Do Firms Adjust Board Gender Diversity in Response to Economic Policy Uncertainty?

Abstract

We explore the effect of economic policy uncertainty on board gender diversity. Prior research shows that female directors play a beneficial role. The advantage of board gender diversity should be particularly helpful when firms have to navigate an uncertain environment. So, we hypothesize that firms adjust their board gender diversity in response to economic policy uncertainty. Consistent with our hypothesis, we find that firms significantly raise board gender diversity in response to economic policy uncertainty (EPU). To draw a causal inference, we exploit the 9/11 terrorist attack as an exogenous shock that elevated EPU unexpectedly. Our instrumental-variable analysis corroborates the results. Finally, we show that board gender diversity substantially mitigates the adverse effect on shareholder wealth brought about by an unanticipated negative shock attributed to the 9/11 attack.