Board gender diversity and cost of equity: Evidence from mandatory female board representation

Abstract

In this paper, we examine whether and how board gender diversity impacts firms’ cost of equity. We predict that firms with greater board gender diversity enjoy a lower cost of equity than firms with less gender diversity due to a larger investor base, less information asymmetry among investors, and more conservative accounting disclosure. We use staggered worldwide boardroom gender diversity reforms as a quasi-natural experiment to conduct a difference-in-differences analysis. Using a large sample of firms from 43 markets, we obtain empirical evidence in line with our prediction. Our results are robust to tests involving alternative samples, specifications, and explanations. Cross-sectional analyses show that the effect of board gender diversity on the cost of equity is less (more) pronounced when firms are more (less) gender-equal, transparent, and conservative in accounting.