Political Connections and Banking Performance: The Moderating Effect of Gender Diversity

Abstract

The present study investigates the effect of gender diversity on the impact of board members' political connections on banking performance. Using panel data on 83 banks supervised by the European Central Bank (ECB) for the period 2013-2017, our results suggest that when gender diversity is high, there is a U-shaped nonlinear relationship between political connections and banking performance. Empirical evidence also indicates that differentiating characteristics of women, such as greater ethical concern and risk aversion, help mitigate the negative effects of political connections on banking performance, safeguarding the institutions’ interests from the adverse effects of personal agendas. In addition, our results also suggest that a minimum of 14% gender diversity can actually contribute to a greater social justice and beneficial structural change. Overall, these general conclusions seem fairly robust, being drawn from several versions of the regression model adopted in the study, using different sets of control variates and different gender diversity measures.