Practical analysis for investment professionals
04 November 2015

All Firms Can Benefit from the Positive Influence of Women

All Firms Can Benefit from the Positive Influence of Women

Yahoo! CEO Marisa Mayer’s recent announcement that she is again pregnant — and does not plan to take maternity leave after her twins arrive — has once again raised the age-old question about how far we have really come in creating a gender-equitable workplace.

While women are undoubtedly making progress, recent research from specialists in behavioral finance suggests that in many respects, the discussion to date has left out fascinating dimensions of gender in the workplace. Research on the psychological and behavioral makeup of women suggests that their differentiated decision-making process relative to men can positively influence corporate performance. For instance, in the context of investing and mergers and acquisitions, women are less prone to overconfidence than men. Follow-on studies highlight how women positively affect firm economic and social outcomes.

Consider recent work by Binay Adhikari, Anup Agrawal, and James Malm. In “Do Women Stay Out of Trouble? Evidence from Corporate Litigation,” they examine a sample of 28,709 lawsuit filings from 1996 to 2010 for S&P 1500 firms and provide evidence that having women in top management is correlated with fewer lawsuits. The core results from the paper are economically meaningful. For instance, a one standard deviation increase in the proportion of female executives in top management cut the average number of annual lawsuits almost in half. Digging further, the authors find more pronounced decreases in suits related to product liability, medical liability, environmental issues, and labor and contract disputes.

But the evidence that women have positive effects on corporations doesn’t end there. The “positive female benefit” is so powerful, merely associating with women seems to improve corporate performance. Consider recent research by PhD student Vinh Nguyen from Boston College. In “Does Your Daughter Make You a Better CEO?” Nguyen provides evidence that CEOs with daughters are viewed more favorably by the marketplace and are less likely to overpay on new investments. Both of these benefits are attributed to lower degrees of overconfidence. Nguyen also finds that CEOs with daughters tend to run companies with lower risks of corporate litigation (similar to the research cited above). Perhaps CEOs with daughters are more likely to have dinner table conversations about, say, workplace discrimination, than CEOs who only have sons? The CEOs with daughters might thus be better positioned to avoid this type of legal exposure at their firms.

As women increasingly percolate into the upper ranks of management, we can expect to see companies benefit from not only their expertise and vision. This research suggests — amazingly — their mere presence will also positively impact their peers in the still vastly male ranks of executives. Apparently, even my two preschool-aged daughters are making their mark on my own management style (and giving me a few gray hairs)! It’s fascinating that personal relationships with females and the experience of having daughters are associated with positive effects on corporate performance.

All firms can benefit from the positive influence of women. The progress of women in the workplace is leading to a better balance of behaviors and attitudes, which in turn should lead to better corporate, social, and economic outcomes.

You can read more from Wes Gray at the Alpha Architect blog , or follow him on Twitter @alphaarchitect. Please read the Alpha Architect Disclosures at your convenience. This post also appears there.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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About the Author(s)
Wesley Gray, PhD

After serving as a Captain in the United States Marine Corps, Wesley R. Gray received a PhD, and was a finance professor at Drexel University. Dr. Gray’s interest in entrepreneurship and behavioral finance led him to found Alpha Architect, a research-driven firm that advises Active ETFs (ValueShares) and managed accounts for family offices and high-net-worth individuals. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

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