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Gender diversity and credit risk: the impact of female leaders in times of financial uncertainty

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New research from Henley Business School reveals that women tend to succeed men in leadership positions when a firm is at high risk of defaulting and the chances of success are low, contributing to research around the 'glass cliff' theory.

The research led by Dr Miriam Marra, Associate Professor of Finance at the ICMA Centre, finds that while new female CEOs and CFOs often reverse the fortunes of firms that are struggling, this isn’t the case among new female board directors.

Researchers looked at corporate credit risk while testing the effect of female leaders on organisations, exploring the expectations of creditors, shareholders and major stakeholders rather than simply short-term stock performance. They found women are more likely than men to emphasise non-financial performance measures in favour of equity and innovation – things that are valuable in the medium and longer term.

Therefore, in times of heightened credit risk and financial turmoil, organisations closer to default are more likely to appoint a female CEO or CFO. These companies then see their credit risk fall, and return to financial stability.

This 'glass cliff' theory however doesn't really apply to female non-executives. In difficult financial situations, companies rarely appoint women directors to their boards, and where they do, the financial situation of the company actually deteriorates, increasing the likelihood of default over the next one to three years.

The research provides explanations for this: while boards exert significant influence over corporate strategy and governance, it is CEOs and CFOs who are responsible for the design and implementation of policy and practices.

'Tokenism' is another likely explanation as boards appoint female directors to fill an EDI quota, without properly considering how their experience and expertise might contribute to shareholder value.

The researchers warn that poorly-thought-through appointments - at the executive or non-executive level - threaten the progress of much-needed gender diversity at the top of organisations.

Dr Miriam Marra

Associate Professor of Finance, ICMA Centre
Published 15 October 2023
Henley news Leading insights

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