Female directors on the sensitivity of investment to growth opportunities

Abstract

AbstractThis paper shows that female directors decrease the sensitivity of investment to the market misvaluation of growth opportunities. When the market misvaluation is high, such as during the COVID period, the sensitivity of investment to overall market valuation exhibits a significant drop. On the other hand, female directors increase the sensitivity of investment to alternative measures of growth not associated with market assessment. Firms with female directors achieve higher investment efficiency. Further analyses indicate that this contribution is mainly channelled through the board's advising function. Our main findings are robust to a battery of alternative explanations and robustness checks. Overall, this paper provides novel evidence that female directors contribute to capital investment decisions through their comprehensive information processing strategy.