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Why female board representation matters: The role of female directors in reducing male CEO overconfidence

Why female board representation matters: The role of female directors in reducing male CEO overconfidence
Why female board representation matters: The role of female directors in reducing male CEO overconfidence

We suggest a novel reason why there might be a need for female board representation. Female participation in the boardroom attenuates the CEO's overconfident views about his firm's prospects as we find that male CEOs at firms with female directors are less likely to hold deep-in-the-money options. Further, we argue that female board representation matters for industries where male CEO overconfidence is more prevalent. We find support for our argument as female directors are associated with less aggressive investment policies, better acquisition decisions, and improved financial performance for firms operating in industries with high overconfidence prevalence. We also identify a market failure around economic crises. Firms that do not have (sufficient) female board representation suffer a greater drop in performance as a result of the crisis than those that have female board representation.

CEO overconfidence, Female board representation, Firm performance, Investment
0927-5398
70-90
Chen, Jie
7181526d-ec25-480e-a35e-37bf4616e131
Leung, Woon Sau
1c82d98c-7cf5-4b3d-a617-b1b083020788
Song, Wei
0d91b8a3-694b-469e-a15e-bba82dc5d090
Goergen, Marc
d700632f-e4cc-41a7-978f-56b53c7d3764
Chen, Jie
7181526d-ec25-480e-a35e-37bf4616e131
Leung, Woon Sau
1c82d98c-7cf5-4b3d-a617-b1b083020788
Song, Wei
0d91b8a3-694b-469e-a15e-bba82dc5d090
Goergen, Marc
d700632f-e4cc-41a7-978f-56b53c7d3764

Chen, Jie, Leung, Woon Sau, Song, Wei and Goergen, Marc (2019) Why female board representation matters: The role of female directors in reducing male CEO overconfidence. Journal of Empirical Finance, 53, 70-90. (doi:10.1016/j.jempfin.2019.06.002).

Record type: Article

Abstract

We suggest a novel reason why there might be a need for female board representation. Female participation in the boardroom attenuates the CEO's overconfident views about his firm's prospects as we find that male CEOs at firms with female directors are less likely to hold deep-in-the-money options. Further, we argue that female board representation matters for industries where male CEO overconfidence is more prevalent. We find support for our argument as female directors are associated with less aggressive investment policies, better acquisition decisions, and improved financial performance for firms operating in industries with high overconfidence prevalence. We also identify a market failure around economic crises. Firms that do not have (sufficient) female board representation suffer a greater drop in performance as a result of the crisis than those that have female board representation.

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Why female board representation matters_The role of female directors in reducing male CEO overconfidence - Accepted Manuscript
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Accepted/In Press date: 18 June 2019
e-pub ahead of print date: 3 July 2019
Published date: 1 September 2019
Keywords: CEO overconfidence, Female board representation, Firm performance, Investment

Identifiers

Local EPrints ID: 432702
URI: http://eprints.soton.ac.uk/id/eprint/432702
ISSN: 0927-5398
PURE UUID: 64eb1ba1-f2dc-4871-8e8f-edf2d4a631f3

Catalogue record

Date deposited: 24 Jul 2019 16:30
Last modified: 28 Apr 2022 05:58

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Contributors

Author: Jie Chen
Author: Woon Sau Leung
Author: Wei Song
Author: Marc Goergen

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