Age, gender, and risk‐taking: Evidence from the S&P 1500 executives and market‐based measures of firm risk

Abstract

This paper contributes to the literature by examining whether the age and gender of the firm's top executives influence market‐based measures of firm risk. Using data on the S&P 1500 firms, we document that chief executive officer (CEO) and chief financial officer (CFO) age and gender have a direct effect on market‐based firm risk measures in addition to the indirect influence they may have through corporate policy choices. Specifically, we find that firms led by older CEOs and CFOs have less volatile stock returns and lower idiosyncratic risk. Although the relationship between executive gender and firm risk is more equivocal, our results suggest that female‐led firms are associated with lower levels of total and idiosyncratic risks after controlling for firm‐specific attributes, policy choices, and managerial risk‐taking incentives. We also document that CEO and CFO age and gender do not influence the level of systematic risk. Overall, our empirical findings demonstrate that the age and gender of the firm's top executives may have important implications for firm riskiness.

Top management team gender diversity and firm risk-taking in the hospitality industry

“…It is calculated as the square root of 252 multiplied by the standard deviation of daily stock returns (Bernile et al , 2018). This operationalization of market-based firm risk is considered as the total risk (Peltomaki et al , 2021) and has been used extensively in the firm risk literature (Peltomaki et al , 2021; Bhat et al , 2020; Bernile et al , 2018). We use the natural logarithm of σRet, Ln(σRet), in model estimations to reduce skewness and ease interpretation (Low, 2009; Sias, 1996).…”

“…In sum, despite the common belief that managerial skills improve with age, the flip side of the coin is that the deterioration of cognitive skills offsets the positive effect of age on gaining managerial skills (von den Driesch et al, 2015). Regarding the age of CEO in particular, there is some evidence suggesting that CEO age is negatively associated with volatility of stock returns and operating leverage (Peltomaki et al, 2021;Serfling, 2014). These findings suggest that age is an attribute that increases managers' risk averseness and hinders risk-taking motivation even further.…”

“…Likewise, Faccio et al (2016) documented that European firms run by female CEOs tend to have less earnings volatility and lower leverage. In a more recent study, Peltomaki et al (2021) found that firms that are run by female CEOs and CFOs have lower stock return volatility. Despite the growing evidence of an inverse relationship between increasing female presence in TMTs and firm risk, there exists some counter evidence showing that growing female presence in executive roles might indeed encourage risk-taking and leads to higher firm risk.…”

Women in monitoring positions and market risk. Are the stocks of companies with gender diverse boards less volatile?

“…Gender differences in behavior have been extensively studied in fields such as psychology and even experimental economics ( Peltomäki et al, 2021 ). Research prior to the 1980s considered that women possess certain characteristics, such as being more conformist and less aggressive, that lead them to take fewer risks.…”

“…Indeed, we have only found seven previous works in this regard. Three of these studies analyze the U.S. market, and, while one finds that the relationship is negative and significant ( Perryman et al, 2016 ), two consider that there is no relationship between the two variables ( Sila et al, 2016 ; Peltomäki et al, 2021 ). Three other studies were conducted on companies in the United Kingdom ( Nadeem et al, 2019 ), Norway ( Yang et al, 2019 ), and Vietnam ( Van Vo et al, 2021 ), and the presence of women on the boards of directors was found to be negatively and significantly related to systematic risk.…”