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MAJ
34,8
1050
Received 8 May 2018
Revised 10 March 2019
Accepted 8 April 2019
Managerial Auditing Journal
Vol. 34 No. 8, 2019
pp. 1050-1072
© Emerald Publishing Limited
0268-6902
DOI 10.1108/MAJ-05-2018-1874
Does risk management committee
gender diversity matter?
A financial distress perspective
Jing Jia
Tasmanian School of Business and Economics, University of Tasmania,
Hobart, Australia
Abstract
Purpose – Using 2010 corporate governance principles and recommendations (CGPR) as a natural setting,
the purpose of this paper is to investigate the relationship between risk management committee (RMC) gender
diversity and a firm’s likelihood of financial distress. Empirical evidence regarding whether CGPR (2010)
enhances RMC gender diversity (RMCGD) is also provided.
Design/methodology/approach – Data were collected from the annual reports of the top 300 Australian
Stock Exchange (ASX) listed companies from 2007 to 2014. To control for potential endogeneity, the
association between (RMCGD) and a firm’s likelihood of financial distress was investigated using an
instrumental variable approach (panel 2SLS regression). The relationship between CGPR (2010) and RMCGD
was explored using panel regression analysis with firm fixed effects.
Findings – RMCGD was found to be associated with a lower probability of financial distress, suggesting
that women are better at monitoring and reducing firms’ excessive risk-taking behaviours, which, in turn,
decreases firms’ risk of financial distress. The results also indicate that CGPR (2010) is quite effective in
enhancing committee gender diversity. In the additional analysis, the results show that RMCGD moderates
the negative relationship between risk and likelihood of financial distress. Importantly, the proportion of
women with financial experience on RMCs is more effective in reducing the likelihood of financial distress
compared to the proportion of men with financial experience on RMCs. These results highlight the benefits of
having a gender diverse RMC.
Research limitations/implications – The results were based on the top 300 ASX-listed companies;
thus, restricting generalisability. In addition, this study only focussed on listed firms, non-listed firms may
add additional insights to the literature.
Practical implications – The results provide new and useful empirical evidence about RMCGD for
Australian policymakers. This paper suggests that, in the short-term at least, RMCGD should be encouraged
by regulators. Regulators could also recommend that the firms with a non-diverse RMC include women with
financial experience on their RMC.
Originality/value – Given that prior studies have indicated that gender diversity is closely related to risk,
this study contributes to the previous literature by investigating RMCGD and its effect on the likelihood of
financial distress. It is expected that the role of RMC member would be to protect the firm from ultimate
failure (likelihood of financial distress), especially during a financial crisis.
Keywords Gender diversity, Financial distress, Risk management committee
Paper type Research paper
1. Introduction
In the aftermath of the global financial crisis (GFC), there has been increased pressure on
companies to have good corporate governance practices, with a significant emphasis placed
on the role of risk management. Previous studies have suggested that women and men are
quite different in respect to risk taking, risk preference, risk aversion and risk tolerance
degree (Powell and Ansic, 1997; Huang and Kisgen, 2013; Birnberg, 2011; Ittonen and
Peni, 2012; Khlif and Achek, 2017). Thus, gender diversity is expected to be closely related to Financial
a firm’s risk management. Given that a risk management committee (RMC) bears the distress
fundamental responsibility of risk management, this study pays particular attention to RMC
gender diversity (RMCGD) and aims to examine its benefits in relation to a firm’s likelihood
of financial distress.
Australia has signalled its intention to make gender diversity a high priority. In 2010, the
Australian Securities Exchange Corporate Governance Council (ASX CGC) released the
second edition of corporate governance principle and recommendations (CGPR) with 1051
amendments, which included a number of recommendations primarily related to gender
diversity. It recommended that Australian listed companies report and review the
proportion of women in the workforce at all levels of the companies’ economic groups[1],
including the proportion of women on the board and on committees. Although, the above
recommendations highlight the importance of gender diversity in Australia, the amount of
gender diversity research in Australia is still scarce (Kang et al., 2007; Wang and Clift, 2009;
Hutchinson et al., 2015), and this deficit provided the motivation for this study.
Unlike prior gender diversity studies, which have primarily investigated the gender
differences of the board of directors (Khlif and Achek, 2017). This study pays particular
attention to gender diversity at the RMC level. Prior literature has suggested that it may be
more appropriate to focus on the composition of the board committee than the entire board
when evaluating board performance (John and Senbet, 1998; Klein, 1998; Strobl et al., 2016).
The board committee facilitates board effectiveness and corporate function (Bilimoria and
Piderit, 1994; Jiraporn et al., 2009). It provides a means of effective governance by allocating
focussed tasks and addressing specific corporate concerns (Bilimoria and Piderit,1994), and
the most important decisions can be made at a committee rather than a board level (Kesner,
1988). A number of studies have supported these views and provided evidence regarding the
importance of board committees (Adams et al., 2010; Goh, 2009; Sun and Cahan, 2009). For
example, Sun and Cahan (2009) found CEO cash compensation to be more positively related
to accounting earnings when firms had high compensation committee quality. Harjoto et al.
(2015) revealed that firms with female CEOs and/or a high percentage of women on the audit
committee are associated with shorter audit delays.
In the context of accounting, an audit committee and RMC are particularly relevant. The
former is a crucial part of the financial reporting process, as its primary task is to oversee a
firm’s financial performance and ensure the reliability of financial reports, while the latter
manages, reviews and makes decisions about all aspects of risk management arising from
the firm’s activities; thus, influencing managerial judgement on risks (Strobl et al., 2016).
Importantly, monitoring of a firm’s risk management system and managerial risk decisions
through a RMC is a critical step in assisting the audit committee to fulfil its tasks (i.e. ensure
financial reporting quality)[2]. Many studies have investigated the impact of gender
diversity on the functioning of audit committees (Srinidhi et al., 2011); however, to the best of
the author’s knowledge, no other studies have examined the gender diversity of a RMC. This
study aims to fill this gap and investigate the benefits of RMCGD.
Using the top 300 ASX listed firms during and following the GFC (2007-2014), this study
aims to achieve two objectives. The first objective is to determine whether the CGPR (2010)
could influence gender diversity at a committee level. This was achieved by investigating
the impact of CGPR (2010) on RMCGD. The CGPR (2010) encourages firms to increase
gender diversity at all levels of the economic group, including gender diversity on the board
and on committees (CGPR, 2010, p. 25). However, prior Australian studies have only
focussed on the relationship between CGPR (2010) and board gender diversity. For example,
Hutchinson et al. (2015) investigated the top 500 firms from 2007 to 2011 to determine
MAJ whether the 2010 CGPR encouraged greater board gender diversity and whether board
34,8 gender diversity was associated with nomination committee gender diversity. To the best of
the author’s knowledge, no study has directly examined the impact of the CGPR (2010) on
committee gender diversity.
The second objective of this study is to determine whether a gender diverse RMC
improves a firm’s risk management decision making and outcomes. Specifically, the
1052 relationship between RMCGD and a firm’s probability of financial distress is investigated. It
is expected that during a financial crisis, the role of RMC members would be to protect the
firm from ultimate failure (likelihood of financial distress). Additionally, prior research has
shown that women are more conservative and risk averse than men (Hutchinson et al., 2015).
Aversion to excessive risk taking has been viewed more favourably following the GFC, as
firms that are able to identify, understand and control risks have a better chance of survival
(Hutchinson et al., 2015). In addition, this study also examines whether RMCGD affects the
association between firm risk and the firm’s probability of financial distress. It is expected
that risk management and a firm’s probability of financial distress is particularly important
when there is an exogenous financial stock (the GFC), as inadequate risk management and
excessive risk taking were major contributors to the GFC (Rosen, 2003; Kirkpatrick, 2009;
ASXCGC, 2014).
The findings show that with the introduction of the CGPR (2010), the proportion of
women and the existence of women on RMCs increased while controlling for board gender
diversity. This highlights that the CGPR (2010) has been successful in increasing committee
gender diversity in Australia. Using the CGPR (2010) as a natural setting to control for
potential endogeneity, the results show that RMCGD is associated with a lower likelihood of
financial distress. This supports the argument that women are better at monitoring risks
and managing risks, which in turn decreases a firm’s chance of financial distress.
Most importantly, the results of this study provide evidence about the importance of
RMCGD, particularly in a situation where firms face a high level of risk. Specifically, after
controlling for potential endogeneity, the results show that increased RMCGD is associated
with a negative relation between risk and likelihood of financial distress. This result
demonstrates that RMCGD moderates the relationship between risk and the likelihood of
financial distress. In the additional analysis, the results show that the proportion of women
with financial experience on a RMC is more effective in reducing the likelihood of financial
distress compared to the proportion of men with financial experience on a RMC. These
results shed lights on the importance of RMCGD.
This study contributes to the extent literature in several ways. First, this study shows
that the CGPR (2010) not only increases gender diversity at a board level (Hutchinson et al.,
2015) but also significantly increases the gender diversity of a RMC, which provides
empirical support about the effectiveness of CGPR (2010, p. 25)in fostering a governance
culture by increasing gender diversity at all levels of the economic group. This is the first
empirical study to directly demonstrate the positive influence of the CGPR (2010) on
committee gender diversity. Although Kang et al. (2007) and Hutchinson et al. (2015) also
investigated the effectiveness of ASX recommendations on board structure, this paper
differs from theirs. Kang et al. (2007) investigated the first edition of CGPR, which focussed
on board structure, including board independence (not at a committee level). Hutchinson
et al. (2015) investigated the role the nomination committee plays in enhancing board gender
diversity. They found that the CGPR (2010) encouraged greater board gender diversity.
However, the direct impact of the CGPR (2010) on committee gender diversity remains
unexplored.
 Second, this study extends the stream of research on the likelihood of financial distress Financial
by showing that RMCGD is an important determinant of a firm’s likelihood of financial distress
distress. In addition, the RMC is an important decision maker for risk management issues;
however, their gender differences have not been widely examined in existing studies. This
study provides empirical evidence that the gender diversity of a RMC may affect risk
monitoring and reduce a firm’s excessive risk-taking behaviours, thereby influencing firm’s
chance of financial distress. Moreover, this study contributes to a growing line of research
examining the role of diversity in boardrooms and complements studies documenting the 1053
importance of board gender diversity on board decision makings by showing that RMCGD
is associated with a lower probability of financial distress. The findings of this study also
inform Australian regulators about the effectiveness of CGPR (2010) in enhancing
committee gender diversity and provide implications to policymakers in relation to
regulating RMCGD in Australia.
The paper proceeds as follows. Section 2 reviews the relevant literature and develops the
hypotheses. Section 3 describes the sample selection, the model and the variables used.
Sections 4 present the main results and additional tests. Section 5 provides the conclusion.

