Gender diversity and bank risk-taking: an empirical investigation in Italy

• DOI: https://doi.org/10.1108/CG-11-2020-0498
• Published date: 09 September 2021
• Date: 09 September 2021
• Pages: 317-339
• Subject Matter: Strategy,Corporate governance
• Author: Elisa Menicucci,Guido Paolucci

Gender diversity and bank risk-taking: an

empirical investigation in Italy

Elisa Menicucci and Guido Paolucci

Abstract

Purpose –The purpose of this paper is to investigatethe relationship between gender diversity and the

risk profile of Italian banksduring the period 2015–2019. This study examines whether the presence of

femaleboard directors or top executives has any significanteffect on bank risk-taking.

Design/methodology/approach –To explore the influence of women on bank risk-taking, the authors

analyzed a sample of 387 Italian banks and developed an econometric model applying unbalanced

panel data with firm fixed effects and controls per year. Within a multivariate regression model, the

authorsconsidered five risk dimensions to verifythe effect of gender diversity.

Findings –The findings suggestthat female board directors and executives are considerablymore risk

averse and less overconfidentthan their male colleagues, thus confirming a negative causality between

risk-taking and genderdiversity. The results reveal that banks headedby women are less risky because

they report higher capitaladequacy and equity to assets ratios. As creditrisk in female-led banks is no

differentfrom male-led ones, higher capital adequacydoes not derive from lower assetquality because it

is linkedto the higher risk aversion of female directorsand top managers.

Research limitations/implications –From a theoretical standpoint, the results suggest that having

women in executive positions entails different risk implications for Italian banks; from a managerial

perspective, the results highlight conditions that may promote the roleof women in the banking sector.

The conclusions are of particular significance because they provide some support for the view that

regulatorsshould favor gender quotas in the board managementof banks to reduce risk-taking behavior.

Originality/value –This paper offers an in-depth examination of the risk practices of banks and it

attemptsto bridge the gap in prior literature on the risk profileof the Italian banking industry given thatfew

empirical studieshave examined the determinants of risk-taking inthis field, to date. The findings on the

higher risk aversion of women directors advance the understanding of the determinants of risk-taking

behavior in banks, suggestingthat gender quotas in bank boards can contribute to reducingrisk-taking

behavior.This also unveils some policy implicationsfor bank regulatory authorities.

Keywords Italian banks, Female directors, Gender diversity, Bank risk-taking, Female executives

Paper type Research paper

1. Introduction

The literature on gender diversity has been attracting increasing interest in the past few

years, as many studies have investigated the effects of females in leadership positions on

corporate performance and governance (Burgess and Tharenou, 2002;Carter et al.,2003;

Adams and Ferreira,2004, 2009;Farrell and Hersch, 2005;Bhat et al.,2019;Ullah et al.,

2019;Adeabah, 2019). The effect of gender diversity on performance and possible

riskiness of a firm has been the focus of numerous studies in the economic and finance

literature for many years. Furthermore, many economists and researchers have pondered

whether increasing female presence in top management could help contain excessive

riskiness and leverage in the financial sector. There has been a recent line of debate on

whether having females on a bank’s board of directors can be an effective corporate

governance mechanism leading to better financial performance and less risk-taking

management behavior. However, the financial literature has not yet fully explored how the

Elisa Menicucci is based at

the Department of Business

Studies, University of Roma

Tre, Rome, Italy.

Guido Paolucci is based at

the Department of

Management, Polytechnic

University of Marche,

Ancona, Italy.

Received 11 November 2020

Revised 15 May 2021

11 August 2021

Accepted 18 August 2021

DOI 10.1108/CG-11-2020-0498 VOL. 22 NO. 2 2022, pp. 317-339, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 317

presence of females on boards of directors could influence corporate risk, and in the

banking industry in particular, this topic remains uninvestigated. Gender diversity in the

boards of directors has become a topical subject following the introduction of quotas into

certain European countries. Consequently, many European countries have established

minimum quotas for female representation on the boards of publicly traded companies;

however, several studies show that, worldwide, the presence of females on boards remains

limited. Although the labor market is comparatively equitable in recruiting staff, the

percentage of females in corporate decision-making bodies is still low because females

have very limited access to the upper echelons. In the bankingsector, in particular, there is

a considerable difference between the number of female bank employees and their

representation among bankmanagers.

The present study examines the effect of gender diversity on the risk-taking behaviors of

Italian banks. The empirical results show that banks with a higher proportion of females on

their board of directors or with females in top management positions (chief executiveofficer

[CEO], chief financial officer [CFO] or chairperson of the board of directors [CHAIR]) exhibit

lower levels of risk-taking variables. We presume that the gender-based behavioral

differences between women andmen are reflected in the decisions made by top executives

and directors, thereby influencing the major strategic and financial decisions of their firms in

terms of risk appetite. Based on our sample, comprising 387 Italian banks, the resultsshow

a negative relationship between board gender diversity and bank risk-taking. These

findings support the view that females are more risk averse than their male counterparts,

and the presence of at least three females on the board of directors negatively and

significantly affects the risk profileof the banks. It is argued that female directors differ from

male ones with regard to their risk attitude, and this, consequently, may influence the

board’s monitoring ability and decision-making process. Moreover, even after using

numerous robustness tests, we find significant evidence that an increase in female

representation on the board of directors or in top management positions aff ects the risk profile

of Italian banks. The remainder of this paper is organized as follows: in Section 2, we of fer a

literature review pertaining to the effect of gender diversity on bank risk-taking behavior and

describes the research hypotheses based on previous studies. We define the data sample

and research methodology, as well as describe the econometric model applied and the

variables used in the regression model in Section 3, while the empirical results are pre sented

and discussed in Section 4. The conclusions are provided in Section 5.

2. Literature review and hypothesis development

There is a growing concern regarding the gender rebalance in management bodies and

audit boards in terms of female representation in management bodies. Some European

governments, e.g. France, Italy, Norway and Spain, have issued laws providing for gender

quotas to include females in firms’ top positions, while others, e.g. Austria, Germany and

Ireland, have established a large representation of females in national corporate

governance codes. Notably, in the European banking sector, the share of females on

boards is generally increasing, although female presence still varies from 40% for listed

banks to 15% for unlisted banks. This paper is especially relevant in light of the Italian

government’s mandated gender diversity levels due to the passage of the mandatory pink

quota law, which provides gender balance obligations of 40% in boards of directors and

boards of statutory auditors of listed and state-owned companies. Although the “gender

equality by law” (Italian binding quotas law) contributes to redefine the presence of women

in boards of directors, no relevant changes has been noticed on key-decision roles (i.e.

CEOs or Directors general) as women are always more represented in non-executive

functions especially in non-listed banks where women are still relegated to an under-

represented position (De Vitaand Magliocco, 2018).

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