Effect of Gender Diversity in the Board of Directors on Financial Performance of Commercial Bank: A Panel Econometric Approach

Abstract

Board gender diversity has increased globally, driven by evidence that women bring unique perspectives and prudent decision-making that enhance firm performance and governance. Despite growing recognition of its importance, countries like Bangladesh still face challenges due to traditional gender roles limiting women’s participation in corporate leadership. The study examines the increasing presence of both genders on the boards of directors of commercial banks in Bangladesh. The independent variables are board size, board independence, gender diversity, and the audit committee’s independence. The dependent variable, Return on Assets (ROA), is a ratio that has been used to measure bank performance. This analysis uses the methods of descriptive statistics and correlation analysis, where applicable, multicollinearity tests, the Hausman test, and panel regression analysis to examine the link between a Bank’s Performance and the Gender Diversity of the Board of Directors. The method of moments (GMM) procedure is order to obtain a more strong regression result. The analysis demonstrates that board gender diversity is negatively associated with the financial performance of commercial banks, suggesting that increased female representation on boards corresponds with lower returns on assets. Board independence appears to exert minimal influence on bank performance, indicating a limited effect on overall institutional outcomes. Furthermore, the independence of the audit committee is found to negatively affect bank performance, highlighting its potential implications for the governance and financial effectiveness of commercial banks in Bangladesh. These results call for further investigation into the underlying factors, such as lack of industry-specific experience, the hostile work environment in the male-dominated banking sector, limited decision-making authority, etc.