Female directors and corporate cash holdings in the presence of internal dealings

Abstract

Purpose – Internal dealings might shape female directors’ incentives to affect corporate financial policies. This study aims to explore what impact female directors have on corporate cash holdings in the presence of internal dealings. Design/methodology/approach – The authors apply panel data regressions that allow them to address endogeneity concerns. The initial sample includes all non-financial Spanish listed firms from 2005 to 2019. Findings – Conditional on the existence of internal dealings, the authors show that the presence of two or more female directors decreases corporate cash holdings. Results seem consistent, with independent female directors becoming an effective monitoring mechanism for corporate financial policies in the presence of internal dealings. Furthermore, the findings could be explained by independent female directors providing valuable resources and external linkages, which, in the presence of internal dealings, help to reduce the firm’s need to hold cash to cope with external uncertainties. Practical implications – The results provide practical implications by suggesting that in the presence of internal dealings, regulators and policy makers should pay greater attention to board gender diversity so as to reduce agency problems associated with free cash flows. The authors also contribute to prior academic debate regarding the importance of female directors in providing critical resources and external linkages to cope with uncertainty and to the importance of considering not only the presence of women on boards but also their number and specific roles.