The paper highlighted this week is a first. It shows, conclusively, when women are given real control in a company they are better managers than men. Prior studies have looked mainly at Western models and tried to describe an arc between women on the board or in a CEO/CFO position and performance. Those studies have been inconclusive and done little to settle the issue.
Fuxia Jiang, Jun-Koo Kang and Bing Zhu from the Renmin University, Nanyang Business School and Central University of Finance respectively looked at 2,489 Chinese firms in a sample period from 2000 to 2014 and focused on firms where the Chairperson was a woman.
China is a good place to do this as unlike in the U.S. the Chairperson really calls the shots and women are better represented. In the sample period 2.14% of American companies had women Chairs but in China the number was 4.2%. Moreover, and here’s a key difference, in the U.S. 50% of Chairs held the CEO position concurrently. In China (and HK) this practice is frowned upon and only 16.4% of companies in the sample had the same dual position problem.
If firms with women Chairs did better what explains this? The researchers identified three things women in charge did more of than male peers:
- CEO turnover was greater in women controlled companies suggesting a greater diligence in terms of overall corporate governance. In addition CEO pay variance was higher suggesting the women Chairs were more likely to punish and reward results more reliably than male peers.
- Contrary to research-supported received wisdom women seem to have encouraged more risk taking looking at volatility of returns. The researchers suggest that this may be an effect that only manifests itself when women are in reality through the glass-ceiling.
- A combination of the first two characteristics i.e. the greater diligence and higher risk taking leads to better returns on investment. This is where investors should be most interested as this is how the firm value is increased.
A final interesting aside, do the women driving these more successful enterprises suffer from the same overconfidence bias that men are (conclusively proved) regularly guilty of? An analysis of forecast versus actual earnings outcomes suggests not.
So, there you have it. Women, it turns out when given free reign [Shouldn’t that be ‘reign’? Ed.], are more diligent managers, have a higher risk appetite and seem to be less braggadocios than male peers.
Crucially for investors these traits in combination end up producing companies of higher worth; an important and very valuable characteristic to bear in mind in future due diligence.
You can access the paper in full via this link Female Board Chairpersons – China Evidence.
Happy Sunday.