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

Chen, Jie; Leung, Woon Sau; Song, Wei; Goergen, Marc

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.

Citation

Chen, J., Leung, W. S., Song, W., & Goergen, M. (2019). Why female board representation matters: The role of female directors in reducing male CEO overconfidence. Journal of Empirical Finance, 53, 70-90. https://doi.org/10.1016/j.jempfin.2019.06.002

• Journal Article Type: Article
• Acceptance Date: Jun 18, 2019
• Online Publication Date: Jul 3, 2019
• Publication Date: Sep 1, 2019
• Deposit Date: Jul 20, 2021
• Publicly Available Date: Jul 20, 2021
• Journal: Journal of Empirical Finance
• Print ISSN: 0927-5398
• Electronic ISSN: 1879-1727
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 53
• Pages: 70-90
• DOI: https://doi.org/10.1016/j.jempfin.2019.06.002
• Keywords: Economics and Econometrics; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/5809051
• Publisher URL: https://doi.org/10.1016/j.jempfin.2019.06.002
• Additional Information: This article is maintained by: Elsevier; Article Title: Why female board representation matters: The role of female directors in reducing male CEO overconfidence; Journal Title: Journal of Empirical Finance; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jempfin.2019.06.002; Content Type: article; Copyright: © 2019 Elsevier B.V. All rights reserved.