Women In The Boardroom And Their Impact On Default Risk: A Pitch

Searat Ali
Griffith University, Griffith Business School, Department of Accounting, Finance and Economics, Students

July 20, 2016
Abstract:

This pitch research letter (PRL) applies the pitch template developed by Faff (2015b) to an academic project on boardroom gender diversity and default risk. The pitch template helped the pitcher to identify the core elements that form the framework of the research project. This PRL encloses a brief background about the pitcher and pitch, followed by a brief commentary on the pitch and personal reflections of the pitcher on the pitch exercise itself.

Women In The Boardroom And Their Impact On Default Risk: A Pitch – Introduction

I am currently a PhD candidate in Finance at the Department of Accounting, Finance and Economics (AFE) at Griffith University and my thesis is scheduled to be submitted on 28 September 2016. My primary field of research is corporate finance. As part of my current research interests, my PhD thesis is based on three empirical essays that investigate the impact of corporate governance quality on firm risk in Australia. Specifically, I am investigating the association of corporate governance with various risk factors such as financial distress or default risk, stock liquidity, and downside risk. In this PRL, I apply the pitch template developed by Faff (2015b) to a collaborative academic project on boardroom gender diversity and default risk. I completed the first draft of the pitch template on 04 May 2016 while attending the ‘Research Process in Business’ course at the University of Queensland (UQ). The current draft was prepared on 20 July 2016 for submission in Accounting Research Journal (ARJ). This is my second formal experience of completing the pitching template. Given my exposure to the pitching research, in the personal reflection section, I have highlighted the worth of doing the pitching exercise, the potential adoptability challenge and solutions, systematic process of learning the pitching template, and application of the rule of three in pitching research. I hope such a personal reflection will be useful for the novice researchers.

The remainder of this PRL is organised as follows. Section 2 gives a brief commentary on the completed pitch, Section 3 covers personal reflections on the pitch exercise, and the final section provides a conclusion.

Brief commentary on the pitch

Default Risk, Gender Diversity

Table 1 presents the pitch on the topic of women in the boardroom and their impact on default risk (item A), which was completed on 20 July 2016. Specifically, the Table 1 outlines the “answers” to all the required fields from the Faff (2015b) template including Basic research question, Key papers, Motivation, Idea, Data, Tools, What’s New, So What, Contribution, and other Considerations.

The primary research question (item B) is “does the boardroom gender diversity reduce default risk?” The key papers (item C) (KPs) that relate to the stated research question are Sila et al. (2016), Adams and Ragunathan (2015), and Adams and Ferreira (2009). As advised by the Faff (2015a), these key papers capture the three selection criteria i.e., 1) recently published 2) in top tier journals 3) by the Gurus in the field. In addition, these key papers are relevant to the primary research question.

Of these KPs, the most critical paper to the primary research idea is the paper of Sila et al. (2016), who investigate the association between gender diversity and risk-taking in the US. This paper is recently published in Journal of Corporate Finance (JCF) that is ABDC A* ranked. Interestingly, this paper finds no conclusive evidence between women on board and risk-taking. They argue that such a relationship is spurious and is driven by endogeneity bias. Given these findings, the addition of women on board and its impact on corporate outcomes (such as default risk) is still under live debate.

The paper of Adams and Ragunathan (2015), the second KP, is a working paper available at SSRN. The selection of the paper as a KP is justified as the lead author is one of the pioneers in boardroom gender diversity research. Moreover, this KP is relevant and addresses an interesting question “Would the crisis have happened if Lehman Brothers had been Lehman Sisters?” From here, one can infer another question (as of the proposed study) “Would the default risk be lower for firms that have more women on board?” By focusing on the financial firms, Adams and Ragunathan (2015) find that listed banks with more female directors did not have lower risk than other banks during the crisis but they had better performance.

Finally, the paper of Adams and Ferreira (2009), the third KP, published in Journal of Financial Economics (ADBC A* ranked) argue that having more women on the board does not necessarily improve firms’ financial performance but their presence may improve the monitoring function of the corporate boards. Their findings on the impact of women in exercising the monitoring function have advanced the literature regarding gender diversity beyond firm financial performance such as informativeness of stocks, earnings quality, and agency cost. The underlying objective of these studies is to identify women on board as a governance mechanism that should eradicate capital market inefficiencies. However, when examining the ‘business case’ of gender diversity, existing literature overlooks one of the important characteristics of efficient markets, namely, financial stability (low default risk).

Inspired by the generic guidelines by Faff (2015a), the proposed research is mainly motivated (item D) by three factors: the series of corporate collapses that require the changes in corporate boards (real world phenomenon); on-going research and policy debate on the benefits of having more women on board (key stakeholders); and contradictory findings in gender diversity research and a lack of empirical research on the boardroom gender diversity as a critical determinant of default risk (gap in the literature).

Default Risk, Gender Diversity

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