To Make Investors Happy, Hire a Woman as CFO?

New research suggests that certain actions by companies create more shareholder value when a woman, not a man, is at the finance helm.

What are the ideal qualities a company should look for in a CFO candidate? A born leader with high integrity and sharp vision, who is technically meticulous and can steadily navigate the capital markets. Oh, yes, and the company might be better off if it chooses a woman.

Now, hang on, no one is saying that women make better CFOs than men — or vice versa.

But a new research study says investors appear to respond more favorably to certain financial moves by companies whose CFOs are women. The unpublished study, co-written by a Boston College assistant professor and a Ph.D. candidate at the school, purports to show that the stock market reacts more favorably to both acquisition announcements and secondary equity offerings made by companies whose finance function is run by women.

The professor, Darren Kisgen, told he believes his is among the first academic studies to explore the issue of corporate finance performance by gender. Until relatively recently, he noted, there were not enough women CFOs to create a statistically meaningful sample. In fact, Kisgen and his co-author, Jiekun Huang, were also interested in studying the differences between male and female CEOs, but there were far too few of the latter.

To perform their study, titled simply “Gender and Corporate Finance,” the researchers compiled a list of 73 large U.S. public companies at which women succeeded male CFOs between 1996 and 2002 and stayed in the job for at least four years. They compared various actions taken by those companies, and results of those actions, against a random sample ofabout 500 firms where a man succeeded a man.

One result was that over the three years following the year of the CFO’s hiring, the total growth in assets was 17 percent lower at the companies with women CFOs. That, plus various other tests performed, clearly showed that these companies made fewer acquisitions, according to Kisgen. (Technically, the measure used was not number of acquisitions, but total dollar amount of acquisitions as a percentage of assets.)

However, the evidence showed that the deals that did get made were of higher quality, at least in terms of investor response. Specifically, the stock-price reaction to acquisitions was approximately 2 percent better when women were running the finance department.

The authors also say women seemed to have an edge when it came to making secondary equity offerings. There, too, the market reaction was about 2 percent better for companies where a woman was in charge of finance.

Is a 2 percent difference for a 73-company sample significant? According to Kisgen, it is. Standard statistical tests, he said, showed that the finance and gender study had a statistical significance of 5 percent — or in other words, a 95 percent confidence level that the results were not the product of random distribution of events, but rather of the controlled variable (female versus male CFOs).

More importantly, when a large company (all of those in the studied samples had book assets greater than $500 million) gets a 2 percent better equity return on an acquisition or stock issuance, “we’re talking about a substantial amount of dollars,” Kisgen pointed out.

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