Are female executives more risk-averse than male executives?

Table 3 reports the findings of the regressions for the sample of female executives and the randomly selected sample of male executives. The results for these smaller sub-samples are similar to those reported in Table 2 although the intensity of stock sales appears to be higher. In Panel A, the [[beta].sub.1] value of -0.779 indicates that the executives sell 779 shares in response to 1,000 new stock options. In Panel B, the [[beta].sub.1] value is -1.072 indicating that the high-ownership executives sell 1,072 shares for every 1,000 stock options they receive. The findings on gender in Panel C show that the male executives sell shares more than the female executives--they sell 867 shares ([[beta].sub.1] = -0.867) for every 1,000 new stock options while the female executives sell 220 shares ([[beta].sub.2] = -0.220) for every 1,000 new stock options. The findings in Panel D show that the high-ownership male executives sell 1,238 shares ([[beta].sub.1] = -1.238) per 1,000 new stock options and the high-ownership female executives sell 247 shares ([[beta].sub.3] = -0.247) per 1,000 new stock options.

Conclusions

Are female executives more risk averse than male executives? In this paper, the authors consider this issue by examining the portfolio adjustment behavior of male and female executives in response to new stock option awards. Selling stocks to reduce the risk of the personal portfolio indicates that the executive is risk averse. The hypothesis is drawn from prior empirical evidence that females take less risk than males in their financial decisions. It is predicted that the risk-averse female executives would sell more shares than their male counterparts. The findings are contrary to this prediction, however. The study finds that the female executives sell fewer shares than the male executives once new stock options are granted. This is true even after controlling for the ownership levels. Hence, female executives do not exhibit higher risk aversion than male executives.

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

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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.

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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. TABLE 1 Descriptive Statistics for the Full Sample and Randomly Selected Smaller Sample of Male Executives

Male Executives Variables N Mean Median SD Panel A: Full Sample Changes in shares 35,428 -7.19 1.18 Executive ownership (%) 36,592 0.805 (a) 0.066 (g) New stock options 59,489 136.15 (b) 40.50 (g) Option exercise 22,826 126,903 29.63 (g) New Restricted shares 14,596 37.13 7.40 (g) Salary and bonus 67,004 596.91 (c) 395.10 (g) Panel B: Randomly Selected Smaller Sample of Male Executives Changes in shares 1,483 -38.19 1.14 Executive ownership (%) 1,528 0.647 (c) 0.062 (g) New stock options 2,462 139.56 40.21 (g) Option exercise 965 148.68 29.00 (g) New Restricted shares 573 43.11 6.94 (f) Salary and bonus 2,763 599.83 (c) 402.22 (g)

Female Executives Variables N Mean Median SD Panel A: Full Sample Changes in shares 1,018 -7.13 0.79 Executive ownership (%) 1,061 0.376 0.028 New stock options 2,503 111.52 35.00 Option exercise 760 117.48 20.38 New Restricted shares 640 38.14 5.76 Salary and bonus 2,763 407.56 295.00 Panel B: Randomly Selected Smaller Sample of Male Executives Changes in shares Executive ownership (%) New stock options Option exercise New Restricted shares Salary and bonus Variables are in thousand except Executive ownership (%). (a)(b), and (c) denote significant difference in mean values between male and female executives at the 10%, 5%, and 1% levels, respectively. (f), and (g) denote significant difference in median values between male and female executives at the 5%, and 1% levels, respectively. TABLE 2 Executive Gender, Share Ownership, and Change in Shares Owned in Response to Stock Option Awards for the Full Sample of Firms

[H.sub.0]: