Role of gender and corporate risk taking

Abstract

Purpose The purpose of this study is to examine the role of chief financial officers’ (CFOs’) gender in financial risk taking of 58 US companies along with the impact of having women board members. Design/methodology/approach Using a panel data of 58 selected S&P 500 companies during the period 2012-2016, this paper determines whether the gender of CFOs and having women board members play a role in risk-taking behavior of firms. Findings Firms led by female CFOs are smaller in size with lower net income and net revenue. The panel data analysis shows that the impact of female CFOs on firms’ financial risk is mixed, depending on risk measures used, whereas increasing female board members reduces that risk. Research limitations/implications The data used is limited to 58 S&P 500 companies, and two of the three risk-taking measures used in the study, specifically investment in property, plant and equipment (PPE) and debt/equity ratio, may not be applicable to some industries. Practical implications The findings provide mixed evidence of risk aversion by females in executive and leadership positions, depending on the measures used and the management responsibilities they undertake (CFO versus board member) with support for the glass cliff phenomenon in which females may be leading financially precarious organizations. Social implications Female CFOs are found to be leading relatively smaller and financially poor-performing firms compared with the male CFO-led firms, thereby giving support to the glass cliff arguments. Originality/value The paper examines the role of CFOs’ gender and board diversity in risk taking as measured by the investment in PPE, debt/equity ratio and stock return volatility.

Female directors and risk-taking behavior of Indian firms

“…However, Sila et al (2016) did not find any relation between gender diversity of board and risk of the firms. Hurley and Choudhary (2020) find that having female CFOs in US firms reduce the debt-equity ratio, increases the risk-taking given by plant, property and equipment investments, but is unrelated to the stock prices volatility. The empirical evidence on risk outcomes and gender diversity in the boardroom and top management teams is still unclear.…”

Gender Diversity in Boards of Directors: A Bibliometric Mapping

“…Ultimately, the metaphor of the glass ceiling, which defines the challenges women have to face in order to move up in a company, has paved the way for the metaphor of the glass cliff; although this issue has slowly improved over the years and more women are reaching higher positions, they are forced to deal with various difficult situations and problems that push them to the edge of this invisible cliff [80]. This additional barrier, along with the study of corporate social responsibility and sustainability, are the most innovative lines of research, as they are the most highly addressed topics in recent articles [36,81,82].…”

When do women on board of directors reduce bank risk?

“…Research shows that women are generally more risk-averse than men in personal financial investments (Jianakoplos and Bernasek, 1998; Sunden and Surette, 1998; Barber and Odean, 2001; Dwyer et al , 2002; Agnew et al , 2003; Watson and McNaughton, 2007). An insightful overview of reasons explaining female risk aversion has been recently provided by Hurley and Choudhary (2020). Some of the primary reasons are emotional factors that negatively impact female utility and in turn their risk-attitude (Brody, 1993; Croson and Gneezy, 2009) and the greater confidence males have compared to females (Barber and Odean, 2001).…”

“…A relevant academic debate also emerged around the topic of women and firm performance (Darmadi, 2013; Pathan and Faff, 2013; Faccio et al , 2016; Sila et al , 2016; Terjesen et al , 2016; Bhat et al , 2019; Yang et al , 2019; Ye et al , 2019; Fernández-Temprano and Tejerina-Gaite, 2020; Greene et al , 2020; Hurley and Choudhary, 2020). Few studies analyze the relationship between female directors and bank risk (Berger et al , 2014; Palvia et al , 2015; Farag and Mallin, 2016; Owen and Temesvary, 2018) though there is growing attention to improved monitoring of decisions by management bodies by means of adequate representation of women (Basel Committee on Banking Supervision, 2015; EBA-European Banking Authority and ESMA-European Securities and Markets Authority, 2018).…”