Executive gender, age, and corporate financial decisions and performance: The role of overconfidence

Abstract

This paper analyzes the interactive effects of executive gender and age on corporate financial decisions and performance using a sample of non-financial US-listed firms. The analysis finds that firms run by young male executives have the worst operating performance, although they raise more external funds and invest more than firms run by old male, young female, and old female executives. Firms run by old female executives have the best operating performance, although they invest the least. Further analysis demonstrates that these variations in decisions and performance are due to differences in executives’ overconfidence levels that affect the quality of their investments and, subsequently, their operating performance. The analysis also finds that overconfidence drives risk-taking, suggesting that these two behaviors are not independent of each other, as some researchers claim. However, we find, on average, insignificant differences in firm values among the executive groups due to the different leverage levels employed by them that offset the differences in their operating performance. But at firms that set their leverage ratio close to their target, such that leverage differentials among these firms do not lead to significant differences in their values, old female executives emerge again as the best value creators, followed by young female and old male executives.