2. Literature review and hypothesis development

2.1 The role of the board of directors and risk management
The board of directors has many functions, including the monitoring and counselling of
managers (Mallin, 2004; Adams et al., 2010). Board attributes could influence the way
directors perform monitoring and counselling functions; thus, affecting board performance
(Forbes and Milliken, 1999; Zahra and Pearce, 1989). Theoretically speaking, the board of
directors holds both monitoring and advisory roles in risk management. Agency theory
suggests that one of the main roles of the board of directors is to monitor (control) managers’
opportunistic behaviour on behalf of shareholders (Jensen and Meckling, 1976; Fama and
Jensen, 1983; Hermalin and Weisbach, 2003; Adams and Ferreira, 2009; Dionne, et al., 2013).
There are divergent risk preferences of risk-neutral (diversified) shareholders and risk-
averse managers, which necessitates monitoring by the board (Jensen and Meckling, 1976).
As a board sub-committee, the RMC bears the fundamental responsibility of risk
management, because effective monitoring by the RMC may increase the efficiency of
companies using risk-related tools; thus, increasing risk management efficiency (Marsden
and Prevost, 2005). Resource dependency theory highlights the second role of the board of
directors – their advisory role. The theory indicates the relevance of directors’
characteristics (such as gender diversity) in providing strength and crucial resources to a
firm’s risk management, including providing advice and expertise to the top management
team on how to deal with firm risks and identify potential risk opportunities (Pfefier and
Salancik, 1978; Hillman and Dalziel, 2003; Hillman et al., 2000). Consequently, firms that are
able to identify, understand and control risks have a better chance of survival, especially
during a GFC (Hutchinson et al., 2015).
Due to the complexity and specialist knowledge required to manage risks, the board of
directors are more likely to delegate to an appropriate board committee, such as the RMC, to
effectively oversee risk management (ASXCGC, 2014). The RMC bears the responsibility of
determining risk management strategies, evaluating risk management operations and
assessing the appropriateness of risk management procedures (Subramaniam et al., 2009).
By reviewing and monitoring the firm’s risk management system and managerial risk
decisions, the RMC assists the audit committee by ensuring the quality of financial reporting
and internal control (Subramaniam et al., 2009). Through risk management, the RMC also
assists the board of directors and audit committee with monitoring firm performance and
MAJ managerial decisions (Subramaniam et al., 2009). Because of the importance of the RMC and
34,8 its risk management responsibilities, it is expected that some characteristics of RMC
members may provide risk management strength; thus, influencing the firm’s risk
management outcomes.

2.2 Literature on gender diversity

1054 Gender differences have been largely investigated in prior literature, with a main focus on the
gender diversity of the board of directors, audit committee, auditor gender and top
management (CEO and CFO), and their associations with financial reporting (earnings
management and conservatism), auditing (audit quality and audit efficiency), and firm
outcomes (Khlif and Achek, 2017). The overall results confirm that there are gender differences
in risk attitudes and risk taking. Women are more risk averse than men, which affects women’s
behaviours in management and auditing (Powell and Ansic, 1997; Ittonen and Peni, 2012).
Gender studies on accounting conservatism and earnings management also indicate that
women are more risk averse than men (Francis et al., 2015); thus, women are more cautious in
the recognition and measurement of income and assets and exert higher control over good
news, resulting in less earning management. Gender diversity on audit committees suggests
that gender differences may affect auditing practices through auditors’ attitudes towards risks.
Because there are gender differences in terms of risk tolerance, auditors’ risk aversion is likely
to be affected, leading to more scepticism from female auditors when performing audit tasks,
which, in turn, leads to high audit demand and high audit fees (Khlif and Achek, 2017).
Because there are gender differences in risk attitudes, this study specifically investigates
whether RMCGD could influence a firm’s likelihood of financial distress. Gender diversity is
likely to be an endogenous variable. This study used the introduction of CGPR (2010) as a
natural setting to control for potential endogeneity. Two hypotheses are presented in the
following subsections.
2.1.1 The effect of gender diversity recommendations on risk management committee
gender diversity. In 2010, the ASX CGC introduced the second edition of the CGPR with
amendments that specifically recommend that ASX listed companies establish a gender
diversity policy and disclose gender diversity information, including measurable objectives for
achieving gender diversity and the progress made in achieving these objectives
(Recommendation 3.2; 3.3, CGPR, 2010). Most importantly, companies should report and review
the proportion of women in the workforce at all levels of the economic group, including the
proportion of women on committees and the board (Recommendation 3.4, CGPR, 2010). The
purpose of introducing the CGPR (2010, p. 25) is to encourage Australian companies to “foster a
governance culture that embraces diversity in the composition of corporate boards, with a
focus on the participation of women” (Recommendation 3.3). CGPR (2010) follows the rule of “if
not, why not”, which means if listed companies do not comply, they must explain the reason for
any non-compliance. In this sense, it is expected that the CGPR (2010) could have a positive
influence on gender diversity at all levels of the economic group, including the RMC committee.
By increasing women on the RMC, firms not only promote their corporate image and
reputation but also flag their compliance with the CGPR to external investors (2010).
On the other hand, previous studies have shown that women are more sceptical, cautious
and risk averse than men in managing risk (Khlif and Achek, 2017); thus, this study argues that
along with the introduction of CGPR (2010), women are more likely to be appointed to the RMC
because of the benefits they can provide to firms’ risk management. This led to the following
hypothesis:

H1. The introduction of CGPR (2010) is associated with improved RMCGD.

 2.1.2 Risk management committee gender diversity and likelihood of financial distress. Financial
The composition of the board may influence the way the directors perform monitoring and distress
counselling functions, which, in turn, affects firm outcomes. A body of research has
highlighted the relationship between board composition and the likelihood of financial
distress (Fich and Slezak, 2008; Donker et al., 2009; Lajili and Zeghal, 2010). For example,
Fich and Slezak (2008) found that small firms with independent boards and large executive
director shareholdings are less likely to be financially distressed. Lajili and Zeghal (2010)
revealed that firms that went bankrupt tended to have higher director turnover and shorter 1055
outside director tenure. Platt and Platt (2012) documented that the average age of directors
was negatively related to bankruptcy. However, there is a lack of studies investigating the
impact of gender diversity on the probability of financial distress[3].
Prior research has suggested that women are likely to offer new perspectives and enrich
the information set available to the firm, as they tend to be more risk averse and cautious
towards risk management (Powell and Ansic, 1997; Huang and Kisgen, 2013; Gul et al., 2013;
Hutchinson et al., 2015) and are less likely to engage in unethical activities (Shawver et al.,
2006; Huang and Kisgen, 2013; Gold et al., 2009; Gul et al., 2013). These attributes are
important when it comes to risk management. For example, aversion to excessive risk
taking has been viewed favourably following the GFC, as firms not engaged in excessive
risk taking have tended to have a better chance of survival (Hutchinson et al., 2015).
Resource dependence theory indicates that having gender diverse directors can provide
different beneficial resources to a firm, including the demand for increased monitoring and
strong links with community networks (Hillman et al., 2000; Post and Byron, 2015). These
crucial and valuable resources may help firms decrease uncertainty, which protects the
firms from ultimate failure (likelihood of financial distress). Similarly, from the agency
theory perspective, women tend to be more risk averse and cautious towards risk (Powell
and Ansic, 1997; Huang and Kisgen, 2013; Gul et al., 2013; Hutchinson et al., 2015).
Consequently, they are more likely to enhance risk monitoring (Riley and Chow, 1992;
Byrnes et al., 1999; Huang and Kisgen, 2013; Hutchinson et al., 2015). A high level of risk
management monitoring can facilitate the growth of shareholders’ wealth by ensuring
managers do not engage in opportunistic and excessive risk-taking behaviours, resulting in
a reduction of a firm’s likelihood of financial distress (Coles et al., 2001). In addition, RMCGD
may enlarge the knowledge base and enhance creativity and innovation, thereby providing
a competitive advantage to firms when managing risk (Carter et al., 2003). Having a gender
diverse RMC may offer new insights and perspectives when dealing with financial
instruments and risk management activities, which could subsequently decrease firm
uncertainty; thus, lowering the firm’s likelihood of financial distress (Marsden and Prevost,
2005). Based on the above discussion, the following hypothesis was developed:

H2. RMCGD is negatively related to a firm’s likelihood of financial distress.

3. Research method
3.1 Sample selection
The sample was taken from the top 300 ASX listed firms of each year during 2007-2014. The
firms were required to have a RMC to be eligible for inclusion in the sample. The top 300
ASX listed firms of each year (i.e. unbalanced panel dataset) were chosen based on the
expectation that this corporate group could provide an overall representation of the risk
management practices of ASX listed companies (Van der Laan and Dean, 2010). The top 300
ASX companies covers large, mid and small-cap components of all ASX listed companies;
thus, the sample provided enough variation to be representative of all listed firms. After
MAJ deleting companies that did not have a RMC and observations with missing variables, the
34,8 final sample consisted of 1,361 firm-year observations and 367 firms (the sample selection
procedure is provided in the Appendix). A panel data analysis were used to avoid any
problems associated with unobservable heterogeneity. The data on RMCGD was hand
collected from the companies’ annual reports. Corporate governance data were extracted
from the Connect 4 database and the financial data were collected from the Thomson returns
1056 and Morningstar databases.

