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

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

Journal of Empirical Finance, 2019, vol. 53, issue C, 70-90

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.

Keywords: Female board representation; CEO overconfidence; Investment; Firm performance (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2019
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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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