Female directors and agency costs: evidence from Chinese listed firms

Purpose - The purpose of this research is to examine whether board gender diversity reduces the agency costs of firms in the context of Chinese listed firms. Design/methodology/approach - This paper uses a large sample of 23,340 firm-year observations of Chinese listed companies during 2004-2017. The authors use ordinary least squares regressions as the primary methodology with a wide range of methods to control for endogeneity and to check robustness, including the fixed-effect method, instrumental variable approach, lagged gender diversity measures, propensity score matching, Blau index, Shannon index and industry-adjusted measures of agency costs. Findings - The evidence reveals that the participation of female directors in corporate board reduces agency costs, which correlates with conflicts of interest. Moreover, gender-diverse boards are more effective in stateowned enterprises (SOEs), in which agency issues are more severe. Female directors also provide better monitoring roles in more-developed areas. Finally, corporate boards that have a critical mass of female directors have a greater tendency to reduce agency costs as compared to their token participation. Overall, all findings support the validity of agency theory. Originality/value - This study extends the literature by providing evidence that gender diversity in boardroom matters for shareholders' wealth maximization. It provides novel evidence that a critical mass of female directors is more effective in reducing agency costs compared to a single female on the board, and that the effect of gender diversity varies in relation to ownership structure and region.