CEO GENDER AND FIRM PERFORMANCE: EVIDENCE FROM THE COVID-19 PANDEMIC

Research Summary Several upper echelons studies have found that firms led by female executives are less likely to engage in risky endeavors than those led by male top executives. We argue that conceptualizing female CEOs as universally conservative decision‐makers may paint too simplistic a picture and that the impact of CEO gender on strategic decision‐making may vary significantly depending on the given situation CEOs are experiencing. We integrate executive job demands and gender research to propose that scrutiny will exhibit differential effects on female and male CEOs' acquisition activity. We show that in high‐scrutiny contexts, the difference between male and female CEO acquisition activity disappears. In contrast, in low‐scrutiny contexts, the difference between male and female CEOs' acquisition activity is exaggerated. Managerial Summary Substantial research has shown that female executives acquire at a lower rate than male executives. We argue that viewing female CEOs as universally conservative decision‐makers may paint too simplistic a picture and that the impact of CEO gender on strategic decision‐making may vary significantly depending on the given situation CEOs are experiencing. In particular, we argue and find that in high‐scrutiny contexts, the difference between male and female CEO acquisition activity disappears. This research suggests that managers should consider the impact of environmental context—especially the role of scrutiny—when considering the risk propensity of female leaders.

ABSTRACTManuscript Type: EmpiricalResearch Question/Issue: This study is among the first to investigate the impact of gender on the relationship between the compensation gap of the CEO and Vice‐Presidents on company performance, testing if companies managed by a female CEO or a male CEO follow tournament or behavioral theory. Tournament theory suggests that a large compensation gap between CEO and company Vice‐Presidents (VPs) leads to higher company performance; behavioral theory states that higher performance may be achieved with a small compensation gap between CEO and VPs. Additionally the study also investigates if companies managed by a female CEO perform better, or not, than those managed by a male CEO, and if the factors that explain the compensation gap between CEO and VPs in these two groups of companies are the same, or not. Data for the investigation emanated from the USA during the period 1992 to 2004.Research Findings/Insights: The results reflect something quite new in the area – on average, companies managed by a female CEO perform better, and have a smaller compensation gap between the CEO and VPs than companies managed by a male CEO. In companies managed by a female CEO, a smaller difference in the total compensation gap between CEO and Vice‐Presidents leads, on average, to higher company performance, however, when the CEO is a male, a higher compensation gap is required to obtain higher company performance. The results provide empirical support that the behavioral theory is predominant in companies managed by a female whereas tournament theory is predominant in companies managed by a male.Theoretical/Academic Implications: The paper fills an important gap in the existing literature by providing econometric evidence that males and females CEOs have a different impact on the relationship between CEO and VPs compensation gap and company performance, and that it is not indifferent to choosing a male or a female CEO in terms of company performance.Practitioner/Policy Implications: This study offers an insight to practitioners and policy makers suggesting that gender influences the relationship between the CEO and Vice‐Presidents compensation gap and company performance. Boards may be able to improve company performance if they limit the compensation gap between CEO and VPs when the CEO is a female and extend it, when it is a male.

Speculative bubbles and crashes in stock markets: an interacting-agent model of speculative activity

During interactions with external stakeholders, to convey a positive impression of the firm, two influence tactics are likely to be vivid among CEOs –dominance and optimism. Drawing on social psychological research on social influence, we theorize that these tactics are also likely to seep into the decision-making of activist hedgefunds about whether to target the firm. Although both male and female CEOs are likely to display dominance and optimism to varying degrees, we also theorize that CEO gender acts as an interpretive lens through which the credibility of these tactics is evaluated and affects the likelihood that the firm is targeted. Using data on hedge fund activism campaigns between 2011 and 2019, linguistic analyses of CEO communications with external stakeholders revealed that both dominance and optimism had a negative effect on the likelihood that the firm is targeted. This negative effect varied across male and female CEOs: firms led by male CEOs were less likely and firms led by female CEOs were more likely to be targeted when CEOs displayed higher levels of dominance or optimism. We highlight how these findings contribute to shareholder activism and gender research in the upper echelons.

Recent literature finds that firms led by female CEOs are more likely to be targeted by activist shareholders and that female CEOs are more likely to cooperate with activist shareholders' requests. Our study complements this literature by using two controlled experiments and a series of semi‐structured interviews with CEOs and CFOs to investigate how a CEO's response to shareholder activism influences investors' reactions and whether these reactions differ depending on the gender of the CEO or on how their response is explained. In the first experiment, we find that investors evaluate a firm as less attractive when a female CEO uses an uncooperative response rather than a cooperative response to shareholder activism, absent any explanation for the CEO's response. Conversely, investors evaluate a firm as less attractive when a male CEO uses a cooperative response rather than an uncooperative response. In the second experiment, where there is an added explanation for the CEO response, we find that investors react more positively to a female CEO's uncooperative response when the explanation is more communal (vs. agentic). Our interviews with CEOs and CFOs provide insights into how the gender of firms' leadership may play a role when activist shareholders target firms. Our results collectively suggest that investors rely on gender stereotypes when evaluating the responses of male and female executives to shareholder activism and that these evaluations affect their investment judgments. Our results also suggest a potential alternative explanation for the finding that female CEOs are more likely to cooperate with activist shareholders than are male CEOs. Rather than inherent differences in the management styles of male and female CEOs, responses to activist shareholders may be driven, at least in part, by managers anticipating that they will be penalized by investors for deviating from gender‐stereotypical behavior.

