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Risky Business

Monday, September 26, 2016

woman speaking in a meeting

There’s a reason why no academic studies on gender and CEO risk-taking have been conducted in the U.S. — with fewer than five percent of Fortune 500 companies led by women, the sample size is too small for comparison with those led by men, says Krannert finance professor Mara Faccio. 

In “CEO Gender, Corporate Risk-Taking, and the Efficiency of Capital Allocation,” Faccio and her coauthors, Maria-Teresa Marchica and Roberto Mura from Alliance Manchester Business School at the University of Manchester, break new ground by using data from a larger sample of European-based companies. 

The paper, forthcoming in the Journal of Corporate Finance, finds that female CEOs tend to make less risky choices at the corporate level than their male counterparts.

“We show that firms run by female CEOs have lower leverage, less volatility in earnings and higher chances of survival than similar firms led by male CEOs,” says Faccio, Purdue’s Hanna Chair of Entrepreneurship. “We also find that transitions from male to female CEOs are associated with reduced corporate risk-taking, while transitions from female to male CEOs are associated with increased risk.”

They base their conclusions on information gathered from Amadeus Top 250,000 and Worldscope, a pair of databases maintained by Bureau van Dijk that provide business intelligence on every company in Europe that meets a minimum-size threshold. 

Disclosure requirements in Europe require even private companies to publish annual information, which allowed the researchers to compile accounting, ownership and gender data for a much larger set of firms, 9.4 percent of which are run by female CEOs. 

Although the findings suggest that female CEOs might be a better choice when firms are planning corporate leadership changes, Faccio and her colleagues point to other variables that deserve equal consideration.

“One problem we document for female CEOs is that while they tend to cut high-risk investments, they also are prone to cut investments that yield the highest returns,” she says. “Female CEOs who choose to avoid high-risk but positive net present value investment opportunities could undermine the efficiency of the firm’s capital allocation process and inhibit long-term economic growth.”

In a strong economy where greater risk can produce greater reward, for example, firms planning a CEO transition might fare better selecting a male successor. Likewise, a weak economy might call for a more cautious approach and the transition to a female CEO. 

“Although some of the findings might be unpopular, our study should be particularly useful to women who want to climb the corporate ladder,” Faccio says. “It can help them justifiably ignore factors such as societal expectations that tend to make women more cautious and in turn help them make better investment choices and better career choices.”

An abstract and downloadable PDF of “CEO Gender, Corporate Risk-Taking, and the Efficiency of Capital Allocation,” is available at

Contributors: Mara Faccio, Professor of Finance and Hanna Chair in Entrepreneurship, Purdue University Krannert School of Management; Maria-Teresa Marchica, Associate Professor of Finance, University of Manchester Alliance Manchester Business School; Roberto Mura, Associate Professor of Finance, University of Manchester Alliance Manchester Business School.