THE INFLUENCE OF FEMALE BOARD MEMBERS’ RISK AVERSION AND OVERSIGHT ON TRADE CREDIT AND FIRM PERFORMANCE

Abstract

Trade credit is a business-to-business arrangement that allows customers to purchase goods without immediate payment, while suppliers view it as both a financing mechanism for customers and a marketing tool to enhance sales and profitability. Female directors—referred to as women on boards (WOB) in corporate governance—have recently become mandatory under company law in Pakistan. Despite this development, limited research exists on the attributes of women in boardrooms and their influence on corporate decision-making. This study focuses on the extension of trade credit from the supplier’s perspective, examining how women directors’ risk aversion and monitoring behaviors affect trade credit decisions and overall firm performance. The study analyzed panel data from 73 non-financial firms listed on the KSE-100 Index from 2011 to 2020, excluding financial firms and firms with missing data. Generalized Method of Moments (GMM) was employed using STATA 14 to address endogeneity, heteroscedasticity, and autocorrelation issues. Key variables examined included the percentage of women on boards, risk-adjusted sales (RASales), risk-adjusted turnover (RATurn), and return on equity (ROE). Findings indicate that women on boards are more cautious in extending trade credit, rigorously evaluating customer financials and emphasizing prompt recovery, reflecting strong monitoring behaviors. This disciplined approach positively impacts firm performance to a certain threshold. The results suggest that firms facing financial constraints may benefit from increasing female representation on boards to strengthen governance and enhance performance outcomes.