Mind the gap: how do gender-diverse boards reshape the stock mispricing–investment efficiency nexus?

Purpose This study aims to investigate the nexus between stock mispricing, corporate investment decisions and gender diversity through an examination of how stock mispricing impacts corporate investment efficiency. This study goes a further step and compares the effects of stock mispricing on corporate overinvestment and underinvestment decisions separately. Furthermore, this study examines the role of board gender diversity in reshaping this relationship. Design/methodology/approach The sample includes 11,788 firms listed in the G7 markets over the period (2010–2022). A series of fixed-effects and two-stage least squares regression analyses is conducted to examine how corporate investment efficiency has been driven by stock mispricing as well as the role of board gender diversity. Findings The analysis reveals a positive relationship between stock mispricing and investment inefficiency. Such an impact stems from the relationship between stock overpricing and overinvestment only. The baseline tests indicate that board gender diversity reduces investment inefficiency and overinvestment. Interestingly, the authors further find that gender diversity on the board weakens the relationship between stock mispricing and investment inefficiency. In the presence of females on board, the positive relation between overvaluation and overinvestment is less pronounced. However, it can intensify the underinvestment problem and exhibit a nonrobust effect on the undervaluation–underinvestment relationship. Practical implications The findings carry important implications for managers to assess their investment decisions in the presence of stock mispricing. This enables them to safeguard against the effects of behavioral biases while taking advantage of some fruitful investment opportunities tied to stock mispricing. For policymakers and regulators, it highlights the importance of enforcing female board quotas to guard against tokenism concerns and ensure proper governance. Originality/value To the best of the authors’ knowledge, this is one of the first studies to examine the moderating effect of board gender diversity on stock mispricing-investment efficiency, which contributes to both the behavioral finance and corporate governance literature. Also, the analysis is based on a large panel data set of nonfinancial firms across the G7 economies over the period 2010–2022. Methodologically, the authors integrate novel variable measures, including a decomposition-based mispricing measure with an investment inefficiency framework.