Abstract
Board gender diversity has become a widely discussed topic around the world. This thesis investigates the role of board gender diversity using UK private firm data. The thesis examines the following research questions:
- Chapter 2: What is the relationship between board gender diversity and corporate investment efficiency in private firms?
- Chapter 3: What is the impact of board gender diversity on earnings management in private firms?
- Chapter 4: What is the association between board gender diversity and trade credit demand in private firms?
Chapter 2 examines the impact of board gender diversity on corporate investment efficiency in private firms. The sample includes 63,652 firm-year observations, covering a total of 17,323 UK private firms over the period from 2006 to 2021. This study provides empirical evidence that there is a robust positive and statistically significant association between board gender diversity and corporate investment efficiency. In addition, the results show that board gender diversity significantly reduces overinvestment issues. The findings document evidence that even one woman director on the board can improve investment efficiency in private firms. Moreover, the positive impact of gender diversity becomes much more pronounced when there are three or more women directors on the board. Similarly, firms with at least one woman director in the boardroom address overinvestment issues more effectively. Conversely, there is very little empirical support for the relationship between the presence of women directors and the mitigation of underinvestment problems. Further analysis that considers the role of financial constraints on the overinvestment relationship shows that the impact of board gender diversity on improving investment efficiency is stronger for more financially constrained firms. The study employs several methodologies to address endogeneity issues. Based on the findings, private firms, particularly those facing more financial constraints or operating as non-family firms, should enhance board gender diversity to improve corporate investment efficiency.
Chapter 3 investigates the relationship between board gender diversity and earnings management in private firms. The sample comprises 117,359 firm-year observations across 21,883 registered UK private firms from 2007 to 2021. The results report evidence of a negative relationship between board gender diversity and earnings management. The results indicate that the presence of a sole woman director mitigates earnings management. Considering women directors' attributes, younger, long tenured, and less busy women directors are associated with better private firm earnings quality. Two additional analyses reveal that board gender diversity significantly reduces earnings management is in low-debt and family-controlled firms, whereas no significant effect is observed in high-debt or non-family firms. The results call for greater firm and regulatory attention to increasing women directors in private firms to improve earnings quality.
Chapter 4 investigates the relationship between UK private firm trade credit demand and board gender diversity, utilising a dataset that includes 123,429 firm-year observations (21,407 private firms) from 2006 to 2021. This study finds a significant negative association between board gender diversity and the propensity for private firm trade credit acquisition. The empirical evidence highlights the pivotal role of women directors in mitigating trade credit demand by virtue of their heightened sensitivity to risk. The findings indicate the absence of a critical mass effect in private firms. However, firms with two women directors in the boardroom rely much less on using trade credit compared to those with only one woman director on the board, suggesting that a certain threshold of women representation can significantly influence the financial strategies of these firms. The robustness of the results strengthens the credibility of the baseline findings. In addition, two additional analyses reveal that board gender diversity reduces trade credit demand, with the effect being particularly evident in highly financially constrained private firms and in family-controlled firms. The study adds depth to the ongoing global dialogue on board gender diversity and sheds light on the nuanced implications of gender diverse boards for private firm financial decisions.
This thesis contributes to the application of agency theory (Type II) in private firms. The study expands the investigation of board gender diversity to private firms, enriching the existing literature. The findings provide valuable insights for regulators, enhancing their understanding of the importance of board gender diversity in private firms and informing future policy considerations.