The Impacts of Board Function, Gender Diversity, and Corporate Governance on Firm’s Market Risk

This paper examines the impact of board function, gender diversity, and corporate governance on firm-level credit and market risk, utilizing a panel dataset of publicly listed firms in Taiwan from 2006 to 2017. To ensure robust causal inference, the analysis employs Two-Stage Least Squares (2SLS) instrumental variable regression and Heckman two-step selection models to address endogeneity and self-selection bias. Findings reveal that board functional expertise—particularly in accounting and legal domains—is significantly associated with lower financial and operational risk. Firms with such expertise exhibit reduced volatility in return on assets and return on equity, underscoring the stabilizing effect of domain-specific knowledge on performance. Gender diversity also plays a critical role: firms with more gender-diverse boards tend to experience lower operating risk, suggesting that varied perspectives contribute to improved oversight and risk mitigation. In contrast, board independence and institutional ownership are positively associated with downside market risk, measured by Value-at-Risk (VaR), implying that enhanced monitoring may coincide with greater tolerance for strategic risk-taking. Additionally, institutional ownership is associated with increased credit risk, reflecting investors’ preference for high-risk, high-return opportunities. These results challenge the assumption that governance mechanisms universally reduce risk. Instead, they indicate that governance attributes recalibrate firms’ risk profiles in line with broader strategic objectives and market pressures. The findings offer practical insights for optimizing board composition to align governance structures with firm-specific risk appetites and evolving capital market expectations. JEL Codes: G32, G34, J16, M14.