Purpose
This paper aims to explore the effect of economic policy uncertainty (EPU) on board gender diversity. Prior research shows that female directors play a beneficial role. The advantage of board gender diversity should be particularly helpful when firms have to navigate an uncertain environment. So the authors hypothesize that firms adjust their board gender diversity in response to EPU.
Design/methodology/approach
The authors execute a regression analysis. To minimize endogeneity, the authors execute firm-fixed effects regressions, an instrumental variable (IV) analysis and propensity score matching.
Findings
Consistent with their hypothesis, the authors find that firms significantly raise board gender diversity in response to EPU. To draw a causal inference, the authors exploit the 9/11 terrorist attack as an exogenous shock that elevated EPU unexpectedly. The authors’ IV analysis corroborates the results. Finally, the authors show that board gender diversity substantially mitigates the adverse effect on shareholder wealth brought about by an unanticipated negative shock attributed to the 9/11 attack.
Originality/value
According to the authors’ knowledge, this study is the first to investigate the effect of EPU on board gender diversity. This research contributes to two important areas of the literature, i.e. board gender diversity and EPU. The authors show that board gender diversity is beneficial and firms act accordingly when facing more economic uncertainty.
The Role of Economic Policy Uncertainty in Predicting Output Growth in Emerging Markets: A Mixed-Frequency Granger Causality Approach