In her presentation at SEALs, Joan Heminway spoke about the differences in how men and women trust as well as the extent to which both groups are viewed as trustworthy, and then pinpointed some implications for these differences in the corporate context. In doing so, she spoke about a study conducted by Professors Lyda Bigelow and Judi McLean Parks of Olin School of Business, Washington University in St. Louis, which found that investors overwhelmingly favored companies run by men over those run by women. The professors created two different prospectuses for a company they claimed was going public and distributed them, along with the bio of the company’s CEO, to people with a business and finance background to assess their willingness to invest in the company. The two prospectuses were identical except that half of the investors received prospectuses indicating that the company’s CEO was a woman and the other half received prospectuses indicating that the CEO was a man. The bios of both CEOs were virtually the same. However, the professors found that the CEO’s gender had a huge impact on how both men and women investors viewed the company and its potential for success.
Thus, investors were not only willing to invest more money in men-led firms, but also were willing to pay the male CEO more money than the female CEO—saying they would pay the woman only 86% of the salary they would pay the man. In addition, investors had a less favorable view of the female CEO’s ability to manage the company, despite the fact that the resumes of both CEOs were identical. For example, investors indicated that the female CEO would be less able to handle a crisis and resolve conflicts on the board. They also suggested that the female CEO was less competent and had less leadership experience. Ultimately, investors—both male and female—agreed that the female-led company represented a riskier investment. In the professors’ opinion, the study revealed the difficulties women CEOs face raising money in the IPO market. The professors expressed surprise with the bias they found particularly given that 40% of companies in the US are run by women. However, the 2006 Fortune survey revealed that only 10 Fortune 500 companies are run by women, while only 20 Fortune 1000 companies are run by women. Certainly there are many reasons for this phenomenon, but the study suggests that gender bias among all investors continues to play a role in how we perceive the strength of a company.
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1. Posted by Christine on July 24, 2006 @ 7:49 | Permalink
I was on that panel, and I found the study that Joan described very disturbing. So, if a company wants to maximize shareholder value by making decisions that will attract more buyers than sellers, then this study suggests that boards should hire male CEOs. Although the sample set is so small, I wonder if there is a real-world effect that companies run by female CEOs are discounted?
2. Posted by Peter H. Huang on July 24, 2006 @ 10:02 | Permalink
But see, Alexandra Niessen & Stefan Ruenzi, Sex Matters: Gender and Mutual Funds, University of Cologne Center Fin. Res. Working Paper No. 06-01 (Mar. 2006), available at http://www.cfr-cologne.de/downloads/workingpaper/cfr-06-01.pdf. They provide evidence that providing evidence that: female mutual fund managers are less overconfident, follow less extreme investment styles, take less risk, and trade less than male fund managers. They also found that men & women turned in similar risk-adjusted returns over time. Nonetheless, they suugest one is better off investing in female mutual funds from a portfolio construction perspective because females actually do what they say they're going to do. See also, Mark Hulbert, The Testosterone Factor in Mutual Funds, NY Times Jan. 29, 2006, at
Late Edition - Final, Section 3, Page 5, Column 1.
3. Posted by Lisa Fairfax on July 24, 2006 @ 10:46 | Permalink
Peter, that is an interesting study. The two Wash U professors also suggested evidence that female-led firms may be a better investment than their male-led counterparts. And even apart from that distinction, the professors suggest that at minimum there is no difference between the two companies. In that regard, the data is disturbing because it suggests that people's perceptions are incompatible with reality.
4. Posted by Joan Heminway on July 24, 2006 @ 14:20 | Permalink
Peter, thanks for the additional citations for my paper. As Lisa's posts point out, this clearly is an area where something other than rational investor behavior is operating. Since you often play in that space (the "rational investor" space), I welcome your additional thoughts on this issue, here or offline.
5. Posted by Peter H. Huang on July 25, 2006 @ 15:04 | Permalink
Lisa,
Yes, people can have woring perceptions that persist over time b/c they receive no feeback of their being wrong, like occupational segregation.
Joan,
You're welcome. Check out research by Brooke Harrington at http://ganymede.pstc.brown.edu/sociology_faculty/Brooke_Harrington/
She has a forthcoming book, Pop Finance: Investment Clubs & the New "Ownership Society" (Jan. 2007). You can e-mail her for a draft copy. See http://ganymede.pstc.brown.edu/sociology_faculty/Brooke_Harrington/articles/nytarticle.pdf
&
http://www.micromotives.com/tag/behavioral-finance/
I'll e-mail you some more cites offline re: investing & gender.
6. Posted by Hamed Elbarki on May 13, 2008 @ 9:09 | Permalink
Fantastic information, thanks for sharing!
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