Researchers Liya Wang and Hideo Owan from Japan’s Waseda University have found a relationship in China between gender diversity in firm’s top management teams (TMT) and corporate innovation.
Having established the relationship they move on to consider the mechanism producing this effect.
It’s been proven beyond doubt [This is my aside not part of the paper] that women fund managers (in the West) are better than men. They trade less, gamble less and take longer to make decisions, all great characteristics of a fund manager. What the researchers in the work highlighted today seem to have uncovered is something along the same lines.
Whilst acknowledging their conclusions offer only a ‘potential mechanism’ for the TMT-innovation relationship they believe China may offer a case in ‘high-relief’ which explains why previous studies of Western firms haven’t shown this effect so clearly.
In China, male/female gender inequality remains a baked-in societal issue that decades of ‘women can hold up half the sky’ [妇女能顶半边天, fùnǚnéngdǐngbànbiāntiān] rhetoric have made only limited inroads to. Therefore, given this background, if women are having an effect on TMTs this effect should be more pronounced in the China context.
To get to the point. The researchers suggest it’s women’s contribution in curbing male over-confidence that’s at work here. Thus, innovation is pursued along ‘safe’ lines connected to existing competence, investment is less speculative and M+A takes place when synergies in plain sight are on offer. Women, in the boardroom at least, seem to reigning in male overconfidence with demonstrably positive outcomes.
A couple of other corroborative observations come out of the work. First, men’s overconfidence regularly leads to narrow and often misleading earnings’ forecasts, women tend to be more realistic and less precise. Second, women have better career outcomes on average as they don’t tend to get fired as much as men for approving bet-the-ranch projects.
The paper concludes by acknowledging that other factors, in addition, might be at work. The fact that doesn’t go away though is that more women, in Chinese firms at least, in TMTs lead to generally better results.
This is a useful finding that’ll add a box to my due-diligence check-list in future.
You can read the paper in full via this link Gender Diversity in the Top Management Team and Corporate Innovation.
Happy Sunday.