Gender diversity and financial flexibility: Evidence from China

This study investigates the effect of top management teams' gender diversity on financial flexibility, defined as the downward deviation from predicted target leverage. We find that gender diversity positively associates with financial flexibility. Specifically, management teams with high gender diversity tend to carefully consider all possible risk and growth factors in the decision-making process and reserve financing resources for future contingencies, resulting in reduced borrowing and the establishment of flexible financial structures. We further examine whether this gender diversity effect varies with the firm's external operating environment and find its association with financial flexibility is weaker in high industry competition, strong market forces, and strong legal protection. Our results are robust to alternative gender diversity measures, sensitivity analysis of financial flexibility, and endogeneity issues. We also provide evidence that the effect of gender diversity is different from that of female managers in corporate decisions. Our study contributes to the literature on managerial characteristics by showing how gender diversity affects corporate financing decisions. The findings have practical implications for managers, policymakers, and investors by suggesting measures to improve financial flexibility through adequate managerial diversification.