Does Gender Diversity Make a Difference in the Boardroom?

Gender diversity on boards is a leading issue in corporate governance, as has been made clear by anecdotal evidence that associates board gender diversity with better boardroom practices (e.g., Credit Suisse Research Institute, 2016 [1]; Morgan Stanley Research, 2018 [2]) and a growing trend to voluntarily or legislatively increase female board of director representation at country (e.g., the 2011 Davies Review in the UK) and state (e.g., California Senate Bill 826) levels. Not surprisingly, though, the impact of gender board diversity on corporate policy and performance has stimulated much discussion among practitioners and academics in the areas of law, economics, strategy, and finance.

While gender diversity is often presumed to be beneficial by policy makers and opinion leaders, a growing body of academic research on the impact of diversity on the quality of board decisions and corporate performance finds mixed results. While some work argues that female directors are more effective as corporate monitors, other studies report that gender diversity is associated with lower firm performance. For example, Ahern and Dittmar (2012) [3] study the effect on corporate performance of the 2006 legislation in Norway requiring higher female representation on corporate boards and find a substantial loss of value at firms that were forced to comply. Adams and Ferreira (2009 [4]) find a negative effect of gender diversity on equity holders of large U.S. firms, although they also find female directors to be good monitors of top management. Thus, the objectives or preferences of gender diverse boards and the channel through which they affect their firm’s investors remain open questions.

In a recent article, we provide a potential answer to these questions. Our premise is that women bring somewhat different perspectives and experiences to their role as directors than do male directors, and we expect these differences to be reflected in board decisions. Since a primary means by which boards influence CEO decision-making is through compensation incentives, we examine the impact of board gender diversity on the structure of CEO compensation.

Should a gender-diverse board have a preference for a different pay structure for the firm’s CEO? To the extent that women tend to be more risk averse than men, it is plausible that they prefer less CEO risk-taking. If so, this would align their interests with those of bondholders, who have fixed upside payoffs but may incur large losses if the firm defaults on its loans. We focus on debt-like compensation (i.e., deferred compensation and pension benefits) that firms are required to disclose beginning in 2006 per Item 402 of Regulation S-K. Prior research (e.g., Anantharaman, Fang and Gong, 2014 [5]) argues that executive pension contracts feature post-retirement benefits that closely resemble bond payoffs. In order to promote greater stability and less risk-taking, our basic hypothesis is that firms with woman directors are likely to offer their CEOs a compensation package with a relatively larger pension component. As a result, CEOs would have an incentive to take less risk, aligning their interests more closely with those of bondholders.

Our primary empirical results support this hypothesis. We find that the proportion of independent female directors has a positive association with CEO debt compensation, particularly pension compensation, after controlling for other CEO and firm characteristics that may affect compensation levels and structure. The effects are economically meaningful, and the addition of one independent female director is associated with an approximately 3.53 percent average increase in CEO pension value. This finding is robust to methodologies that control for potential endogeneity between CEO compensation and board composition, i.e., the risk that we are picking up a spurious correlation and not causation between board gender diversity and compensation. In line with these results, we also find that departures of female directors for reasons including death, mandatory retirement policy, or illness are associated with a subsequent decrease in the CEO’s pension benefits.

The association between board gender diversity and debt-like compensation has implications on the pricing of the firm’s debt. A variety of prior research broadly supports the view that managerial debt-like compensation encourages more conservative operating policies. Therefore, to the extent greater gender diversity is associated with CEOs’ receiving a higher proportion of debt-like compensation and engaging in less risk-taking, we would expect issuers with gender diverse boards to be associated with a lower cost of debt. Our tests support this premise. We find that the proportion of independent female directors has a significant positive effect on the bond credit rating, and similarly has a negative impact on the risk premium demanded by investors of the firm’s risky debt. In further analysis, we find that bond prices go up when female board appointments are announced, particularly for those of the riskiest (i.e., low credit rating) firms. For high yield issuers, for instance, bond spreads decrease by 42 basis points surrounding female director announcements vs. 15 basis points for male announcements. At the same time, stock prices of these risky firms also significantly increase, demonstrating that the market associates female board appointments as adding value to the firm and not just its creditors.

We extend our basic pension compensation-based findings to additional measures of debt compensation used in prior research, including the ratio of CEO debt-like compensation to the value of CEO stock and option holdings, and the CEO-firm debt-equity ratio. Consistent with our prior findings, the proportion of independent female directors continues to show a strong positive association with these measures.

Last, we investigate causes of the association between board gender diversity and debt compensation. Consistent with the view that directors with a corporate background may seek more risk, whereas those with an academic, banking, legal, or not-for-profit background may be more likely to incorporate the interests of non-equity claimants in their decisions, we find evidence that the positive association between the proportion of female directors and the change in pension value is driven by non-corporate female directors. Further, in line with the view that directors with more frequent board meeting attendance will have a greater effect on board decisions, we find that the positive association between independent female directors and pension compensation is driven by attentive female directors. Finally, we find that the positive association between female directors and pension compensation is driven by compensation committee female directors. In contrast, there is no statistical association with the proportion of female directors who are not on the compensation committee.

An interesting implication of our analysis is that highly leveraged firms might choose to appoint female directors, possibly as a way to persuade debt investors of their intention not to engage in risk-shifting. Consistent with this possibility, we find that firm leverage increases the likelihood of the appointment of female independent directors.

Overall, our study contributes to the debate over the impact of board gender diversity by providing a systematic understanding of the board level dynamics relating to gender diversity that have a bearing on CEO debt compensation. The association between the proportion of independent women directors and debt-like CEO compensation, in turn, provides a rationale for our empirical findings of a direct association between board gender diversity and the pricing of the firm’s debt securities.


[1] Credit Suisse Research Institute, 2016. The CS Gender 3000: Women in Senior Management. September.

[2] Morgan Stanley Research, 2018. An investor’s guide to gender diversity. Morgan Stanley Access, January 17.

[3] Ahern, K. R. and A.K. Dittmar, 2012. The changing of the boards: The impact on firm valuation of mandated female board representation. The Quarterly Journal of Economics 127, 137-197.

[4] Adams, R. B. and D. Ferreira, 2009. Women in the boardroom and their impact on governance and performance. Journal of Financial Economics 94, 291-309.

[5] Anantharaman, D., V. Fang, and G. Gong, 2014. Inside debt and the design of corporate debt contracts. Management Science 60, 1260-1280.

This post comes to us from professors Vikram K. Nanda at the University of Texas at Dallas, Andrew K. Prevost at the University of Vermont, and Arun Upadhyay at Florida International University. It is based on their recent article, “Does Gender Diversity in the Boardroom Matter? Evidence from CEO Inside Debt Compensation,” available here.

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