Female board gender diversity and financing decisions of listed firms: nonlinear threshold evidence using simultaneous equation modeling

Abstract

Purpose This study aims to examine the nonlinear threshold effect of female board gender diversity (FBGD) on debt financing (DF) and equity financing (EF) decisions arguing that the effect of FBGD varies/changes depending on the numerical strength of the women on the board. Design/methodology/approach This study uses seemingly unrelated simultaneous panel equation modeling of 19 listed firms on the Ghana Stock Exchange (GSE) between 2010 and 2021. Although natural logs of equity and debts are used to proxy financing decisions, FBGD is measured as a percentage of total female board members to total board members. Findings This study reveals a nonlinear inverted U-shape effect of FBGD on EF and DF options. Although this result implies that the positive effects transit to negative effects when FBGD reaches numerical thresholds 34.20% and 35.11%, respectively, it also suggests that the risk averse nature of women on EF and DF usage becomes more visible and intense when the percentage of women on board increases above the mentioned thresholds, respectively. Clearly, the effect gender diversity on DF and EF depends on the numerical strength of the women on a board. Practical implications These results suggest that corporate entities and managers must be careful in the formation and implementation of gender diversity policies as gender diversity policies can influence/change debt and EF decisions. In addition, the thresholds show that a smaller number of women on board is required to lower EF compared to debt and this highlights risk-aversion nature women toward riskier financing decision. Also, the nonlinear inverted U-shape nexus from FBGD to EF and DF confirms the inverted U curve theory implying that the numerical strength of females on boards is critical for financing decisions. Originality/value This study contributes to the “gender diversity-financing decision” literature by simultaneously conceptualizing and modellng debt and EF structures and providing an emerging economy perspective on how gender diversity nonlinearly affects financing decisions.