Does board gender diversity affect capital structure decisions?

• DOI: https://doi.org/10.1108/CG-12-2020-0575
• Published date: 25 November 2021
• Date: 25 November 2021
• Pages: 922-946
• Subject Matter: Strategy,Corporate governance
• Author: Sourour Ben Saad,Lotfi Belkacem

Does board gender diversity affect

capital structure decisions?

Sourour Ben Saad and Lotfi Belkacem

Abstract

Purpose –The purpose of this paper is to investigate the indirect relationship between board gender

diversity and capital structuredecisions and to examine whether the capital structure is affected by the

type of approachused to promote women’s participation in the boardroom.

Design/methodology/approach –Based on a sample of French non-financial listed companies over

the period 2006–2019, this paper uses structural equations modeling, difference-in-differences using

propensityscore matching and chow test to highlightthese effects.

Findings –This paper finds that the relationship between the board gender diversity and the capital

structure is mediated through the information transparency channel and firm risk taking channel.

Furthermore, the results show that the effect of board gender diversity on capital structure decisions

variesthrough the approach adopted (voluntary,enabling or coercive).

Originality/value –This paper contributes to the literature in several ways. First, the study is to the

knowledge the first to examine whether and how board gender diversity affects capital structure

decisions through two mediations channels, namely, the information transparency and the firm risk

taking.Second, the study is one of the first to examinewhether the capital structureis affected by the type

of approach used to promote women’s participation in the boardroom: coercive, enabling or voluntary

approach.

Keywords Gender, Decision-making, Boards of directors, Boardroom effectiveness,

Corporate governance, Information transparency, Firm risk-taking,Capital structure

Paper type Research paper

1. Introduction

After the multiple scandals (Enron, Worldcom, Wirecard ...), an exuberance of measures

and reflections have been implemented, to restore investor confidence and improve

financial transparency and reduce the inherent risk. These measures, emanating from

private actors, as well as from international organizations, government or business

community representatives, have resulted in a set of laws and codes of governance.

Academics and policymakers contemplate the board of directors as the primary body

answerable for monitoring corporate activities and making a strategic decision.One feature

of board composition is gender diversitythat has received growing attention recently. Since

2010, French market authoritieshave adopted an enabling approach to promoting women’s

participation on corporate boards. Furthermore, the French legislator has adopted, in 2011,

the Cope

´-Zimmerman law to constrain French listed companies to appoint a quota of 40%

of women on boards. The application of this coercive approach started at the beginning of

2017.

The effect of corporate governance on the capital structure has been widely discussed,

both from theoretical and empirical viewpoints, in prior studies empirically (Morellec et al.,

2012;Chang et al.,2014;Liao et al., 2015;Bin-Sariman et al., 2016;Sewpersadh, 2020).

However, few studies have examined the effects of board gender diversity on capital

Sourour Ben Saad and

Lotfi Belkacem both are

based at the Institute of

High Commercial Studies

of Sousse, Laboratory

Research for Economy,

Management and

Quantitative Finance

(LaREMFiQ), University of

Sousse, Sousse, Tunisia.

Received 29 December 2020

Revised 25 May 2021

26 October 2021

Accepted 2 November 2021

PAGE 922 jCORPORATE GOVERNANCE jVOL. 22 NO. 5 2022, pp. 922-946, ©EmeraldPublishing Limited, ISSN 1472-0701 DOI 10.1108/CG-12-2020-0575

structure decisions. This studyattempts to fill this gap. Indeed, board gender diversity is not

merely an ornamental gesture of corporate benevolence, creating and maintaining a

gender-balanced workforce is essential to business strategy, viability and competitiveness.

Most conversations around diversity and female leadership focus on the business benefits

(Noguera, 2020;Ullah et al.,2020). We contribute to the literature in several ways. First, we

consider the financing decisions as to the result of the characteristics of the board. Thus,

we focus on the presence of women on the board and examine their roles to improve the

effectiveness of monitoring, reduce firm risk and information asymmetry between

companies and credit providers,based on the agency theory, resource dependence theory

and economic sociology and psychology theories. Second, our study is to our knowledge

the first to examine whether and how board gender diversity affects capital structure

decisions. In particular, we identify and test two channels through which the presence of

women on the board may explain the financing decisions. They are the informational

transparency channel and the firm risk-taking channel. Third, our study is one of the first to

examine whether the capital structure is affected by the type of approach used for

promoting women in the boardroom. Our study is based on the adoption of a coercive

approach in France (since 2017), an enabling approach (since, 2010) and a voluntary

appointment of women on boards (before 2010). Our study aims to investigate the benefits

of the French corporate governance system by assessing the impact of these different

approaches in financing decisions and identifying the best approach to ensure the value

creation of the value of companies. Finally, we examine the behavior of both

underleveraged and overleveraged firms surrounding the participation of women on the

boardroom and how quickly the firm adjuststo its target leverage from the current leverage.

Using panel data of 150 non-financialfirms belonging to the CAC All-Tradable index during

the period from 2006 to 2019, we find that the effect of board gender diversity on capital

structure decisions is mediated by information transparency and firm risk-taking. In fact,the

board gender diversity serves to increase firm transparency, decrease firm risk taking,

which affects the financial strategic decision-making process. Further, through the “DID

approach” and the “Chow test,” we find that the effect of board gender diversity on capital

structure decisions depends on the approach adopted. These findings are in line with the

optimal contracting approachin agency theory (Jensen and Meckling, 1976).

2. Theoretical framework and hypotheses development

2.1 Board gender diversity, information transparency and capital structure

Gender diversity has received growing academics and policymakers attention recently.

Previous research generally defends the thesis defending the economic issues of diversity

(Carter et al.,2010;Campbell and Vera, 2010). Indeed, if the feminization policies of the

boards are based on ethical, demographic and moral considerations, they cannot in any

case be done to the detriment of the economic and financial considerations which condition

the sustainability of companies. Consequently, the interest and credibility of regulatory

measures and recommendations for good conduct depend in part on their ability to

respond to the concerns of the various stakeholders and to participate in improving

governance practices. In this regard,the feminization of boards must fully participate in the

efficiency of governance and improve the information environment. Based on this

observation and considering that an information policy is an important determinant of

capital structure decisions, as suggested by the pecking order theory of Myers (1984),we

stipulate the possible existence of an indirect relationship between board gender diversity

and capital structure. In addition, the presence of women on the board influences the

quantity and quality of the information disclosed by the company, the information

asymmetry and, consequently, the capital structure decisions. In fact, the impact of board

gender diversity on the capital structure can be indirect. Indeed, transparency can play a

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