Stock price crash risk (SPCR) poses a significant threat to emerging markets like China, characterized by fragile capital markets and imperfect institutions. High-profile crashes in China, such as those involving Huishan Dairy and Changsheng Biologicals, highlight the devastating consequences of SPCR, eroding investor confidence and hindering market development. While various macro, meso, and micro factors contribute to SPCR, corporate governance failures are central. The board of directors, a cornerstone of corporate governance, plays a crucial role in monitoring management and mitigating agency conflicts, thus influencing SPCR. This paper focuses on the impact of board diversity (BD), a multifaceted concept encompassing gender, age, education, professional background, and experience, on SPCR. Existing literature presents conflicting evidence on BD's impact, with some studies suggesting it exacerbates conflicts while others argue it improves board effectiveness. The lack of comprehensive research on the impact of BD on SPCR in emerging markets, particularly considering multiple dimensions of diversity simultaneously, motivates this study. The paper aims to address this gap by investigating the effect of BD on SPCR in Chinese listed companies, focusing on a multi-dimensional BD index and exploring the underlying mechanisms.

This study builds upon two streams of literature: the first explores the relationship between board diversity and corporate risk, and the second focuses on the determinants of stock price crash risk. Research on board diversity has often focused on single dimensions (e.g., gender, age), neglecting the potential synergistic effects of overall BD. Furthermore, much of the existing work is concentrated on developed markets, leaving a gap in understanding the effects of BD in emerging economies like China. The authors cite studies examining BD's influence on various aspects of corporate behavior, including risk-taking, innovation, social responsibility, and financial manipulation. Regarding stock price crash risk (SPCR), the literature commonly attributes it to management's tendency to conceal bad news due to information asymmetry, exacerbating agency conflicts. Studies show that earnings management and poor information disclosure are significant drivers of SPCR. Existing research on the link between board composition and SPCR often focuses on board structural characteristics (size, proportion of outside directors), and existing studies exploring the association between overall board diversity and SPCR, especially in emerging economies, remain limited. The current study aims to fill this gap by developing a comprehensive multidimensional index of BD and exploring the mechanisms through which BD impacts SPCR.

The study uses a sample of Chinese A-share listed companies from 2010 to 2020, obtained from the CSMAR database. After excluding firms in the financial and insurance sectors, ST/ *ST companies, firms listed for less than a year, those with missing data, and firms with fewer than 30 trading weeks, the final sample comprises 17,412 firm-year observations. Outliers are winsorized at the 1st and 99th percentiles. To address endogeneity concerns, the sample period for BD and control variables is 2010-2019, and for SPCR, it is 2011-2020. Stock price crash risk (SPCR) is measured using negative conditional skewness (NCSKEW) and down-to-up volatility (DUVOL). A multidimensional BD index is constructed based on An et al. (2021), incorporating demographic characteristics, educational background, professional background, personal experience (including the impact of the Great Chinese Famine), and managerial traits of directors. The diversity of each dimension is measured using the Herfindahl-Hirschman Index (HHI) or coefficient of variation. The final BD index is constructed by summing the weighted scores of the individual diversity dimensions. The study also includes control variables such as firm-specific return, volatility, turnover rate, firm size, leverage, profitability, book-to-market ratio, and corporate transparency. Regression models are used to test the hypotheses, with NCSKEW and DUVOL as dependent variables and BD as the independent variable. Mediating effect models are employed to examine the mechanisms through which BD affects SPCR, testing the impact on agency costs, investment efficiency, information disclosure, and executive team diversity.

The descriptive statistics reveal significant variation in SPCR across Chinese listed companies and a higher standard deviation of BD in China compared to the U.S. Univariate analysis shows that companies with higher BD exhibit lower SPCR. Regression analysis confirms that BD significantly and negatively impacts both NCSKEW and DUVOL, supporting the hypothesis that BD mitigates SPCR. The coefficients of BD on NCSKEW and DUVOL are -0.188 and -0.128, respectively, after controlling for other factors. The economic significance is substantial, with a one-standard deviation increase in BD reducing SPCR by 7.37% (NCSKEW) and 7.61% (DUVOL). Endogeneity and robustness tests (presented in the Appendix) support the main findings. Mediating effect analyses show that BD's impact on SPCR operates through four channels: (1) BD reduces agency costs, leading to less information manipulation and lower SPCR; (2) BD improves investment efficiency, reducing the accumulation of negative information associated with poor investments; (3) BD enhances information disclosure, increasing transparency and reducing the likelihood of a crash; and (4) BD leads to greater executive team diversity, fostering better information processing and prompt release of unfavorable news. These findings are consistent across different model specifications.

The study's findings provide strong evidence that board diversity effectively mitigates stock price crash risk in the Chinese A-share market. This is particularly relevant given the context of emerging economies, where corporate governance mechanisms might be weaker. The four identified mechanisms highlight the various ways in which diverse boards can enhance corporate governance and reduce the risk of information asymmetry and management malfeasance. The results support the importance of considering a multi-dimensional approach to understanding board diversity and its implications for firm value and risk. The robust findings across various model specifications, including those addressing endogeneity concerns, enhance the reliability of the conclusions. The study significantly advances the understanding of the relationship between board diversity and SPCR, offering crucial insights for firms, investors, and regulators.

This study contributes significantly to the literature on board diversity and stock price crash risk, particularly in the context of emerging markets. It demonstrates the mitigating effect of multi-dimensional board diversity on SPCR and identifies four key mechanisms through which this effect operates. The findings have important implications for corporate governance practices, regulatory policies, and investor decision-making. Future research could explore the interactions between the identified mechanisms and consider additional dimensions of diversity, such as cognitive and cultural diversity. Examining cross-country comparisons of the relationship between board diversity and SPCR in different institutional settings would also provide valuable insights.

The study acknowledges several limitations. First, the analysis does not consider potential interactions between the four identified mechanisms. Future research could use more sophisticated models to explore these interactions. Second, the measurement of board diversity relies primarily on observable characteristics of directors. Future research might incorporate less easily observable factors like cognitive diversity and cultural diversity. Third, the study focuses on the Chinese A-share market, and the generalizability of the findings to other markets might be limited. Cross-country comparisons could help address this limitation.