Gender Dynamics and Risk Management in Spanish SMEs: The Influence of Female Directors

Abstract

In the evolving landscape of corporate governance, the composition of the board of directors plays a pivotal role in shaping the strategic directions and risk profiles of organizations. This is particularly evident in the context of small and medium-sized enterprises (SMEs) in Spain, where the dynamics of gender and ownership structure present unique challenges and opportunities for risk management. Leveraging the theoretical framework that posits female directors as more risk-averse compared to their male counterparts, this study embarks on an empirical investigation to scrutinize the veracity of this assertion within Spanish SMEs, utilizing the Altman Z-score as a barometer for financial risk. Drawing upon a robust dataset of Spanish SMEs, this research employs a System Generalized Method of Moments (System GMM) to analyze the influence of board composition and ownership structure on the firm's risk profile. Specifically, the study examines a spectrum of independent variables, including the percentage of female directors, the ownership concentration of the main shareholder, the Herfindahl index, the Cubbin-Leech index, and the presence of institutional or family ownership, alongside other governance attributes such as board size, and the ownership stakes held by CEOs and directors. The empirical findings illuminate a nuanced relationship between board composition, ownership structure, and firm risk. Consistent with the underlying theory, an increased percentage of female directors on the board significantly correlates with a reduction in financial risk, as evidenced by higher Altman Z-scores. Similarly, the presence of family ownership is also associated with lower risk levels, underscoring the conservative financial strategies often adopted by family-run enterprises. In contrast, other variables, including the ownership concentration, institutional ownership and board size are linked to heightened risk.Finally , this study shows a non-linear relationship about CEO and director ownership. This study contributes to the existing literature by providing empirical evidence on the risk-reduction benefits of female board representation and family ownership in the specific context of Spanish SMEs. It underscores the importance of considering gender and ownership dynamics in the formulation of risk management strategies and corporate governance policies. Moreover, the findings highlight the complex interplay between various governance factors and their collective impact on the financial stability of SMEs. Through the lens of this research, it becomes evident that the strategic integration of female directors and the promotion of family ownership can serve as effective mechanisms for mitigating financial risk within SMEs. These insights pave the way for future studies to further explore the gender dimensions of corporate governance and their implications for organizational success and sustainability.