3.2 Definition and measurement of dependent, independent and control variables

3.2.1 Risk management committee gender diversity. Previous research has used two main
measures to capture board gender diversity, the percentage of women on the board (Adams
and Ferreira, 2009; Liu et al., 2014; Hutchinson et al., 2015), and the existence of women on
the board (Srinidhi et al., 2011; Liu et al., 2014; Hutchinson et al., 2015). Consistent with
previous studies, this study used the percentage and existence of women on a RMC as two
proxies of RMCGD.
3.2.2 Likelihood of financial distress. This study used the Naïve model developed by
Bharath and Shumway (2008) as the proxy of financial distress. Unlike Altman’s Z-score,
which predicts a firm’s bankruptcy rate based on several accounting ratios, the Naïve model
is based on the KMV-Merton[4] default forecasting model – a market-based measurement.
Several studies, including Kealhofer and Kurbat (2001) and Duffie and Wang (2004), have
indicated that the KMV-Merton model is appropriate to measure the likelihood of financial
distress, as it captures all of the information in traditional agency rating and well-known
accounting default probability variables. Additionally, Bharath and Shumway (2008)
provided empirical evidence that the Naïve model has significant predictive power and
performs well in capturing a firm’s probability of financial distress. This renders its suitable
to measure a firm’s probability of financial distress. Specifically, the Naïve model generates
the distance to the default rate for each firm (Naïve DD), to predict the firm’s probability of
experiencing financial distress. The distance to default rate is calculated using a formula
that includes the firm’s total volatility (Naïve s V), stock return over the previous year
(rit
1), the volatility of each firm’s debt (Naïve s D), the face value of the firm’s debt (F) and
the market value of the firm’s equity (E). The formula is shown below:
h i  
ln EþF
F þ rit
1
0:5Naives 2V T
Naive DD ¼ pffiffiffiffi
Naives V T

3.2.3 Control variables. In the RMCGD model (H1), two sets of variables were controlled.
The first set was corporate governance variables. Board gender diversity (BRDGD per cent,
BRDGDE) was controlled as it was likely to be related to RMCGD. Firms with a high
proportion of women on the board were likely to have a high percentage of women on the
RMC; similarly, firms with female representation on the board were likely to have women on
the RMC. RMC size and RMC independence were included, as previous studies have
suggested that size and independence influence gender diversity (Klein, 1998; Sun et al.,
2011; Thiruvadi and Huang, 2011; Geiger and Marlin, 2012). Other standard corporate
governance variables were also controlled for, including the existence of a separate RMC
(SRMC), board independence (INDEP), board size (BRDSIZE) and CEO duality (CEO). The
second set of variables were firm related variables, as they may have influenced RMCGD.
Growth opportunities (MTB) and leverage (LEV), the firm’s total risk (STDDEV), firm size
(lnMKTCAP), year (Year) effect and industry effect were also controlled (Core et al., 2006; Financial
Bhagat and Bolton, 2008; Platt and Platt, 2012). distress
In the financial distress model (H2), growth opportunities (MTB), firm risk (STDDEV)
and leverage (LEV) were controlled, as they may have had an impact on the firm’s likelihood
of financial distress (Bohren and Strom, 2010; Hutchinson et al., 2015). Other corporate
governance variables and firm specific characteristics, including board gender diversity
(BRDGD per cent, BRDGDE), firm size (lnMKTCAP), the existence of a separate RMC
(SRMC), board independence (INDEP), board size (BRDSIZE), CEO duality (CEO), share 1057
ownership of RMC (RMCSHARE), year (Year) effect and industry (INDUS) effect (Core et al.,
2006; Bhagat and Bolton, 2008; Platt and Platt, 2012; Strobl et al., 2016) were also controlled.
Table I presents a detailed description of the variable definitions.

3.3 Data analysis

To test the hypotheses, panel regression analyses with firm fixed effects were used to
determine whether the CGPR (2010) increased RMCGD. A fixed effects model was used to
eliminate potential time invariant effects. Robust estimates analysis was used to overcome
heteroscedasticity and autocorrelation issues. Clustered standard errors at the firm level

Variables
Dependent variables Explanations
Prob. The probability of bankruptcy using the naïve model developed by Bharath
and Shumway (2008)
Predictors
CGPR A dummy variable, taking a rate of 1 for observations after the year 2010,
otherwise 0
RMC gender diversity Number of female directors on the RMC divided by the RMC’s size
(RMCGD): (RMCGD%)
RMCGDE Dummy variable, 1 if the firm had a female on the RMC, 0 otherwise
Controls
Board gender diversity Number of female directors on the board divided by the board’s size
(BRDGD):BRDGD%
BRDGDE Dummy variable, 1 if the firm had a female on the board, 0 otherwise
Leverage (LEV) Financial leverage of a firm computed as total liabilities to total assets
Growth opportunity (MTB) Market to book ratio. The ratio of year-end market capitalization to total
common equity
Firm size (lnMKTCAP) The natural logarithm of market capitalisation as at 30 June
Risk (STDDEV) total risk calculated as the standard deviation of firm daily stock returns
for each fiscal year
CEO duality (CEO) A dummy variable, taking a rate of 1 if the CEO was also the chair, 0
otherwise
Board size (BRDSIZE) Number of board members
Board independence (INDEP) The percentage of board members who were independent calculated as the
independent board total/total number of the board
RMC size (RMCSIZE) Number of RMC members
RMC independence The percentage of RMC members who were independent calculated as total Table I.
(RMCINDEP) independent RMC member/total number of the RMC
Definition of
Separate RMC (SRMC) A dummy variable, taking a rate of 1 if a firm had a separate RMC, 0
otherwise independent
RMCSHARE The average percentage of RMC members’ shareholding variables, dependent
Industry (INDUS) coded based on the GICS (Global Industry Classification Standard) variables and control
Year Year dummy variables variables
MAJ were used to adjust standard errors (Allison, 2009; Petersen, 2009; Thompson, 2011). When
34,8 testing the impact of the CGPR (2010) on the existence of women on the RMC (a dummy
variable), a panel logit model was used because of the dependent variable being a binary
variable. Overall, the following model was used to test H1:

RMCGDi;t ¼ a þ b1 CGPRi;t þ b2 Controlsi;tþe i;t: (1)

