Do Female Executives Make a Difference? The Impact of Female Leadership on Gender Gaps and Firm Performance

Abstract

We investigate the effects of female executives on gender-specific wage distributions and firm performance. We find that female leadership has a positive impact at the top of the female wage distribution and a negative impact at the bottom. Moreover, the impact of female leadership on firm performance increases with the share of female workers. Our empirical strategy accounts for the endogeneity induced by the non-random assignment of executives to firms by including in the regressions firm fixed effects, by generating controls from a two-way fixed effects regression, and by building instruments based on regional trends. The empirical findings are consistent with a model of statistical discrimination where female executives are better equipped at interpreting signals of productivity from female workers. The evidence suggests substantial costs of underrepresentation of women at the top of the corporate hierarchy AbstractWe investigate the effects of female executives on gender-specific wage distributions and firm performance. We find that female leadership has a positive impact at the top of the female wage distribution and a negative impact at the bottom. Moreover, the impact of female leadership on firm performance increases with the share of female workers. Our empirical strategy accounts for the endogeneity induced by the non-random assignment of executives to firms by including in the regressions firm fixed effects, by generating controls from a two-way fixed effects regression, and by building instruments based on regional trends. The empirical findings are consistent with a model of statistical discrimination where female executives are better equipped at interpreting signals of productivity from female workers. The evidence suggests substantial costs of under-representation of women at the top of the corporate hierarchy.JEL Codes: M5, M12, J7, J16.

Exploring Firm-Level Innovation and Productivity in Developing Countries: The Perspective of Caribbean Small States

“…However, in line with evidence for advanced economies (Wolfers, 2006) and Latin America (Abrahams et al, 2016;Flabbi et al, 2014), once we controlled for firm characteristics other than industries and countries, we found that the productivity gap vanished for women-led businesses and for firms that were predominantly owned by women (dominant owner). The Tables 6.12-6.14 consistently show that there was a gender gap in productivity irrespective of the measure of gender composition, with the only exception being the dummy female owner, which identifies firms with at least one woman among the owners, and women-led business, which was not significant when firm performance was measured by TFP, even though the coefficient was negative.…”

“…Females are also less likely to be promoted or elected into positions of authority. As reported in Flabbi et al (2014) in 2012, 433 of the top 500 Latin American companies had no women senior executives and only nine had a woman CEO. This was confirmed in a report by ILO (2015) stating that in Jamaica and Saint Lucia the share of women-managers in businesses was higher than men but that women were mainly concentrated in middle management positions and under-represented in the most senior positions.…”

“…There has been considerable research investigating gender differences in firm performance, using a variety of indicators, mainly focused on advanced economies (Wolfers, 2006;Smith, Smith, and Verner, 2006;Gagliarducci and Paserman, 2015;Flabbi et al, 2014). Klapper and Parker (2011) reviewed the related empirical literature and concluded that the underperformance of women-led businesses is usually explained by the lack of controls for the size or scale of the firm's operations.…”

“…With a focus on Latin America and the Caribbean, Flabbi et al (2014) analyzed a large dataset of publicly traded companies and found that companies with more female members on the board were significantly more likely to have one female among the firm's executives and that, when women were at least 30 percent of the executives, there was a positive association with firm performance, therefore confirming the existence of a "critical mass" effect (Kanter, 1977). Ferdinand (2001) examined the factors affecting female entrepreneurship in small and cottage industries in three Caribbean countries (Barbados, Suriname, and Trinidad and Tobago).…”

“…In the Caribbean, the expected years of schooling for women are always higher than for men, and the percentage of the female population with at least some secondary education is also higher than for the male population (except in Suriname and Trinidad and Tobago, where the percentage of men with some secondary education is slightly higher than women). Flabbi et al (2014) used International Labour Organisation (ILO) data to calculate the average share of women in the labor force in the Caribbean. At 46 percent, the share was only 2 percentage points lower than in the United States and higher than the average for Latin American countries (40 percent).…”