Investors’ Valuations of Female CEOs: Risk Management Performance and Information Asymmetry

Abstract

This paper examines the relationship between female CEOs’ risk management and earnings performance, considering that risk involves a corresponding proportionate return. We find that female CEOs have a positive relationship with the quality of internal control but a negative relationship with profitability during the 2007-2009 financial crisis, which means that the tradeoff between risk and return occurs in a crisis. Nevertheless, female CEOs show no significant relationship with company value. This finding suggests that the tradeoff between risk and return causes offset effects on the firm value during a crisis. We further investigate whether risk-related motivations influence female CEOs’ risk management performance. We set CEOs’ company-related wealth as a risk-taking motivation, and CEO age and high share ownership as risk-averse motivations. In conclusion, risk-related motivations do not advance risk management performance. This finding calls into question the argument of some literature that women's risk management ability stems from their risk-averse tendency. Notably, the risk-taking motivation positively relates to return of asset and company value, but has a negative effect on company value during a crisis. Moreover, it undermines female CEOs’ risk management during a crisis and dilutes the risk-return tradeoff.