1058 To test the second hypothesis, whether RMCGD influenced a firm’s likelihood of financial
distress was investigated. Testing this required careful consideration of potential
endogeneity between the two variables. RMCGD may affect the probability of financial
distress; however, a firm’s likelihood of financial distress may influence RMC turnover,
which would, in turn, affect the firm’s RMCGD. In this case, a random or fixed effect
regression was likely to produce either a non-significant coefficient or coefficients that were
statistically significant, but with substantially low magnitude (Setia-Atmaja et al., 2009). To
address potential endogeneity and reverse causality, an instrumental approach – a panel
two-stage least squares regression analysis (2SLS) method – was adopted. Unlike the
Heckman test, which mainly addresses self-selection bias, the instrumental variable
approach also deals with other endogeneity, including omitted variables bias and reverse
causality (Bascle, 2008).
In the 2SLS regressions, potential endogeneity was controlled by using the instrumental
variable. The instrument variable needed to be associated with the endogenous variables
(uncorrelated with the error term in the structural regression model), but not have a direct
influence on the dependent variables (Kennedy, 2003). The CGPR (2010) guideline was used
as the instrument variable for RMCGD, as it was expected the CGPR (2010) guideline would
improve RMCGD (endogenous variable), but not be directly related to a firm’s probability of
financial distress (dependent variable). 2SLS estimation was undertaken in two stages. In
the first stage, RMCGD was regressed against the instrument variable and all control
variables to calculate the predicted value of RMCGD. In the second stage, the likelihood of
financial distress was regressed against the fitted value of RMCGD generated from the first
stage regressions, along with the other control variables. In cases, where the dependent
variable was a binary variable (the existence of women on RMC – RMCGDE, a logit
regression was used instead of OLS in the first stage of the 2SLS regression (Bascle, 2008).
The models used to test H2 for 2SLS are shown below:
First-stage model:

RMCGDi;t 5 a þ b1 CGPRi;t þ b2 BRDGDi; t þ b3 Controlsi;tþe i;t (2)

Second-stage model:

Prob:i;t ¼ a þ b1 RMCGDi;t þ b2 BRDGDi;t þ b3 Controlsi;tþe i;t (3)

The definitions of all of variables are summarised in Table I.

4. Results
4.1 Descriptive results
Table II reports the descriptive statistics for the pooled unbalanced panel of the top 300 ASX
listed firms with a RMC between 2007 and 2014. RMCGD showed a wide variation in its
distribution, ranging from a maximum of 75 per cent to a minimum of 0 per cent, with a mean
of 16 per cent, In contrast, board gender diversity presented lower numbers, only 13 per cent of
 N Mean SD Min Max
Financial
distress
RMCGD% 1,361 0.16 0.18 0 0.75
BRDGD% 1,361 0.13 0.10 0 0.50
RMCSIZE 1,361 3.60 1.14 0 11
RMCINDEP 1,361 0.87 0.20 0 1
RMCSHARE 1,361 0.01 0.03 0 0.55
STDDEV 1,361 10.11 6.22 0 36.40 1059
INDEP 1,361 0.64 0.19 0 1
LEV 1,361 0.50 0.23 0 1.62
MTB 1,361 2.56 2.89
7.49 25.01
MKTCAP ($M) 1,361 606 1920 0.48 24400
BRDSIZE 1,361 8.14 2.23 3 16
Prob. 1,361 0.14 0.32 0 1
Frequency Observations with “1” (%)
RMCGDE 1,361 608 44.67
BRDGDE 1,361 1,001 73.55
SRMC 1,361 212 15.58
CEODUA 1,361 28 2.06
Industry distribution
Financials 1,361 311 22.85
Industrials 1,361 231 16.97
Materials 1,361 230 16.90
Consdis 1,361 207 15.21
Energy 1,361 106 7.79
Health 1,361 79 5.80
Utilities 1,361 67 4.92
Consstaples 1,361 65 4.78
Telecomm 1,361 34 2.50 Table II.
IT 1,361 31 2.28 Descriptive statistics

board members were female, with a minimum of 0 per cent and a maximum of 50 per cent. The
RMC had a higher independence level than the board. In total, 87 per cent of RMC members
were independent from management, with a standard deviation of 0.2, whereas only around 64
per cent of members on the board were independent. These results reveal that RMCs tended to
have a higher female proportion and higher independence rate than the board, which may
highlight the value of female and independent members on the RMC. As the composition of a
RMC in Australia is voluntary[5], firms have no incentive to appoint more women and more
independent directors on the RMC (than on the board) if it cannot generate value. Therefore, the
descriptive results may provide some evidence regarding the value of having a high proportion
of women on the RMC. With reference to likelihood of financial distress, the results revealed
that likelihood of financial distress had a mean of 14 per cent[6].
Figure 1 presents the average percentage of RMCGD over the testing period (2007-2014).
From 2007 to 2010, the percentage of women on the RMC remained constant; however, the
number increased steeply after the year 2010, when the CGPR (2010) was introduced. After
2012, the increase became less significant. This result provides preliminary evidence that
CGPR (2010) improves RMCGD.

4.2 Results and discussions

Table III provides the results of the panel regression model with firm fixed effects[7] used to
predict the effect of CGPR (2010) on the percentage of women on RMCs, and of the logit
MAJ RMC gender diversity
34,8 0.25

% of female on RMC
0.2

0.15

1060 0.1

0.05

0
Figure 1. 2007 2008 2009 2010 2011 2012 2013 2014
RMCGD
Year

RMCGD% Coef.(z) RMCGDE – logit model Coef.(z)

CGPR 0.066 (6.08)*** 1.093 (4.30)***

Table III. BRDGD% 0.049 (2.97)*** –
CGPR Gender BRDGDE – 1.533 (3.52)***
adoption and RMCSIZE 0.242 (2.27)** 11.898 (3.53)***
RMCGD. This table RMCINDEP 0.147(5.41)*** 3.005 (3.28)***
reports the impact of lnMKTCAP 0.097 (1.09) 6.284 (1.88)*
CGPR on RMCGD. STDDEV
0.001 (
0.29)
0.020 (
0.63)
SRMC 0.092 (3.95)*** 1.476 (1.85)*
All variables are INDEP
0.004 (
0.13)
0.042 (
0.05)
defined in Table I. CEODUAL
0.036 (
0.83) 0.106 (0.03)
The model was BRDSIZE
0.005 (
0.09) 0.033 (0.40)
estimated using LEV
0.018 (
0.50)
1.716 (
1.13)
panel regression with MTB 0.001 (0.31)
0.140 (
1.33)
firm fixed effects. CONS
0.43 (
1.73)* –
t-statistics for each Firm FE Included Included
coefficient are in Year FE Included Included
parentheses where *, Industry FE Included Included
Observations firms 1,361,367 1,361,367
** and *** indicate Wald x 2 16.82 129.91
significance at the Adjusted R2 (Pseudo R2 for logit regression) 0.13 0.20
0.10, 0.05 and 0.01
levels, respectively Notes: Two-tailed tests significant at p < 0.01***; p < 0.05**; and p # 0.10*

model used to test the effect on female representation on RMCs. The results show that the
CGPR (2010) had a significant and positive association with both the proportion of women
on RMCs (RMCGD per cent) and the existence of women on RMCs (RMCGDE); thus,
supporting H1. This indicates that the CGPR (2010) significantly improves RMCGD.
In relation to the control variables, the results revealed that BRDGD per cent was
significantly and positively related to RMCGD per cent and BRDGDE was positively related
to RMCGDE, which suggests that board gender diversity is significantly and positively
related to RMCGD. RMCSIZE, RMCINDEP and lnMKTCAP showed significant and positive
relationships with both RMCGD per cent and RMCGDE, indicating that large firms and
firms with a large RMC and high percentage of independence are associated with high
RMCGD. Moreover, STDDEV was significantly and negatively associated with RMCGDE,
suggesting that female representation on RMCs is associated with lower firm risk.
 Table IV presents the results of using 2SLS to investigate the impact of RMCGD on Financial
the likelihood of a firm’s financial distress. The results of the first stage 2SLS are shown distress
in Panel A[8], whereas, Panel B displays the second stage results. According to Panel A,
the CGPR (2010) was significantly and positively related to RMC female proportion
(RMCGD per cent) and RMC female existence (RMCGDE), which provides initial
support for the validity of the instrument variable. This result is consistent with the
regression results of testing H1. The results of the second stage revealed that the
coefficient of the RMC’s female proportion (RMCGD per cent) and the RMC’s female 1061
existence (RMCGDE) were both significantly and negatively related to likelihood of
financial distress (Prob.); thus, providing support for H2. In terms of economic
significance, one standard deviation increases in the percentage of women on the RMC
(RMCGD per cent) resulted in a 6.23 per cent decrease in the likelihood of financial
distress (Prob.), which corresponded to a 44.48 per cent decrease compared to the mean
of likelihood of financial distress (Prob.). In relation to RMC female existence, a one
female increase in RMC members was associated with a 14.4 per cent decrease in the
likelihood of financial distress (Prob.), all else being equal. These results indicate that
the market perceive firms with a RMC with a high level of gender diversity to have a
low likelihood of financial distress. This may be due to the market holding the view that
women are better at monitoring and reducing a firm’s excessive risk-taking behaviours,
which, in turn, decreases the firm’s chance of financial distress as perceived by the
market.

RMCGD% coef.(z) RMCGDE– logit model (first stage) coef.(z)

Panel A: 2SLS first stage

CGPR 0.067 (8.11)*** 0.143 (5.89)***
RMCSHARE 0.189 (0.84) 0.435 (0.62)
Other controls Included Included
Panel B: 2SLS second stage
Prob coef.(z) Prob coef.(z)
RMCGD%
0.346(
1.96)** –
RMCGDE

0.144 (
2.02)**
RMCSHARE
0.448 (
1.45)
0.387 (
1.21) Table IV.
lnMKTCAP
0.085 (
0.89)
0.029 (
0.30) RMCGD and the
STDDEV 0.002 (1.76)* 0.002 (1.49) likelihood of financial
INDEP
0.020 (
1.15) 0.016 (0.99)
CEODUAL
0.010 (
0.21)
0.016 (
0.33)
distress. This table
BRDSIZE
0.091 (
1.13)
0.159 (
1.70)* reports the impact of
LEV 0.036 (0.94) 0.025 (0.67) RMCGD on a firm’s
MTB
0.012 (
0.21)
0.042 (
0.70) likelihood of distress
BRDGD% 0.077 (1.28) – likelihood. All
BRDGDE
0.079 (1.33) variables are defined
CONS 0.394 (1.73)* 0.400 (1.80)* in Table 1. The
Year FE Included Included model was estimated
Industry FE Included Included using panel 2SLS
R2 0.20 0.15
Observations 1361 1361
regression.
Wald x 2 44.78 41.95 t-statistics for each
coefficient are in
Notes: Where *, ** and *** indicate significance at the 0.10, 0.05 and 0.01 levels, respectively parentheses
MAJ 4.3 Additional tests
34,8 To test the validity of the results, a propensity score matching technique was adopted to
control for the potential endogeneity arising from the confounding variables and non-
random selection concerns (Rosenbaum and Rubin, 1983). This allowed for analysis of the
differences in likelihood of financial distress between firms with female representation on
the RMC and those without by creating a sample of firms that received the treatment (had a
1062 female on the RMC) comparable to a sample of firms that did not receive the treatment (did
not have a female on the RMC). Thus, each pair of matched samples was virtually no
different from each other, except for the treatment factor (female representation on RMC),
which means each firm-year observation where RMCGDE = 1 was matched with a firm year
observation where RMCGDE = 0.
A propensity score was calculated from a first-stage model to predict a RMCGDE firm.
The prediction model included all of the control variables from equation (2). Table V, Panel
A reports the results of propensity score matching on the control variables. All of the
matched variables were statistically indistinguishable. Panel B reports the regression
analysis using the matched sample. The results were qualitatively unchanged from

Treatment sample (with a female on

RMC -RMCGD) Matched sample (no female on RMC) t-stat p-value

Panel A: Propensity-matched variables

Dependent variable: PROB
RMCSHARE 0.004 0.003 0.22 0.826
Table V. lnMKTCAP 2.345 2.35
0.69 0.535
RMC Gender STDDEV 8.498 8.886
1.19 0.236
diversity and a firm’s INDEP 0.699 0.704
0.41 0.683
likelihood of financial CEODUAL 0.011 0.025
1.51 0.13
distress: propensity BRDSIZE 8.585 8.83
1.57 0.117
score matched LEV 0.532 0.542
0.66 0.508
MTB 2.817 2.602 0.85 0.396
sample. Panel of this
BRDGDE 0.899 0.892 0.33 0.74
table shows the
results of propensity- Panel B: PSM regression
matched variables Prob.
when the dependent RMCGD
1.257 (
1.97)**
variable was RMCSHARE
4.796 (
0.35)
lnMKTCAP
7.409 (
2.64)***
likelihood of financial STDDEV 0.038 (0.69)
distress. Panel B INDEP 0.304 (0.56)
presents the CEODUAL
3.986 (
1.41)
regression results of BRDSIZE
7.751 (
2.33)**
the impact of LEV 2.491 (3.00)***
RMCGD on the MTB
8.040 (
3.60)***
likelihood of financial BRDGDE 2.239 (1.54)
distress using Constant 2.460 (2.65)***
matched samples. All Year FE Included
Industry FE Included
variables are defined Observations 1,065
in Table I. t-statistics Adjusted R2 0.10
for each coefficient
are in parentheses Note: Where *, ** and *** indicate significance at the 0.10, 0.05 and 0.01 levels, respectively
Table IV, showing that RMCGD (RMCGDE) was associated with a lower probability of Financial
financial distress (prob.). distress
4.3.1 Risk management committee gender diversity, risk and the likelihood of financial
distress. This study further addresses whether RMCGD influences the likelihood of financial
distress, especially in the situation where firms experience high risk. It is suggested that in
situations of high risk, firms need a RMC to effectively manage and monitor risks
(Hutchinson et al., 2015). Prior research has shown that women are more conservative and
risk averse than men (Hutchinson et al., 2015). Aversion to excessive risk taking has been 1063
viewed more favourably following the GFC, as firms that are able to identify, understand
and control risks have a better chance of survival (Hutchinson et al., 2015). Therefore, it is of
interest to determine whether a homogeneous RMC could adopt suboptimal levels of risk,
which decreases a firm’s likelihood of financial distress. Consequently, this study
investigated whether RMCGD moderated the relationship between firm risk and the
likelihood of financial distress.
The results, presented in Table VI, show that the interaction term of
RMCGDE*STDDEV was significantly and negatively related to a firm’s likelihood of
financial distress, revealing that the existence of women on the RMC moderated the
relationship between firm risk and a firm’s likelihood of financial distress. The coefficient of
RMCGD per cent*STDDEV was also negatively and significantly related to the likelihood of
financial distress. These results indicate that firms with gender diverse RMCs could
significantly decrease the likelihood of financial distress when the firm experiences high
risk. This result provides additional evidence that RMCGD is associated with better risk
management.
4.3.2 Tokenism check. Prior studies have shown that tokenism exists when companies
only have one female or a small minority of women on board (Konrad et al., 2008; Ittonen
et al., 2010; Torchia et al., 2011). To examine this, this study followed prior literature (Gul

