bank board of directors. How women reduce risk

AIM AND HYPOTHESES DEVELOPMENT • Why banks? • The banking sectoris a regulatedindustry → more room for public intervention? • Having suffered massive shocks during the financial crisis, banks must rethink corporate governance → higher presence of women on bank boards? • Aim • Explain the relationshipbetween gender diversity in boards (apical positions) and bank risk taking • Focus • Well or badly managed banks • Dichotomous characterization in terms of risk (4 measures), robustness, ceteris paribus • Non linear relationshipbetween gender diversity and risk • Critical mass of female board members • Hypotheses • H1: The effect of female directors on bank risk taking is different for well and badly managed banks • H2: The effect of female directors on bank risk taking is not linear in well and badly managed banks Gender diversity on bank board of directors. How women reduce risk

DATA AND METHOD • We collect data on listed banks from 40 countries over the years 2008 – 2016 • Data on risk measures, board and bank characteristics are from Thomson Reuters Datastream • Data on per capita Gross domestic product (GDP) are from World Bank • Fourmeasures of risk: • Common equity ratio Tier1 on total assets NPLs ratio Price volatility • Results on tests of differences between means showed that the banks we identified as well managed significantly outperform the poorly managed, both in terms of ROA and in terms of deposits on loans ratio, which are indicators of profitability and liquidity/funding • Gender diversityvariables: • Femaledirectors • Mass of women (>=3) • Female directors square • We use panel fixedeffect (within) estimation and two-step GMM system dynamic estimation Gender diversity on bank board of directors. How women reduce risk

DATA AND METHOD Descriptivestatistics Gender diversity on bank board of directors. How women reduce risk

MAIN FINDINGS Bank risk, linear models Gender diversity on bank board of directors. How women reduce risk

MAIN FINDINGS Bank risk, linear models, well/badly managed banks Gender diversity on bank board of directors. How women reduce risk

MAIN FINDINGS Bank risk, mass models, well/badly managed banks Gender diversity on bank board of directors. How women reduce risk

MAIN FINDINGS Bank risk, quadratic models, well/badly managed banks Gender diversity on bank board of directors. How women reduce risk

MAIN FINDINGS Gender diversity on bank board of directors. How women reduce risk

ROBUSTNESS CHECK Robustness check with area subsamples Gender diversity on bank board of directors. How women reduce risk

ROBUSTNESS CHECK Robustness check with dynamic panels: Female Directors and m_Y treated as predetermined Gender diversity on bank board of directors. How women reduce risk

DISCUSSION AND CONCLUSION • Women in apical positions are more effective in less complex contexts – well managed banks – rather than in more complex environments – badly managed banks • However, the positive effect of more female directors ends at certain threshold • Beyond a certain threshold, the appointment of female directors may be driven by ethical or legal pressures • Policy implications of gender diversity: mixed results of gender quotas • Corporate gender laws and ethical pressures can cause undesired effects, such as increasing bank risk, if the female directors are not chosen for their skills and ability • The selection process in the finance industry of both men and women should avoid stereotyping • Future research • Additional diversity traits could be examined, such as age, educational and professional background, and racial/ethnic minorities • Gender of the other leadership positions (especially, CEO, Chairperson and Chief Risk Officer) • Other well/poorly managed bank categorizations • Quantile analysis methodology could further differentiate the results for different levels of risk Gender diversity on bank board of directors. How women reduce risk

Gender diversity on bank board of directors: How women reduce risk