Are Studies on Gender Diverse Boards Biased by Using the Book Value of Debt?

Abstract

We analyze if the empirical research on the consequences of a board’s gender diversity is affected by a specific measurement bias in Tobin’s Q: the value bias in corporate debt (VBCD). Book values of corporate debt are a more downward biased proxy of the market values of debt if increased board’s gender diversity comes with a reduction in corporate risk-taking. Nevertheless, the market values of corporate debt are frequently approximates by their book value when measuring Tobin’s Q. We first show the VBCD using bond market data and its link to higher board’s gender diversity. Second, we replicate two recent studies on the link between a board’s gender diversity and the firm’s performance. We show how the VBCD impacts the estimations and inferences. Coefficient sizes and significance levels are both affected by the VBCD. Third, we recommend an easy-to-implement correction that explicitly accounts for risk changes in the values of corporate debt.