Female Director and Cost of Capital: Evidence from Australia
DOI:
https://doi.org/10.54536/ajebi.v5i2.8121Keywords:
Australia, Cost of Capital, Female Directors, Gender DiversityAbstract
This paper examined the consequences of female directors’ presence on the firm’s cost of capital. This study included all the Australian listed companies in the primary list of samples from 2001 to 2015. This research revealed that female directors’ presence could ensure better monitoring, reduce the agency risk for shareholders, and increase the financial reporting quality, which results in a lower cost of capital. Moreover, firms that have complied with the gender diversity regulation signal quality corporate governance (as gender diversity is one of the criteria of quality corporate governance), which leads to easy access to financial resources and reduces the cost of capital. Therefore, using the two measures of the cost of capital (PEG and MPEG measures), we have found that the existence of female directors has a negative and significant association with the cost of capital. Furthermore, the additional test regarding the self-selection concern of female directors revealed that the baseline model is free from self-selection bias. Our findings have implications for individual firms and for regulators. For example, firms can get access to financing at lower rates by modifying their boards’ composition (i.e., through gender diversity). This paper makes a significant contribution to understanding that gender diversity can be a way of reducing the company’s cost of capital collection. This research goes beyond the conventional attention on corporate governance and the cost of capital. We use the existence of female directors as a sign of good governance quality to determine the cost of capital. As per our knowledge, this study is the earliest to examine the consequences of board gender diversity on the cost of capital from the Australian ‘best practice’ gender diversity perspective.
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