Women on Board and Firm Stability: Evidence from Finnish Firms

Abstract

This thesis seeks to contribute to the ongoing discourse on the role of gender diversity in corporate governance. Specifically, in this study, I investigate the correlation between the representation of women on boards and the default risk of Finnish firms. In modern times where gender equality is highly prioritized, better understanding of how the presence of women on boards influences financial risk is of great importance. Therefore, motivated by the broader societal focus for gender inclusivity, this study seeks to investigate the complex effect of female directors on the financial stability of firms. This study uses a comprehensive dataset of 66 Finnish firms over the longer period from 2003 to 2021. To measure the default risk, I use Merton's distance to default and Credit Default Swap spread. This study employes comprehensive statistical analyses such as descriptive statistics, correlation analyses, univariate analysis, and regression results to reveal a nuanced negative linkage between the presence of women on boards and the default risk. Specifically, this study documents a positive relationship between percentage of women on boards and distance to default and negative relationship between presence of women on board and credit default swap spread. These results highlight the potential risk-mitigating effects that gender diversity can bring to corporate decision-making. The thesis makes important theoretical contributions and provides useful practical implications for Finnish firms, policymakers, and practitioners. The results of this study advocate for the strategic advantages of increasing gender diversity in corporate boards and emphasizes its potential to enhance financial stability of the firm. The study provides several recommendations for future research and acknowledges the limitations regarding the data. In summary, this thesis contributes substantively to the understanding of how gender diversity, particularly the inclusion of women on boards, shapes the financial risk profiles of Finnish firms. Present study bridges theoretical frameworks with empirical evidence and sheds light on the different dynamics of the board when considering the presence of women on corporate boards.