Female executives and directors promote more conservative strategies and business models and less risky financial decisions. It can be argued that females are more cautious – or more conservative and analytical.
These are some of the key results documented in professor Sami Vähämaa’s research projects, which have examined the impact of female leadership on financial decision-making, corporate governance mechanisms, and risk-taking of financial institutions and other firms.
Vähämaa has been studying female leadership from the perspectives of Accounting and Finance since 2007. Previous research in psychology and behavioural economics has shown that there are behavioural differences between women and men, with women often being more cautious and conservative in different types of decision-making situations. For instance, females tend to avoid excessive risk-taking in important financial decisions.
Female executives are needed in the financial industry
Women are still severely underrepresented in the upper echelons of companies. Career paths take female managers more towards support functions rather than executive positions with more business responsibility. There are, though, important changes on the horizon.
A decade ago the situation was startling – there wasn’t a single female CEO in Finnish publicly-listed companies and only about 15 percent of board members were women.
This has changed over the last few years. Now more and more listed companies have female CEOs and female representation on corporate boards has risen to 30 percent. In the near-term future, the share of female directors will rise even more in Finland, as the European Parliament approved a new directive in November 2022. This directive enforces a 40 percent gender quota on the boards of listed companies in the European Union by 2026.
– Increasing the number of females in leadership positions is a good thing. Firms led by female executives are often more financially stable and less risky than firms run by males or firms with no female board members, says Vähämaa.
More cautious and risk-averse leadership
In his recent research, Vähämaa has focused on female leadership in the banking industry. Among other things, research findings indicate that female-led banks are more conservative, have lower insolvency risk, and are associated with better lending performance and less risky lending decisions.
Research shows that banks with female CEOs hold higher levels of equity capital and are thus also less vulnerable to external shocks and financial market turmoil. For instance, research findings indicate that U.S. banks with female CEOs performed better than male lead banks during the global financial crisis in 2008–2009.
– We have also looked at situations where there is a turnover in bank leadership. A change from a male to a female CEO seems to lead to less risky policies. Overall, we can say that female CEOs bring stability and responsibility to banking.
Female leadership enhances responsibility
According to Vähämaa’s research, female leadership influences not only the financial decisions but also the governance mechanisms of banks. In a study based on large, global banks, Vähämaa and his co-authors documented that board gender diversity may enhance monitoring and improve the ethical reputation of financial institutions. Taken as a whole, research findings suggest that it can be beneficial for financial institutions and society in general to have female leadership in financial institutions.
The research projects related to female leadership have been conducted in cooperation with several international and domestic scholars during the years 2007-2023. Several scientific articles have been written based on these research projects, and these articles have been cited over 1,500 times in other scientific articles as well as in different reports and policy documents of the European Parliament, the Prime Minister’s Office of Finland, and the Finnish Ministry on Social Affairs and Health. The research projects have been funded by, among others, the Academy of Finland, the OP Group Research Foundation, and the Nasdaq Nordic Foundation