Cogent Economics & Finance (Dec 2022)
Cost of equity, debt financing policy, and the role of female directors
Abstract
We examine the role of female directors on firm cost of equity in the context of US-listed firms, and further explore the mediating impact of debt financing policy on such association. Using a dataset of 4619 non-financial firm-year observations covering the period of 2008–2019, we find that firms with female directors on boards are likely to exhibit a lower cost of equity, through relying on a less risky financing decision. The indirect effect is found to take up around 45% of the female-cost of equity association. In addition, our analysis also indicates that the lower debt financing levels are realised only if female representation reaches a critical mass of around 28%. Our findings provide important implications for firms in balancing the gender ratio within their boards to level out their risk-taking through their financing decisions.
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