Prob.coef.(z) Prob.coef.(z)

2SLS second stage

RMCGD%
5.174 (
2.31)** –
RMCGD%*STDDEV
0.330 (
2.20)** – Table VI.
RMCGDE –
1.996 (
2.32)** RMCGD, risk and the
RMCGDE*STDDEV –
0.266 (
2.15)** likelihood of financial
RMCSHARE 1.796 (0.92) 1.608 (0.78) distress. This table
lnMKTCAP
1.666 (
2.32)**
1.188 (
2.01)** reports the impact of
STDDEV 0.058 (2.52)** 0.078 (2.56)**
INDEP 0.022 (0.19) 0.099 (0.73)
the interaction of
CEODUAL
0.004 (
0.03)
0.002 (
0.01) RMCGD and firm
BRDSIZE
0.034 (
0.06)
0.544 (
0.96) risk on a firm’s
LEV 0.219 (0.99) 0.276 (1.38) likelihood of financial
MTB
0.283 (
0.55)
0.223 (
0.47) distress. All
BRDGD%
0.129 (
0.84) – variables are defined
BRDGDE –
0.471 (
1.26) in Table 1. The
CONS
3.157 (
1.98)**
2.765 (
1.87)* model was estimated
Year FE Included Included using panel 2SLS
Industry FE Included Included
Observations 1,361 1,361
regression.
Wald x 2 42.40 32.42 t-statistics for each
coefficient are in
Note: Where *, ** and *** indicate significance at the 0.10, 0.05 and 0.01 levels, respectively parentheses
MAJ et al., 2011) by creating a dummy variable RMCGD2. RMCGD2 was coded as 1 if firms had
34,8 more than 2 female RMC members, otherwise it was coded as 0 (2 was determined based on
the mean of RMCGD per cent). The inclusion of RMCGD2 addressed the issue of “tokenism”
where only one female RMC member is appointed as a token gesture. The results are
presented in Table VII. Panel 2SLS regression was used to estimate the tokenism effect.
Potential endogeneity was addressed using the CGPR (2010) as an instrument. It was
1064 expected that the CGPR (2010) could increase the percentage of women on the RMC, which
would subsequently increase the number of firms with more than 2 women on the RMC. The
results show that after considering tokenism, RMCGD2 was negatively and significantly
related to a firm’s likelihood of financial distress, indicating that going from one, two, to
more than two women on the RMC makes it possible to decrease a firm’s probability of
financial distress.
4.3.3 Financial experience of women on the risk management committee. Prior gender
diversity studies have highlighted that the experience of directors is often omitted when
investigating board gender diversity. Most existing studies have investigated board gender
diversity based on the presence of women or the proportion of women on the board, without
distinguish whether the women had more relative experience than the men. In fact, one
limitation of many existing gender diversity studies is the lack of investigation into the
experience of female directors (Bilimoria and Piderit, 1994). To overcome this limitation,
whether female RMC members with financial experience have any influence on a firm’s
likelihood of financial distress was investigated by introducing two variables: FFE and
MFE. FFE is the proportion of women on the RMC with financial experience, MFE is the
proportion of men on RMC with financial experience. A RMC member was determined to
have financial experience if he/she currently or had previously held any position related to
finance, such as CFO, treasurer or banker. To control for potential endogeneity, an

Panel A: 2SLS first stage

RMCGD2
Table VII CGPR 0.081 (5.23)***
Controls Included
Tokenism check.
This table reports the Panel B: 2SLS second stage
impact of RMCGD on RMCGD2
0.236 (
2.20)**
a firm’s likelihood of
financial distress. All RMCSHARE
0.474 (
1.49)
variables are defined
lnMKTCAP
0.031 (
0.28)
in Table I, except STDDEV 0.003 (2.25)**
RMCGD2, which was INDEP
0.029 (
1.43)
coded as 1 if firms CEODUAL
0.024 (
0.47)
had more than 2 BRDSIZE
0.045 (
0.56)
female RMC LEV 0.045 (1.13)
members, otherwise MTB
0.005 (
0.08)
0. The model was BRDGD%
0.018 (
1.12)
estimated using CONS 0.221(0.86)
panel 2SLS Year FE Included
Industry FE Included
regression. t- R2 0.02
statistics for each Observations 1,361
coefficient are in
parentheses Notes: where *, ** and *** indicate significance at the 0.10, 0.05 and 0.01 levels, respectively
instrumental approach (panel 2SLS) was adopted. The CGPR (2010) was selected as the Financial
instrumental variable because it was expected would enhance the proportion of women on distress
the RMC, and that firms with a higher proportion of women on the RMC would be more
likely to have higher proportion of women with financial experience on the RMC than firms
with less women on the RMC. The results are presented in Table VIII. Panel A of Table VIII
shows that the instrumental variable – CGPR (2010) – was positively and significantly
associated with FFE, indicating the validity of the instrument variable. Panel B of
Table VIII reports the second stage results and shows that FFE was negatively and 1065
significantly related to Prob., suggesting that a high proportion of women with financial
experience serving on a RMC is associated with a lower likelihood of financial distress.
Similarly, the results revealed that a high proportion of men with financial experience
serving on a RMC was associated with a lower likelihood of financial distress (the coefficient
on MFE was negative and significance was at the 1 per cent level).
In addition, a test of coefficient equality was conducted to compare whether there was a
significant difference between the coefficients of FFE and MFE (the results are reported at
the bottom of Table VIII). The results show that the coefficient of FFE was significantly
higher than MFE coefficient, suggesting that the proportion of women with financial
experience on a RMC was more effective in reducing the likelihood of financial distress
compared to the proportion of male with financial experience on a RMC. This result is in line

