The Association between Board Gender Diversity and Corporate Investment Efficiency

We investigate the relationship between board with female outside directors (FODs) and firms’ investment efficiencies using the firms listed in KOSPI from 2015 to 2019. We find that the association between firms with FODs and their investment efficiencies is generally insignificant although we find a weak negative association with under-investment. Then, we conduct the additional analyses to see if the association between them would be different in firms with high agency costs arising from excess free cash flow. Interestingly, we find that firms with FODs are negatively associated with over-investment as well as under-investment but the association is only pronounced in firms with higher level of free cash flow. The results of this study continue to maintain when we employ propensity score matching approach to address self-selection bias. Overall, our evidence supports the prior studies suggesting the positive aspect of gender-diverse boards in corporate decision-making process. That is, gender diversity may enhance board‘s governance roles, providing implication that female outside directors in boards can add a value to a firm needing a strong governance mechanism. This could be of interest of regulators and policy makers while considering the adoption of female quota system in the board of directors in listed firms.