This study reassesses the role of female directors in shaping corporate investment decisions, with a particular focus on how gender diversity at the board level enhances capital allocation efficiency. It explores the mechanisms through which female board members influence investment outcomes, especially within institutional settings where cultural norms may restrict female leadership.
Using a sample of 205 non-financial firms from 2009 to 2020, this study provides robust evidence through OLS, propensity score matching (PSM) and instrumental variable regressions to address endogeneity concerns.
Female directors significantly reduce investment inefficiency, particularly in overinvesting firms. Non-executive female directors help curb overinvestment, while executive female directors address underinvestment. Key mechanisms through which gender diversity improves investment efficiency include director certification, active board participation and audit committee involvement. The presence of female directors also correlates with higher audit quality, especially through Big 4 auditors, which contributes to more efficient capital allocation in firms with low financial reporting quality.
The findings support regulatory reforms mandating female board representation. Policymakers should not only promote qualified female directorship but also implement measures that enhance board participation and provide targeted professional development to maximize the effectiveness of gender-diverse boards.
This study contributes new evidence from an emerging market by identifying the specific governance channels, director training, board meeting attendance and audit quality, through which female directors improve investment efficiency. It expands the literature on gender diversity by revealing how women on boards influence firm-level investment decisions in culturally constrained environments.
