Are female executives more risk-averse than male executives?(Author abstract)(Report)

There can be several explanations for the inconsistent findings. Male executives may sell more shares because they trade more often than women. (2) Also, an individual's risk-taking propensity may depend on other attributes such as marital status [Sunden and Surette, 1998; Bernasek and Shwiff, 2001] and age [Lewellen et al., 1977]. For example, a female executive's decision to hold risky portfolio may not only depend on her attitude towards risk but her partner's attitude towards risk or some combination. (3)

One important implication of the findings of this study is that the board of directors may consider awarding incentive-based compensation such as stock options based on gender. Since the female executives are likely to sell fewer shares in response to new options, they should be given more stock options than the male executives. For the male executives, stock option award appears to be an ineffective mechanism to increase stock ownership and reduce agency conflict between the managers and the shareholders. Other types of corporate governance mechanisms (e.g., board composition) may be more appropriate for the male executives.

References

Atkinson, Stanley M.; Baird, Samantha B.; Frye, Melissa B. "Do Female Mutual Fund Managers Manage Funds Differently?" Journal of Financial Research, 26, Spring 2003, pp. 1-18.

Bajtelsmit, Vickie L.; VanDerhei, J. A. "Risk Aversion and Retirement Income Adequacy," in Positioning Pensions for the Twenty-first Century, M. S. Gordon, O. S. Mitchell, M. M. Twinney (eds.), Philadelphia: University of Pennsylvania, 1997, pp. 45-66.

Bajtelsmit, Vickie L.; Bernasek, Alexandra; Jianakoplos, Nancy A. "'Gender Differences in Defined Contribution Pension Decisions," Financial Services Review, 8, 1999, pp. 1-10.

Barber, Brad M.; Odean, Terrance. "Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, 55, April 2000, pp. 773-806.

Bernasek, Alexandra; Shwiff, Stephanie. "Gender, Risk, and Retirement," Journal of Economic Issues, 35, June 2001, pp. 345-56.

Bliss, Richard T.; Potter, Mark E. "Mutual Fund Managers: Does Gender Matter?" Journal of Business and Economic Studies, 8, Spring 2002, pp. 1-15.

Hersch, Joni. "Smoking, Seat Belts, and Other Risky Consumer Decisions: Differences by Gender and Race," Managcrial and Decision Economics, 17, September/October 1996, pp. 471-81.

Jianakoplos, Nancy A.; Bernasek, Alexandra. "Are Women More Risk Averse?" Economic Inquiry, 36, October 1998, pp. 620-30.

Lewellen, Wilber G.; Lease, Ronald C.; Schlarbaum, Gary. "Patterns of Investment Strategy and Behavior Among Individual Investors," Journal of Business, 50, July 1977, pp. 296-333.

Masters, Robert; Meier, Robert. "'Sex Differences and Risk-Taking Propensity of Entrepreneurs," Journal of Small Business Management, 26, January 1988, pp. 31-5.

Ofek, E.; Yermack, D. "Taking Stock: Equity-Based Compensation and the Evolution of Managerial Ownership," Journal of Finance, 55, June 2000, pp. 1367-84.

Pacula, Rosalie L. "'Women and Substance Use: Are Women Less Susceptible to Addiction?" The American Economic Review, 87, May 1997, pp. 454-9.

Powell, Melanie; Ansic, David. "Gender Differences in Risk Behavior in Financial Decision-Making: An Experimental Analysis," Journal of Economic Psychology, 18, November 1997, pp. 605-29.

Schubert, Renate; Brown, Martin; Gysler, Matthias; Brachinger, Hans Wolfgang. "Financial Decision-Making: Are Women Really More Risk-Averse," American Economic Review, 89, May 1999, pp. 381-5.

Sexton, Donald L.; Bowman-Upton, Nancy. "Female and Male Entrepreneurs: Psychological Characteristics and Their Role in Gender-Related Discrimination," Journal of Business Venturing, 5, January 1990, pp. 29-37.

Sunden, Annika E.; Surette, Brian J. "Gender Differences in the Allocation of Assets in Retirement Savings Plans," American Economic Review, 88, May 1998, pp. 207-11.

ZAHID IQBAL *, SEWON O *, AND H. YOUNG BAEK **

* Texas Southern University and ** Nova Southeastern University--U.S.A.

Footnotes

(1) Contrary to the findings reported in these studies, a few other studies observe that females seek same or higher risk than men in their financial decisions. Schubert et al. [1999] find no gender differences in risk attitudes when identical investment and insurance decisions are presented to the respondents. Bliss and Potter [2002] find evidence that women fund managers hold portfolios with marginally more risk than men. Atkinson et al. [2003] observe that male- and female-managed funds do not differ significantly in taking risk. In Masters and Meir's [1988] study, no differences were found in the risk-taking propensity of male versus female entrepreneurs.

(2) See Lewellen et al. [1977] for evidence that males trade more frequently than females.

(3) Although the authors are aware that marital status should be a control variable, they are unable to include it in the regression model because Standard and Poors ExecuComp database does not report this data. Alternatively, hand-collecting marital status data from a different source will be extremely tedious for the samples that involve thousands of cases.

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