Women in Finance Renée Adams University of New South Wales
"If it had been Lehman Sisters, I'm sure it wouldn't have ended with the same debts. " (Neelie Kroes, European Union Commissioner for Competition at the British Bankers Assoc. meeting, FT July 1, 2009) " My clear line is that if Lehman Brothers had been 'Lehman Sisters,' would the crisis have happened like it did? No. Generally, women have a better ear to listen, and they are less likely to pretend to know everything themselves. They are team players with less ego ," (Neelie Kroes, August 19, 2009) 2
" The “Lehman Sisters” fancy assumes that women are less risk-taking, less obsessed with money and status and generally less full of themselves than men, and so would have had more sense than to respond to the flawed incentives that brought down the financial system. " (The Economist, August 6 th , 2009) 3
How important is this idea? Michel Barnier, Europe's internal markets commissioner, wants to impose mandatory quotas to dictate the number of women sitting on bank boards The EU recently added quotas for the underrepresented gender in the management body to new capital requirement directives for banks (e.g. Haslett, 2013) 4
Two Questions • Are women relatively underrepresented in Finance? • Is the assumption underlying the “Lehman Sisters” hypothesis (women are more risk - averse) true? 5
Some perspective: Women on bank boards Banks and Matched Samples of Non-financial Firms in Boardex and Riskmetrics 321 banks in Boardex and the 192 banks in Riskmetrics who have at least 4 years of data and their corresponding matches with industrial firms. 15 Average % Women on Boards 13 11 9 7 1995 1997 1999 2001 2003 2005 2007 2009 Year RM Non-banks RM Banks BX Non-banks BX Banks 6
Are female directors more risk-averse? • Adams and Funk (2012) show that generalizing from samples of students to women in the boardroom is problematic 7
The importance of selection! • Women who choose a career path leading to a directorship are unlikely to be the same as the women in the experiments – Costs of choosing a high-profile career are particularly high for women – Women who bear these costs may be risk seekers 8
Selection may be particularly important for banks… • Both for outside directors and inside directors • Some evidence from Chicago MBAs – Measures of testosterone and risk-aversion from Sapienza et al. (2009) – Measure of whether choose a finance career – Only about 36% of female MBA students choose a risky career in finance (e.g., investment banking or trading), whereas 57% of male students do so 9
Risk Aversion and Gender Full Sample Finance = 1 Finance = 0 Men Mean Mean Mean Diff Risk Aversion 12.69 12.70 14.18 -1.48 Testosterone (pg/ml) 100.91 100.86 98.58 2.28 Baron-Cohen Eye Test 26.60 26.69 26.55 0.14 Average Digit Ratio 0.95 0.95 0.97 -0.02** Women Risk Aversion 20.18 12.62 23.47 -10.85*** Testosterone (pg/ml) 48.72 51.74 44.96 6.78 Baron-Cohen Eye Test 27.31 26.81 27.88 -1.07* Average Digit Ratio 0.97 0.96 0.98 -0.03*** Diff Diff Diff Risk Aversion -7.49*** 0.08 -9.29*** Testosterone (pg/ml) 52.19*** 49.12*** 53.62*** Baron-Cohen Eye Test -0.70** -0.12 -1.33*** Average Digit Ratio -0.02*** -0.004 0.02** 10 Table I
Summary • Women who chose a finance career were significantly different from women who did not – They were less risk-averse and had higher levels of testosterone • Women who chose a finance career were NOT more risk-averse than men who chose a finance career! – If anything, they were LESS risk-averse! 11
Policy implications • Quotas could add value, BUT are unlikely to lead to risk reductions • Barriers to female representation in finance may be larger than elsewhere-there may be room for policy 15 Average % Women on Boards 13 11 9 7 1995 1997 1999 2001 2003 2005 2007 2009 Year RM Non-banks RM Banks BX Non-banks BX Banks 12
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