Does gender diversity on banks’ boards matter? Evidence from public Bailouts

Published in Journal of Corporate Finance

Board of men and women

Despite recent improvements over the last decade to ensure gender equality in top-decision making positions through legal instruments and voluntary gender quotas in European countries, female representation in bank boardrooms is still weak.

In this study, we highlight the role of female directors on bank boards and seek to answer the following question: Does gender diversity on banks' boards matter during financial crises?

To this end, we built a unique dataset on the corporate governance mechanisms of 105 listed banks in 15 European Union countries.

Notably, we are the first to document the impact of gender diversity on banks' boards on the probability of receiving a public bailout during bad states of the economy by employing a variety of econometric methods and accounting for bank-specific variables (among others, bank systemic risk, ownership structure, and political connections) and endogeneity.

Our findings point out that banks with a higher fraction of female directors in the boardrooms are less likely to receive a government bailout and fewer bailout funds than banks with less gender-diverse boards during a crisis.

Interestingly, we show that an increase of one standard deviation in the percentage of female directors (12.3 percentage points) reduces the probability of a bailout by at least 2.44 percentage points and reduces the average amount of public guarantees by €1.14 billion.

We also dissect the mechanism at play behind our main findings.

First, a more gender-diverse board positively impacts the bank's performance. Second, gender diversity correlates positively with dividend payout ratios, suggesting decreasing agency costs for these banks. Both results consequently lead to a lower probability of a bank bailout. Moreover, we find no evidence that gender diversity affects bank risk.

Considering recent reforms in several EU countries regarding the need to understand and enhance corporate governance mechanisms in banks and ensure gender equality in top decision-making positions, our findings shed some light on the role of female directors in shaping bank conduct through stronger monitoring efforts than their male counterparts, leading to higher profitability and lower agency costs.

Therefore, the results first support the aim of the European Commission to improve gender balance on corporate boards since it may be beneficial, especially for firms in countries with weak institutional environments. Second, they provide information on how gender diversity influences the potential cost of bailouts for taxpayers.

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Authors at the Department of Management

Giovanni Cardillo - Assistant Professor of Economics of Financial Intermediation

Academic disciplines: Economics of Money, Banking, and Financial Markets

Teaching areas: Banking and Finance

Research fields:  Financial intermediation, bank performance, public policies, corporate governance

Giovanni is an Assistant Professor in Economics of Financial Intermediation at the Università di Bologna and a SCANCOR Research Affiliate at the Weatherhead Center for International Affairs of Harvard University. In the past, he also served as a Research fellow at Aston University (England) and the University of Nottingham (England), and Teaching Associate at the University of Amsterdam (Netherlands), and a scientific consultant for ABIFormazione. His research interests are related to several areas of finance, such as the impact of government monitoring and monetary policies on banks, corporate governance, and sustainable finance.

Giuseppe Torluccio – Full Professor of Banking and Finance

Academic disciplines: Economics of Financial Intermediation, Economics of Banking, Venture Capital Philanthropy, Entrepreneurial and Social Finance

Teaching areas: Banking and Finance

Research fields:  Credit risk, Risk management, Corporate Finance, Treasury management, corporate risk management, ICT and financial industry, Payment systems, Innovation financing, Project Financing

Giuseppe is a Professor of Banking and Finance. He was appointed as a Faculty of the Centre of Excellence at the University of Bologna (Collegio Superiore). Giuseppe has authored publications in financial intermediation, management of credit risk, and business financing. He earned an MBA at the Olin Business School – Washington University in St. Louis. He has been a visiting scholar at Washington University in St. Louis, the College of Business at Arizona State University, and Bangor University UK. He is part of the Faculty Board of the Ph.D. Management program at the University of Bologna. He is involved in many social studies and related activities as Director of Yunus Social Business Centre – Università di Bologna and as a Vice president of Grameen Italia Foundation.