Gender diversity in corporate boards and firm risk-taking: Evidence from Pakistan

Using annual data from 49 publicly listed non-financial firms from January 2011 to December 2022, this study investigates how board gender diversity affects firm risk-taking behaviour in Pakistan. We use the exogenous shock introduced by the Securities and Exchange Commission of Pakistan (SECP) through the Companies Act in 2017, mandating the inclusion of at least one female director on corporate boards in Pakistan. To address endogeneity, we employ the Two-stage Least Squares (2SLS) and Two-stage Residual Inclusion (2SRI) estimations and validate the findings with the Difference-in-Differences (DiD) and Markov Switching (MS) models. The results indicate that greater female board representation correlates significantly with lower financial leverage and reduced earnings volatility. These results suggest that mandated gender diversity can shape strategic decisions that can help mitigate firm-level financial risk.