article · Journal of financial reporting & accounting
An analysis of 141 listed conventional and Islamic banks across 14 emerging economies between 2012 and 2020 highlights how female board representation influences financial risk. Having women on the board of directors is associated with reduced financial risk across banks, whilst also positively influencing the capital adequacy ratio in large institutions. A threshold effect exists, as having at least two female directors significantly lowers risk, aligning with the principles of token and critical mass theories. However, board gender diversity alone does not alter the risk-taking tendencies of Islamic banks. Furthermore, the moderating influence of the COVID-19 pandemic on the connection between board diversity and risk behaviour proved more prominent in large banks than in smaller institutions. These findings provide empirical context regarding governance structures across dual banking systems before and during systemic health disruptions.
Understanding how leadership diversity affects institutional stability is vital for financial health. Demonstrating that female board representation reduces financial risk and strengthens capital adequacy gives bank regulators, shareholders, and policymakers clear evidence to shape governance rules. It shows that meaningful female representation, rather than token inclusion, helps protect large financial institutions against volatility, particularly during major economic shocks such as global pandemics.
Financial regulators, bank governance committees, and corporate advisory firms can use these insights to design board recruitment criteria, governance codes, and risk management guidelines in dual banking markets. As an empirical study, this work is at an applied research stage rather than a product stage, providing evidence that directly informs policy reform, board composition strategies, and institutional risk oversight frameworks.
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Purpose This paper aims to examine the relationship between gender diversity and the risk profile of 141 listed banks from 14 emerging countries over the period of 2012–2020. Specifically, this study investigates whether the relationship between gender diversity and banking risk varies between Islamic banks and conventional banks, both before and during the COVID-19 pandemic. The second aim is to investigate whether COVID-19 health crisis moderates the effect of gender diversity on banks’ risk-taking behavior within a dual banking system. Design/methodology/approach This study derives its theoretical foundation from both the token theory and the critical mass theory. Both fixed and random effects are combined to examine the relationship between gender diversity and bank risk-taking in emerging countries. Findings The results show that female presence on the board of directors reduces banks' financial risk. However, the presence of women continues to positively affect the capital adequacy ratio of large banks. The results also show that the presence of at least two female directors significantly reduces banking risk. The findings support the expectations of the token and critical mass theories. In addition, the presence of female board members, per se, does not influence the risk-taking behavior of Islamic banks. Finally, this study demonstrates that the moderating role of the COVID-19 health crisis is only more effective for large banks than for small ones. The analyses demonstrate good reliability and robustness of the findings of this study. Practical implications The study provides novel insights for policymakers and practitioners on how female directors impact banks’ risk-taking behavior in dual-banking countries. It also contributes to the debate on gender diversity and corporate governance literature, which can help in monitoring bank risk-taking and improving financial stability. Originality/value This study presents new evidence about the importance of board gender diversity for bank risk-taking in a dual banking system by considering the moderating influence of the COVID-19 pandemic. This study also contributes to the literature on bank risk-taking by applying two measures of gender diversity and a critical mass of women on boards.
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DOI: 10.1108/jfra-07-2022-0248
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