Mediating Role of Financial Innovation on Board Gender Diversity and Bank’s Financial Performance: Evidence from Commercial Banks of Developing Economies.
Abstract
Current literature has revealed the inconsistent results regarding the role of female participants on bank boards and financial performance: some studies find that more female on board has positive effect on the financial performance but on the other hand several studies reflects negative or no effect. The direct impact of gender diversity on bank’s financial performance is widely studied but mediating effect of financial innovation on this relationship is rarely examined. In this context, this study aims to bridge this gap as Gender diversity is gaining recognition as an important part of corporate governance team. The study engaged a sample of 456 bank-year observation of 38 banks selected from developing economies over the period from 2011 to 2023. To test the research hypothesis and mediation analysis, and to control for endogeneity issues, the Generalized Method of Moments (GMM) estimation was applied. The studied report a significant impact of gender diversity on ROA and ROE separately considering three controlling factors namely, asset quality, leverage and capitalization. Further, financial innovation partially mediates the link between gender diversity and financial performance. The results contribute to the existing knowledge regarding effectiveness of inclusion of female board members and their impact on financial performance of banks in the context of developing economies namely Pakistan, Bangladesh, Indonesia and Malaysia. Moreover, this study tries to connect the empirical findings with governance theories for highlighting the role of board gender diversity in determining the performance of banking sector of developing countries that will facilitate decision makers and bank authorities to analyse the contribution of women board members in enhancing bank’s performance.
Keywords: Board Gender Diversity, Financial Innovation, Financial Performance, Developing Economies, GMM
