Women Directors on Public Company Boards: Does a Critical Mass Affect Leverage?

Abstract

This study examines the relationship between corporate leverage (the ratio of total debt to total assets) and gender diversity on US public company boards, with particular focus on boards that have at least 25% women directors. Using this critical mass of women eliminates from consideration boards with lesser female representation, whose female directors may be marginalized in their contributions to board functioning and decision-making. I hypothesize that when boards have this minimum threshold of gender diversity, the influence of risk-averse female directors will impact board decisions related to financing, resulting in lower debt ratios when compared to boards with no female directors. Drawn from the listing of firms compiled annually by Catalyst, the sample is comprised of Fortune 500 firms with no women on their board and firms with at least 25% women directors on their board, respectively, for the two year period 2012 and 2013. Using a total sample of 78 firms, and controlling for determinants of capital structure and board governance variables, I find a significant negative relationship between boards with at least 25% women directors and corporate leverage. Further, the presence of at least 25% women on the board has a significant moderating effect on the association between both board size and board age, and corporate leverage, leading to an even stronger negative relationship. The evidence suggests that substantial board gender diversity is a corporate governance factor that can influence firm outcomes, and adds insight into the factors that can affect corporate financing choices of US public companies.

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