Bank board diversity on risk and value: evidence from Taiwan

Abstract

ABSTRACT This study uses the banking industry in Taiwan to investigate how board diversity affects bank’s risk and value. The results show that board gender diversity reduces bank’s risks with lower non-performing loans and financial leverage, while board ethnicity diversity also decreases non-performing loans but not leverage. Both gender diversity and ethnicity diversity improve bank value measured by Tobin’s Q. Our results are robust across different model specifications, after controlling for time-invariant unobservable bank characteristics and addressing the concerns of endogeneity and causality. We show that the gender diversity in government-held banks is more effective in managing risk and enhancing value than that of the private banks. Both gender and ethnicity diversity appear to be the Holy Grail in the Taiwanese banks as they can enhance bank value and lower bank risk. Our results provide important policy implications for the banks and regulators in Taiwan and other markets.