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Study finds women more risk-averse in the boardroom

What role does gender play when it comes to making key company decisions? And what is the attitude to risk among women CEOs?

These were the key questions addressed in a piece of research co-authored by MBS academics which explored the relationship between CEO gender and corporate risk-taking choices.

Researchers Roberto Mura and Maria Marchica, along with professor Mara Faccio from Purdue University, US, wanted to test – in the context of corporate decisions at a very high (CEO) level – previous findings which had shown that on average men tended to be less risk-averse than women.

Using a large sample of privately-held and publicly-traded European companies, of which nearly 10% were run by female CEOs, the team documented that this difference persists at the top of the corporate ladder. Female CEOs did indeed tend to be associated with lower levels of risk taking.

In the sample, firms run by female CEOs were less leveraged and had less volatile earnings, while companies which had recently changed their CEO from a man to a woman also observed a statistically significant decline in corporate risk-taking. On the other hand, their research found that companies run by women were more likely to survive than firms run by male CEOs.

Roberto, senior lecturer in finance, says the findings have major policy implications given the drive by Western governments to promote more women into the boardroom. For instance, Norway recently passed a law requiring that women make up 40% of the boards of public companies.

“Our findings raise some interesting policy questions and cast serious doubts on the ‘one size fits all’ approach to policy making. For instance, is giving a top job to a woman necessarily always the best choice for the business itself if she is more likely to be more risk-averse? Is the company restricting its future growth potential, and that of the wider economy, by having a woman in charge? Or does the relative risk averseness of a woman actually help a company survive, especially when the business is in a start-up phase?

“By imposing blanket quotas on what percentage of women should be on company boards, are we at risk of introducing legislation that may ultimately lead to businesses being less bold or are we promoting a different entrepreneurial spirit? Also, what about the consequences in terms of allocation of capital in the whole economy? Our results seem to indicate that differences between female and male CEOs play an important role in this context too.”

The findings were recently presented at the American Finance Association conference in Boston. Added Roberto: “We see this as very much a starting point for further research into this extremely significant policy area.”