Recent literature finds that firms led by female CEOs are more likely to be targeted by activist shareholders, and that female CEOs are more likely to cooperate with activist shareholders’ requests. Our study complements this literature by investigating how a CEO’s response to shareholder activism influences investors’ reactions, and whether reactions differ depending on the gender of the CEO. Using an experiment, we find that investors evaluate a firm as less attractive when a female CEO uses an uncooperative response rather than a cooperative response to shareholder activism. Alternatively, investors evaluate a firm as less attractive when a male CEO uses a cooperative response rather than an uncooperative response. Our results suggest that investors rely on gender stereotypes when evaluating the responses of male and female executives to shareholder activism, and that these evaluations affect their investment judgments. Our results also suggest a potential alternative explanation for the finding that female CEOs are more likely to cooperate with activist shareholders than male CEOs. Rather than inherent differences in the management style of male and female CEOs, responses may be driven, at least in part, by managers anticipating that they will be penalized by investors for deviating from gender-stereotypical behavior.

CEO gender differences in careers and the moderating role of country culture: A meta-analytic investigation

PurposeThis study examined gender differences in CEOs' expression of implicit achievement, power and affiliation motivation. Building on the role congruity account of sex differences and similarities in motivation and existing literature on implicit motives, the study tested whether female CEOs would express higher affiliation motivation than male CEOs and similar levels of achievement motivation. In addition, gender differences in power motivation were explored.Design/methodology/approachThe study used propensity score matching to generate a comparable sample of male and female CEOs from publicly traded companies. Subsequently, the authors content-coded CEO letters from annual reports using Winter's (1994) manual for scoring motive imagery in running text.FindingsOverall, CEOs expressed more achievement and power motivation than affiliation motivation. Comparisons between male and female CEOs showed that female CEOs expressed lower power and higher affiliation motivation than male CEOs.Research limitations/implicationsBy integrating implicit motive theory with social role theory and the role congruity account of motivation, this study provides a theoretical framework and novel demonstration that understanding social roles and gender roles can lend insights into motive expression by CEOs.Originality/valueThe study uses established theory and a validated scoring method in a novel way by analyzing implicit motives from CEO letters, a critical communication channel in the CEO–shareholder relationship. In doing so, this study adopts a sociocultural perspective. Informed by the role congruity account of motivation, the study demonstrates the importance of social roles and gender roles for motivational displays.

The face says it all: CEOs, gender, and predicting corporate performance

A number of studies have investigated the causes and impact of stock market crashes. The October 19, 1987 crash and the crashes that took place during the 1997-98 global emerging markets crisis and as a result of the burst of the high-tech bubble in 2000 have received considerable attention. These studies mainly focus on the factors leading to a crash and the volatility and co-movements of markets during and after the crash. How a stock market crash affects individual stocks and if stocks with different financial characteristics are affected differently in a crash is an issue that has not received sufficient attention. In this paper, we define a stock market crash as a one-day event when the stock market index drops by more than 5-percent. There are eight such crashes that have taken place during the January 1, 1968-December 31, 2007 period. We use the event study methodology and the linear multivariate regression analysis technique with stock returns on the crash day as the dependent variable. The explanatory variables include the CAPM beta, size, market-to-book ratio, an illiquidity measure for the stock, and several debt, cash-flow, profitability, and liquidity ratios representing various financial characteristics of the firm. The volatility of each stock prior to the crash event is also included as an explanatory variable in the regressions. To capture the momentum and reversal effects, we also use the cumulative returns of stocks 30-days, 252-days, and 504-days prior to the event date as explanatory variables. To study if stocks from different industries are affected differently during crashes, we use four industry dummy variables. We use a large sample of common stocks of domestic U.S. firms, excluding utilities and financial firms, to study the determinants of stock returns in each crash. We obtain the stock returns data from the Center for Research in Security Price (CRSP) database and the firm financial statements data from the Research Insight database. We find that stocks with higher betas, larger capitalization, more liquidity, more volatility and higher returns prior to the event date lose more value in stock market crashes. We find certain firm characteristics to be significant determinants of stock performance in some crashes. We also find that certain industries were affected more than the others in certain crashes.

