Companies with female CFOs secure lower bank-loan prices, according to a new study from Rensselaer Polytechnic Institute (RPI). The research looked at a sample of companies from the S&P 1500 over more than 10 years and found that firms where a woman was CFO scored 11% lower bank-loan prices than those with male finance chiefs. Among the sample, women also won loans with longer maturities and were less frequently required to provide collateral.
The study’s authors say women CFOs may have more luck with bank loans because they tend to be more risk-averse, and banks know it. Their research builds upon earlier studies showing that companies with female CFOs tend to use more conservative accounting policies and issue debt less frequently than companies with male CFOs.
Banks often factor in the dependability of accounting information when assessing credit risk, and they usually get to know companies and their top officers well before doling out loans, says Qiang Wu, an assistant professor at RPI and co-author of the new study. As a result, banks may “recognize that females could prevent risk-taking behavior and the trouble made by male executives,” such as those behind the financial scandals that spurred the Sarbanes-Oxley Act and the excessive risk-taking by financial institutions that sunk the economy in 2008, Wu says.
There are far fewer female CFOs than male CFOs in the S&P 1500, with women serving as the top finance executive at only 104 companies by 2006, the end of the period covered by the study. At the beginning of the study period, in 1994, there were only 4 female CFOs in the group.
To overcome that disparity, the researchers used a series of robustness tests, including a method that compared the average loan price among the companies with female CFOs with the average within a group of 100 similar companies led by men. They also tracked changes in loan prices after male CFOs left companies and women took their place. Further, the study controlled for various firm and loan characteristics that might influence the terms of loan contracts. In each case, the results suggested “that female CFOs bring about, and not merely reflect, a reduced bank loan price and more favorable non-price loan terms,” the authors wrote.
The results may also say something about the way banks view the CFO role, the researchers say. The gender of CEOs and other top executives did not have the same effect on loan contract terms as did the gender of CFOs. That suggests banks may view CFOs as the key risk factor in lending decisions, they say.
In 2009 CFO reported on a study that concluded the stock markets react more favorably to both acquisition announcements and secondary equity offerings made by companies with female CFOs.