We extend the literature on how managerial traits relate to corporate choices by documenting that firms run by female CEOs have lower leverage, less volatile earnings, and a higher chance of survival than otherwise similar firms run by male CEOs. Additionally, transitions from male to female CEOs (or vice-versa) are associated with economically and statistically significant reductions (increases) in corporate risk-taking. The results are robust to controlling for the endogenous matching between firms and CEOs using a variety of econometric techniques. We further document that this risk-avoidance behavior appears to lead to distortions in the capital allocation process. These results potentially have important macroeconomic implications for long-term economic growth.

We extend the literature on how managerial traits relate to corporate choices by documenting that firms run by female CEOs have lower leverage, less volatile earnings, and a higher chance of survival than otherwise similar firms run by male CEOs. Additionally, transitions from male to female CEOs (or vice-versa) are associated with economically and statistically significant reductions (increases) in corporate risk-taking. The results are robust to controlling for the endogenous matching between firms and CEOs using a variety of econometric techniques. We further document that this risk-avoidance behavior appears to lead to distortions in the capital allocation process. These results potentially have important macroeconomic implications for long-term economic growth. To investigate whether CEO gender still plays a role in financial and investment policies after explicitly accounting for self-selection due to unobservables, we employ a variation of the Heckman two-step approach: the treatment effects model. Our choice of an exogenous determinant of the propensity to select a female CEO is based on the familiarity of a firm's male directors with female CEOs. More specifically, our first stage instrumental variable is the fraction of firms with a female CEO and above-average risk-taking among all other firms in which the firm's male directors also serve as directors. We argue that it is unlikely that this familiarity, combined with above-average risk-taking (in other firms), will be correlated with 4 outcomes (in particular, risk-avoidance) except through its effect on CEO gender. The results of the treatment effects model provide little support for the notion that the differences in corporate risk-taking observed between firms run by female and male CEOs are due to self-selection. Thus, the results appear to be consistent with CEO gender influencing corporate risk-taking.To the extent that the documented differences in corporate risk-taking are driven by female CEOs imposing their preferences on corporate choices, the efficiency of the capital allocation process could be undermined. The paper also contributes to the literature on the efficiency of capital allocation (Durnev et al., 2004, McLean et al., 2012, Morck eta al., 2011, Wurgler, 2000. Our paper is the first to provide evidence that differences in managerial traits, in particular gender, appear to have implications for the quality of the capital allocation process --a fundamental underpinning of economic growth (Bagehot, 1873, Beck et al., 2000, Greenwood and Jovanovic, 1990, John et al., 2008.The rest of the paper is organized as follows. Section 2 describes the data. Section 3 investigates the relation between CEO gender and corporate risk-taking. Section 4 investigates the implications for the quality of the capital allocation process. Section 5 discusses the 7 economic reasons why CEO gender could impact risk-taking (including differences in risk aversion) and Section 6 concludes. DataMost of the data used in the paper are taken from Amadeus To...

Using new data for the universe of firms covered in Amadeus, we reconstruct the portfolios of shareholders who hold equity stakes in private and publicly-traded European firms. We find great heterogeneity in the degree of portfolio diversification across large shareholders. Exploiting this heterogeneity, we document that firms controlled by diversified large shareholders undertake riskier investments than firms controlled by non-diversified large shareholders. The impact of large shareholder diversification on corporate risk-taking is both economically and statistically significant. Our results have important implications at the policy level because they identify one channel through which policy changes can improve economic welfare.

We document, for the first time, that a conservative leverage policy directed at maintaining financial flexibility can enhance investment ability. Our analysis reveals that following a period of low leverage, firms make larger capital expenditures and increase abnormal investment. We find that these new investments are financed through new issues of debt. The impact of financial flexibility is both statistically significant and economically sizable. Further, long‐run performance tests reveal that financially flexible firms not only invest more but also invest better. Our results are consistent with the view that financial flexibility in the form of untapped reserves of borrowing power is a crucial missing link in capital structure theory.