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Could 'Lehman Sisters' Reduce Bank Risk-Taking? Cross-Country Evidence

Since the global financial crisis triggered by the collapse of Lehman Brothers, board gender diversity has attracted growing attention among academia and policy makers. The “Lehman Sisters” hypothesis argues for more women representation on bank director board based on the stereotyped gender gap in risk preference that has been widely supported by empirical studies on nonfinancial firms. However, due to the constraint of data unavailability, empirical research on board gender diversity and bank risk-taking is scarce and mostly confined to individual developed markets with inconclusive findings. To our best knowledge, this research is the first cross-country empirical study to examine this issue using a large hand-collected dataset covering 492 commercial banks across 18 developed and 21 developing countries over the period 2007-2016. We find lower bank risk-taking is associated with greater board gender diversity, lending support to the “Lehman Sisters” hypothesis in the international context; however, this effect is significantly weakened in countries with more hostile perception toward working women. Our findings help to reconcile the existing contradictory empirical evidence by highlighting the importance of cultural effect. We also confirm the critical threshold of three female directors to play a significant role in reducing bank risk taking, providing novel international evidence in support of the critical mass theory from banking sector. Our findings have important implications for policy makers and bank risk management.