Table VIII.
Financial expertise of
women on the RMC
and the likelihood of
Panel A: 2SLS first stage financial distress.
FFE This table reports the
CGPR 0.110 (8.37)*** impact of female
Controls Included financial expert RMC
directors on a firm’s
Panel B: 2SLS second stage
Prob.Coef.(z) likelihood of financial
FFE
0.535 (
3.91)*** distress. All
MFE
0.384 (
3.59)*** variables are defined
RMCSHARE
0.930 (
2.33)** in Table 1, except
lnMKTCAP
0.265 (
2.03)** FFE and MFE. FFE
STDDEV 0.001 (0.54) was the proportion of
INDEP
0.024 (
1.34) women on the RMC
CEODUAL
0.001 (
0.01) with financial
BRDSIZE
0.065 (
0.69)
experience, MFE was
LEV 0.066 (1.34)
MTB
0.103 (
1.43) the proportion of men
BRDGD%
0.007 (
0.38) on the RMC with
CONS 0.818(2.03)** financial experience.
Year FE Included The model was
Industry FE Included estimated using
R2 0.06 panel 2SLS
Observations 1,361 regression. t-
Test of coefficient equality (p-value shown below) statistics for each
FFE vs MFE 0.000
coefficient are in
Note: Where *, ** and *** indicate significance at the 0.10, 0.05 and 0.01 levels, respectively parentheses
MAJ with Zalata et al. (2018), who showed the importance of both gender and financial experts of
34,8 an audit committee in reducing earnings management.
4.3.4 Sub-sample testing – excluding financial and utilities industry. Sub-sample tests
were conducted by excluding firms within the financial and utilities industries. It is
suggested that for firms within regulated industries – financial and utilities firms – their
risk governance and risk management practice are likely to be influenced by regulatory
1066 oversight, risk compliance and risk reporting (Amran et al., 2009; Jia et al., 2016). As a result,
it was necessary to re-run the regression analysis by excluding those firms from the sample.
After deleting the sample firms in both the financial and utilities industries, the results (not
tabulated) remained qualitatively unchanged.
4.3.5 Multicollinearity. Variance inflation factors (VIF) were conducted in the regression
analysis to ensure that multicollinearity did not have an impact on the results. The VIF
values were less than 10 for all of the regression models, suggesting that multicollinearity
was not an issue in the analysis (Belsley et al., 1980).

5. Conclusion
Given that the composition and performance of RMCs have come under scrutiny following
the GFC, research related to RMCs is particularly useful and important (ASX CGC, 2014).
RMCs play significant roles in helping audit committees to ensure the quality of financial
reporting and internal control (Subramaniam et al., 2009), by making and monitoring risk
management decisions on behalf of the board of directors. This study contributes to the
previous literature by enriching understanding of RMCGD and its effect on the likelihood of
financial distress.
This study set out to achieve two objectives. Firstly, the influence of the CGPR (2010) on
RMCGD. The findings show that the proportion and existence of women on RMCs increased
with the introduction of the CGPR (2010), while controlling for board gender diversity. This
highlights that the CGPR (2010) has been successful in increasing, not only board gender
diversity but also committee gender diversity in Australia. The second objective was to
investigate the relationship between RMCGD and a firm’s probability of financial distress. It
was hypothesised that RMCGD may enhance risk management monitoring, thereby
reducing firms’ excessive risk-taking behaviours, which, in turn, would lead to a reduction
in the likelihood of financial distress. Using the introduction of CGPR (2010) as a natural
setting, this study controlled for potential endogeneity problems and board gender diversity
and the results showed that RMCGD was associated with a lower likelihood of financial
distress. In addition, this study found that RMCGD was particularly important when firms
experienced high risk. Furthermore, this study highlights the benefits of having women
with financial experience on RMC.
The findings of this study have implications for both practice and future research. In
relation to practice, in the short term at least, committee gender diversity should be encouraged
by regulators in Australia. This study shows that women continue to be underrepresented on
board committees and having more women on the RMC could decrease a firm’s probability of
financial distress. Regulators could also recommend that firms with non-diverse RMCs have
women with financial experience on their RMC, as this study found that the proportion of
women with financial experience on a RMC was more effective in reducing the likelihood of
financial distress compared to the proportion of men with financial experience on a RMC. This
study also has limitations. For example, this paper investigated RMCGD based on a sample of
Australian listed companies under the enforcement of CGPR (2010), and as such, the results
may not hold in other jurisdictions. However, in light of the effectiveness of CGPR (2010) in
enhancing RMCGD in Australia, regulatory pressure may be necessary to improve risk Financial
management practice in other counties. distress
As for future research, this study investigated RMCGD and future research could
investigate other economic groups within a company; for example, it could be
interesting to examine the gender diversity of firms’ research and development
departments, as previous studies have indicated that having women may offer new
perspectives to a team and foster new ideas (Marsden and Prevost, 2005). In addition, 1067
this study found that women were underrepresented in RMCs. Future research could
investigate whether this underrepresented group may be less willing to share their
ideas compared to firms with more than one female on the RMC (Torchia et al., 2011;
Strobl et al., 2016).

Notes
1. Specifically, CGPR (2010, p. 25) suggests that “The board or an appropriate board committee should be
charged with the duty, at least annually, to review and report on the relative proportion of women and
men in the workforce at all levels of the economic group”. CGPR (2010, p. 25) says that “the ASX
Corporate Governance Council encourages companies in Australia to foster a governance culture that
embraces diversity in the composition of corporate boards, with a focus on the participation of women”.
2. A number of studies (De Zwaan et al., 2011; Buckby et al., 2015) have highlighted that the risk
management committee and audit committee are closely related.
3. Ng et al. (2012) investigated the impact of several RMC characteristics on underwriting risk and
found that the size and independence of RMCs were negatively associated with underwriting
risk, suggesting that certain RMC characteristics are associated with effective supervision over
risk issues and reducing excessive risk.
4. This default forecasting model was based on Merton’s (1974) bond pricing model and developed
by the KMV corporation (Bharath and Shumway (2008) for details).
5. Prior to 2015, the composition of RMC was purely voluntary (ASX CGC, 2014).
6. A t test was conducted between firms with no women on the RMC and firms with female
representation on the RMC on a firm’s likelihood of financial distress. The t test indicated that
firms with female representation on the RMC had a marginally lower likelihood of financial
distress than firms with no women on the RMC.
7. Consistent with a fixed effects result, random effects panel regressions also showed positive
effects of CGPR (2010) on RMC gender diversity.
8. This study also conducted an additional test by adding firms’ number of product segments as a
control in the first stage of RMC gender diversity, as previous studies have suggested that the
number of product segments may affect board gender diversity (Palepu, 1985). After adding an
additional control variable, the results remained qualitatively unchanged.

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MAJ Appendix
34,8

1072
Observations

Top 300 ASX listed firms from 2007 to 2014 2,400

Table AI. LESS: Firms without a RMC (1,026)
Sample selection LESS: Missing financial data (13)
procedure Total final observations 1,361

Corresponding author
Jing Jia can be contacted at: jing.jia@utas.edu.au

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