Purpose– The purpose of this study is to examine the impact of gender and ethnicity of CEO and audit committee members (directors) on audit fees and audit delay in the US firms.Design/methodology/approach– Audit-related corporate governance literature has extensively examined the determinants of audit fees and audit delay by focusing on board characteristics, specifically board independence, diligence and expertise. The authors provide empirical evidence that gender and ethnicity diversity in corporate leadership and boardrooms influence a firm’s audit fees and audit delay.Findings– This study finds that firms with female and ethnic minority CEOs pay significantly higher audit fees than those with male Caucasian CEOs. The authors also find that firms with a higher percentage of ethnic minority directors on their audit committee pay significantly higher audit fees. Further, the authors find that firms with female CEOs have shorter audit delay than firms with male CEOs and firms with a higher percentage of female and ethnic minority directors on their audit committee are associated with shorter audit delay. Results indicate that female CEOs and both female and ethnic minority directors are sensitive to the market pressure to avoid audit delay.Research limitations/implications– The results suggest that gender and ethnic diversity could improve audit quality and the firms’ overall financial reporting quality.Practical implications– This study provides insights to regulators and policy-makers interested in increasing diversity within a firm’s board and top executives. Recently, the US Securities and Exchange Commission (SEC) and the European Commission have been pressing publicly traded companies to improve diversity among their directors. This study provides evidence and perspective on how diversity can enhance financial reporting quality measured by audit fees and audit delay.Originality/value– Previous studies have not given much attention on the impact of racial ethnicity in addition to gender characteristics of top executives and audit committee directors on audit fees and audit delay.

The omnipresent and reoccurring market bubbles and crashes have been puzzling both finance professionals and academics. Important economic theories such as the efficient market hypothesis indicate that, rationally, mispricing of assets traded on stock markets should not occur. However, this is not the case in real life. Behavioral and neuroscientific studies have provided an important contribution to explaining the psychological mechanisms driving the behavior of individual stock market players as well as the market in general. This chapter presents the most influential scientific work devoted to stock markets, bubbles, and crashes. It provides a brief overview of the research aiming to explain behavioral phenomena on stock markets. First, it outlines the key terminology and classification of market bubbles and crashes. Second, it reviews the psychological and economic literature devoted to experiencing extreme financial events. Despite a low number of studies, the general conclusion is that experiencing a strongly negative financial event would lead to decreased risk-taking in the future. Next, the reader’s attention is drawn to a range of typical cognitive biases present in the stock market. Group-think, the disposition effect, overconfidence, and home bias are among the most researched biases. Finally, the chapter presents experimental asset markets—a strand of experimental studies investigating coordination on the stock markets. This type of work has gained prominence after the invention of the SSW design—the Nobel Prize winning experimental method. The chapter concludes with a short note on econophysics—a field that deals with simulation and prediction of stock market players’ behavior.

The issues of excessive CEO compensation and gender pay gaps garner much attention from management scholars and the general public. In this study, we integrate these topics and explore the complex interdependent nature of how CEOs influence directors’ evaluative perceptions about appropriate levels of CEO compensation and whether female and male CEOs do so in different ways. Drawing from role congruity theory and previous research on executive compensation, we use a configurational approach to identify how CEOs achieve high levels of compensation through different combinations of influence arising from their power, origin, tenure, similarities with evaluators, and organizational conditions. Using fuzzy set qualitative comparative analysis with a matched pair sample of female and male CEOs from 2010 to 2016, we find there are multiple configurations of influence conditions by which female and male CEOs achieve high compensation. Our inductive analysis, unpacking how these configurations differ between female and male CEOs, shows four distinct influence mechanisms: leveraging power and role empathy, trailblazer responsibility, leveraging power and similarity, and leveraging role empathy. These mechanisms highlight the ways influence conditions complement or mutually reinforce one another in different ways for female and male CEOs. Implications for theory and research about the unique challenges female executives face in achieving equitable treatment in the workplace are also discussed.

The ‘COVID’ crash of the 2020 U.S. Stock market

Corporate governance and strategy research investigates the effects of firm performance on the likelihood of CEO turnover, but has failed to considere potential gender differences in CEO turnover and how the board’s gender composition may affect this process. This paper investigates CEO exit among all medium- and large-sized firms in Sweden that are privately owned between 2005 and 2010. Controlling for a wide array of industry-level, firm-level, and individual-level variables, we find that CEOs are more likely to exit from firms that experience negative results or have a declining performance trend. For male CEOs it is the negative result that drives the exit; for female CEOs a negative performance trend increases the likelihood of exit. Consistent with homophily and token theories, the level of gender and age diversity of the board has a negative effect on the exit of female CEOs but is not associated with male CEO exit. It thus appears that female CEOs are less pressured to exit when their firm is experiencing low performance, but more likely to exit when the board is composed predominantly by men or of individuals that are similar in age. We discuss implications for research in strategy, corporate governance, and gender.