Financial distress prevention in China: Does gender of board of directors matter?

This paper examines the impact of diversity in board members of firms on financial distress risk in China from 2005 to 2015. Using data from CSMAR database, the research finds that firms with women directors will decrease their distress risk by one forth. Such firms enjoy access to bank loans with larger size, from more banks and at higher frequencies to resist funding risk, which implies stronger financing ability and confirms gender diversity effect. Furthermore, firms with female directors show remarkably different behavior in investment, which would significantly influence insolvency status and is consistent with male-overconfidence theory in gender. Finally, firms controlled by with-female-board reduce risk by exerting tighter internal governance, reducing agency cost and restricting the behaviors of large shareholders’ tunneling. The paper indicates that the female directors’ impact on firm financial distress is mainly exerted both through liquidity channels and strategic channels. The results are robust under difference-in-difference method after exogenous matching and instrument variable approach. As governments growingly contemplate board gender diversity policies, our study provides further evidences to Chinese government on this issue.  JEL classification numbers: B54, G32, G33