Last week we saw International Women’s Day, a day devoted to the celebration of female achievement.
This weekend sees Mother’s Day, a very mobile feast, which of course celebrates mothers and motherhood.
Perhaps the time then is right to consider what the world of finance has to say about women, and in particular to look at some new research.
The news, gentlemen, is not good: women, qua women, exhibit traits, which whether due to the subtleties of the female brain or due to culture, might well make them better financial operatives. This is not to celebrate naive housewife economics — whether the Swabian or Lincolnshire variety so beloved of Dr Merkel and Mrs Thatcher. It is to realise that women are different.
First, we all know that boys will be boys. In finance this manifests itself as excessive overconfidence by males. Males trade more, they take more risks and consequently we find that, on average, monies managed by males exhibit greater volatility.
Women generally take fewer risks and adopt a more “steady” hand, avoiding excessive trading costs. This extends from trading to corporate activities, where recent evidence suggests that companies run by females engage in less risky activities, with lower merger and acquisition activities, and less debt issue.
Secondly, there have recently emerged a number of papers on women on boards. My research indicates the appointment of women to boards is market-negative.
This makes sense when you consider the earlier findings — female-dominated boards will take fewer risks. Recent DCU research notes that this will result in lower (short run) returns. Changing board structures to mandate more female members, something that I would wholeheartedly support, will thus have shortterm costs.
In the longer term, however, new evidence shows female CFOs obtain loan financing far lower than the average. This shows that while the equity market may penalise the loan market values, this tradeoff of longer-term slower sustainability for short-term returns.
Thus we find that women in financial situations exhibit a greater aversion to taking risk than do men. This finding is not just evident from these “top down” studies, but is also evident when we survey individuals.
Again my own research on Irish adults is in line with international findings. Women show a greater reluctance to take financial risks and this maps to funds managed by women whether on their own behalf or for others.
Females worry more about financial activities than men. Research indicates that women are more selfless and less selfish than men in economic and financial transactions. Thus financial settings where “winner takes all” are more likely to be attractive to and dominated by men. The testosterone driven “you eat what you kill” attitude of investment banking and trading rooms is thus the natural environment of men, but of course this as we know comes at the cost of overconfidence and excessive risk taking.
Boys will be boys. In more social financial situations, such as startups and venture capital situations where success is inherently to be shared, we find as we do that more balanced gender in the investing groups has a major effect. A caveat however is that this depends very significantly on social capital.
While women and men may have similar levels of social capital, important in areas such as financial analysts and venture capital, women gain less from this than men. There is some evidence, quell surprise, that there is discrimination against women in the financial industry.
Female fund managers, despite having almost more consistent performance than males attract lower inflows; this prejudice also follows through to “foreign sounding” names it should be noted. Women can indulge in a touch of Schadenfreude, however as startups with higher degrees of gender discrimination show markedly lower survival rates, while the higher the percentage of females in first hires the greater the likelihood of success.
The bottom line then is that for short-term gains, more males are optimal, while for long term consistent but per period lower returns, more female. The implications are clear for organisations such as pension funds versus trading houses, and for companies with different time horizons in terms of corporate strategy.
— Brian M Lucey is professor of finance at TCD and managing director of Ussher Executive Education
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