Impact of Audit Committee Gender Diversity on Bank Risk

• In Event: SESSION 1B: Diversity Issues in Accounting

Abstract

Our paper examines gender diversity on the audit committee and the relation to risk of banks as measured by the variability of stock market return. Our sample consists of companies in the financial industry (SIC codes between 6000 and 6500) from the RiskMetrics database from 1997 to 2011. This database contains information on corporate boards of directors. Financial variables were collected from the Compustat database and CRSP database for the same years. We then measure the effect of audit committee gender diversity on variability of corporate performance in terms of bank risk, using the model by Cheng (2008), which measures the variability of stock market return. Our study shows that more gender diversity on the audit committee impacts firm risk by contributing to lower variability of stock market return. We find an inverse relationship between the percentage of female directors on the audit committee and the variability of corporate performance. Our research design and findings assist in providing additional evidence about the role of women in corporate leadership positions and the association with corporate performance. Our approach combines Cheng’s (2008) model of stock market variability with the impact of gender diversity.

Authors

• Shengxiong Wu, Texas Wesleyan University

• Mary Jane Lenard, Meredith College

• Bing Yu, Meredith College

• E. Anne York, Meredith College