How Gender Diversity in the Boardroom affects R&D Investment

The differences in leadership traits, ethical values, and management styles between male and female directors have been a frequent topic of debate in media, academic, and management circles. Those calling for an improvement in gender diversity on corporate boards will be buoyed by the results of a new research study which show that female directors improve board effectiveness in risk management related to R&D investment. The study is co-authored by CEIBS Associate Dean Zhu Xiaoming Chair in Accounting Professor of Accounting Shimin Chen.

Prior studies have shown that R&D (research and development) investment is risky because it usually requires significant upfront investment and uncertain returns over a potentially long-term investment horizon. It is also linked to an increased cost of debt, and increased volatility of future firm performance. However, R&D investment is also recognized as the primary driver of economic growth and innovation. Therefore, business leaders must be adept at balancing the associated risks and rewards in order to ensure a company’s continued growth and development. Previous research studies have also shown that gender is an important factor in determining one’s attitude towards risk; women tend to be more risk averse while men tend to be more over confident.

In their study, Professor Chen and his co-authors found that female directors are associated with reducing R&D-induced earnings/return volatility and cost of debt, which supports the idea that board gender diversity plays a role in effectively managing R&D risk, and that female directors are capable of being better monitors and advisors for corporate governance.

The results of the study appear in the paper “Gender Diversity in the Boardroom and Risk Management: A Case of R&D Investment” which is forthcoming from the Journal of Business Ethics. In addition to Professor Shimin Chen, the paper is co-authored by Xu Ni of CEIBS and Jamie Y. Tong of University of Western Australia.

Read the paper here.