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Does risk management committee gender diversity matter? A financial distress perspective

Citation

Jia, J, Does risk management committee gender diversity matter? A financial distress perspective, Managerial Auditing Journal, 34, (8) pp. 1050-1072. ISSN 0268-6902 (2019) [Refereed Article]

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DOI: doi:10.1108/MAJ-05-2018-1874

Abstract

Purpose: Using 2010 corporate governance principles and recommendations (CGPR) as a natural setting, the purpose of this paper is to investigate the relationship between risk management committee (RMC) gender diversity and a firmís likelihood of financial distress. Empirical evidence regarding whether CGPR (2010) enhances RMC gender diversity (RMCGD) is also provided.

Design/methodology/approach: Data were collected from the annual reports of the top 300 Australian Stock Exchange (ASX) listed companies from 2007 to 2014. To control for potential endogeneity, the association between (RMCGD) and a firmís likelihood of financial distress was investigated using an instrumental variable approach (panel 2SLS regression). The relationship between CGPR (2010) and RMCGD was explored using panel regression analysis with firm fixed effects.

Findings: RMCGD was found to be associated with a lower probability of financial distress, suggesting that women are better at monitoring and reducing firmsí excessive risk-taking behaviours, which, in turn, decreases firmsí risk of financial distress. The results also indicate that CGPR (2010) is quite effective in enhancing committee gender diversity. In the additional analysis, the results show that RMCGD moderates the negative relationship between risk and likelihood of financial distress. Importantly, the proportion of women with financial experience on RMCs is more effective in reducing the likelihood of financial distress compared to the proportion of men with financial experience on RMCs. These results highlight the benefits of having a gender diverse RMC.

Research limitations/implications: The results were based on the top 300 ASX-listed companies; thus, restricting generalisability. In addition, this study only focussed on listed firms, non-listed firms may add additional insights to the literature.

Practical implications: The results provide new and useful empirical evidence about RMCGD for Australian policymakers. This paper suggests that, in the short-term at least, RMCGD should be encouraged by regulators. Regulators could also recommend that the firms with a non-diverse RMC include women with financial experience on their RMC.

Originality/value: Given that prior studies have indicated that gender diversity is closely related to risk, this study contributes to the previous literature by investigating RMCGD and its effect on the likelihood of financial distress. It is expected that the role of RMC member would be to protect the firm from ultimate failure (likelihood of financial distress), especially during a financial crisis.

Item Details

Item Type:Refereed Article
Keywords:gender diversity, financial distress, risk management committee
Research Division:Commerce, Management, Tourism and Services
Research Group:Business and Management
Research Field:Corporate Governance and Stakeholder Engagement
Objective Division:Expanding Knowledge
Objective Group:Expanding Knowledge
Objective Field:Expanding Knowledge in Commerce, Management, Tourism and Services
UTAS Author:Jia, J (Dr Jing Jia)
ID Code:136683
Year Published:2019
Deposited By:TSBE
Deposited On:2020-01-14
Last Modified:2020-01-14
Downloads:0

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