Does gender diversity on boards influence stock market liquidity? Empirical evidence from the French market

Abstract

PurposeThe purpose of this paper is to examine the gender diversity on boards and its effect on stock market liquidity in French boardrooms.Design/methodology/approachUsing a sample of French firms between 2002 and 2012 listed on the Paris Stock Exchange (SBF120), the study uses ordinary least squares and three-stage least squares (3SLS) regressions to address endogeneity concerns on the board gender diversity.FindingsThe results show that stock market liquidity is positively and significantly associated with the presence of women directors. The authors find that investors’ decisions vary according to their positions in the board: women independent members decrease illiquidity costs, while the presence of female inside directors increases daily trading volume. In addition, the presence of female inside directors increases the firm’s ability to implement better strategies that cope with economic, social and environmental constraints which leads investors to positively react. Surprisingly, the presence of female independent directors reduces company involvement in sustainable development projects.Practical implicationsThe empirical findings contribute to the current debate on the benefits of gender diversity on corporate boards and the effectiveness of gender-quota laws. It shows that appointing insider female’ directors incite investors to trade more stocks while appointing independents ones reduces their trading costs.Social implicationsThis paper shows that the benefits of female directors appointing depend on their independence of management team.Originality/valueThis study addresses the endogeneity between stock market liquidity, corporate governance and gender diversity. It is the first study to distinguish between the effects of women inside and independent directors on investors’ trading decisions.