The Role of Female Directors and Female Board Characteristics on Firm Financial Leverage: Evidence from Pakistan

Abstract

This study aims to examine the influence of female directors and female board characteristics i.e., female leadership and female independence on firm financial leverage.  This study uses financial and corporate governance data from annual reports of 236 non-financial firms listed on Pakistan Stock Exchange for the period 2014-2023 and tests the hypotheses using rigorous statistical approaches such as pooled ordinary least square and fixed effects approach. Results provide evidence in favor of hypotheses that presence of female directors in board and presence of female board characteristics significantly reduce firms’ financial leverage consistent with resource-based theory and resource dependence theory respectively. Two steps system generalized methods of moment and Propensity score matching analysis is employed to address the endogeneity issues. The baseline findings are robust by using alternative definition of female directors. Further this study finds in additional subsample analysis that the presence of three or more female directors shows a more pronounced effect on reduction of firm leverage as compared to one female director and support the critical mass theory. To the best of researchers' knowledge, this is the first study that extends literature by empirical analysis of the effect of board gender diversity attributes on firm financial leverage in an underdeveloped market, Pakistan. This study is helpful to the regulators that improving gender diversity through mandatory quotas can be more successful if implemented by functional attributes of females in firm.