Board gender diversity and corporate labor investment efficiency

Abstract

AbstractWe investigate whether board gender diversity affects firms' labor investment efficiency. We find that more gender‐diverse boards (higher representation of female directors) lead to less deviations in net hiring from the optimal level of labor investment predicted by economic fundamentals (i.e., more efficient investment in labor). The impact of board gender diversity on labor investment efficiency is robust to using alternative measures of board gender diversity and labor investment efficiency, controlling for unobservable variables, and addressing potential endogeneity concerns using propensity score matching and difference‐in‐differences approach. Additional subsample analyses suggest that the relation between female directors and labor investment efficiency is stronger in firms with weak monitoring, male CEO, and low managerial ability. Our findings provide support for the role and effectiveness of female directors in disciplining managerial opportunism and strengthening corporate governance.