Board gender diversity,power, and bank risk taking

Having female board members brings ethical/societal perspectives and new resources to decision making. However, there is lack of evidence on whether it mitigates bank excessive risk-taking; hence, this paper addresses this question. It complements the normative corporate governance literature by combining agency theory and approach/inhibition theory of power from social psychology. For a sample of 195 U.S. commercial banks during 2002–2018, banks invest in more risky assets when female directors perceive the positive rewards of risky investments (in banks that have larger regulatory capital ratios and/or are well-capitalized) and when power shifts away due to CEO equity ownership. On the other hand, banks invest in less risky positions when female directors perceive the penalties inherent in a risky investment during the financial crisis. This paper provides novel evidence on the effect of gender diversity, as a governance mechanism, on risk taking in a social-psychology context. It offers insights on the effect of gender diversity on bank riskiness.