This article was previously published in Harvard Business Review.
A number of studies suggest that having women on the board of directors has positive effects on corporate decision-making. For example, firms with female directors are less likely to engage in financial misreporting and fraud. Such firms also tend to put more emphasis on their stakeholders, as evidenced by a greater reluctance to downsize their workforce and more generally a greater focus on corporate social responsibility. Firms with women directors also hold more board meetings and attendance at the meetings is better for both the female and male directors. Finally, firms with female directors invest more in research and development as well as making better corporate acquisition decisions.
Given that women are typically in a minority of one or two in the boardroom, why do they have such an impact on corporate decision-making? With three colleagues, I conducted a study to generate insights into a possible channel whereby female directors may affect decision-making. Our focus was on male CEO overconfidence. We found that female directors reduced male CEO overconfidence, thereby improving the firm’s investment and acquisition decisions as well as increasing financial performance, for industries with high male CEO overconfidence prevalence. The results of our study further reinforce the business case for gender diversity in corporate boardrooms.
See here for our article in the Harvard Business Review:
The full study has been published in the Journal of Empirical Finance: