Breaking the glass ceiling in banking: the impact of female directors, digitalization, and income diversification on financial stability

Abstract

Purpose This study aims to analyze the impact of board gender diversity (BGD) on a bank’s financial stability. Moreover, it also examines whether digitalization and income diversification act as mediators (individual and serial) in this relationship. Design/methodology/approach Hypotheses were tested using data from Pakistan’s banking sector financial statements from 2017 to 2021. A two-step analytical approach was used: panel regression in STATA for initial hypothesis examination, followed by mediation analyses using bootstrapping in SPSS. In addition, mixed-effect ML regression was conducted to verify causation and ensure robust findings. Findings Results demonstrate that BGD, digitalization and income diversification are positively associated with higher financial stability. Moreover, as hypothesized, both digitalization and income diversification individually and sequentially mediate the relationship between BGD and banks’ financial stability. Research limitations/implications It is important to acknowledge the study’s limited five-year timeframe. Further investigation is needed to determine the optimal board compositions, especially considering the study’s inclusion of up to 25% female directors on boards. Practical implications Policymakers and top management should prioritize increasing the number of female directors on boards for diversity. Banks that involve female directors can benefit from the synergies between gender diversity and digitization, along with the unique perspectives these women offer. This cooperative dynamic enables banks to explore and capitalize on innovative income diversification opportunities, enter new markets and ensure financial stability. Social implications Research findings emphasize promotion of gender equality and meritocracy through increased female director representation. This fosters a more inclusive and cooperative decision-making culture, benefiting individual banks and setting a model for other sectors. Ultimately, it contributes to greater social acceptance of women executives. Originality/value The study reveals a novel mechanism, emphasizing the revolutionary impact of active female directors in tandem with digitalization, amplifying chances for income diversification and accelerating increased bank viability.