Beyond gender diversity: Two shades of women directors and bank cash holdings

Abstract

The study examines the impact of women directors on bank cash holdings for a sample of 187 listed commercial banks from 14 countries namely Bangladesh, India, China, Pakistan, Malaysia, Saudi Arabia, Sri Lanka, Thailand, Turkey, UAE, Jordan, Philippines, Oman and Indonesia. The study uses both fixed and random effect specifications and documents a negative association between women directors and cash holdings. The results indicate women directors support agency motive, instead of precautionary. Further, it examines the role of critical mass of women directors and documents that presence of three or more results in lower level of cash reserves. Moreover, it investigates the role of educational women experts (highly educated women directors and business women directors) and women financial experts in shaping cash policy. From these shades, results show business women directors increase cash holdings level supporting precautionary savings hypothesis instead of agency. The impact of women directors on bank cash holdings is examined using two-step system GMM approach in order to address endogeneity issue. Regression results are same as reported under fixed effect and random effect specifications i.e. a negative and significant relation. Regarding highly educated women directors, GMM estimations show that such women lower cash levels. Business women directors are significantly and negatively related to cash to total asset ratio. Interestingly, the women financial experts are found to increase the level of excess reserves, supporting the argument that such women directors on board think that holding excess reserves provide cushion against potential risks and uncertainties, thus are supporting precautionary motive.