Board Gender Diversity and Capital Adequacy: The Role of Environmental Responsibility in the Banking Industry

Abstract

This study investigates how board gender diversity (BGD) impacts banks' risk-taking and if this effect is mediated through banks' sensitivity toward environmental issues. Indeed, earlier literature recognizes a female risk aversion in financial decision-making and the urgency for banks to manage environmental risks. Using a sample of 132 banks from 21 countries over the 2009‒2020 period, we examine both the direct effect between BGD on risk-taking and the indirect effect of the mediating role of banks' environmental engagement. The results indicate that banks with higher BGD show higher capital adequacy ratios (Tier 1; Total Tier) and lower risk-weighted assets (RWAs), suggesting that the greater the presence of women on the boards, the lower the banks' risk profile. Moreover, the relationship between greater BGD and lower risk-taking is mediated by the impact of the bank's environmental engagement. Hence, BGD lowers banks' riskiness both directly and indirectly through the channel of improved environmental practices.