Gender effects on investment efficiency in European firms

What the paper says

Purpose This study aims to investigate whether the presence of women in three senior positions – chairperson, chief executive officer (CEO) and chief financial officer (CFO) – improves or impairs corporate investment efficiency in European listed firms. It also examines whether any gender effect differs between over- and under-investment and during the 2012 sovereign-debt crisis. Design/methodology/approach Using 11,730 firm-year observations from 14 EU countries (2012–2018), the paper models expected investment with a modified Biddle et al. (2009) specification and measures inefficiency as the absolute residual (positive = over-investment; negative = under-investment). Panel regressions with industry- and year-fixed effects relate inefficiency to gender dummies for chairperson, CEO and CFO and a crisis interaction. Robustness checks exclude French firms, add equity-ownership dummies and track year-to-year gender changes. Findings Women in executive roles enhance investment efficiency: a female CEO significantly reduces both over- and under-investment. In contrast, a female chairperson (non-executive) is associated with lower efficiency, driven by a propensity to over-invest. Gender effects are stronger for over-investment than under-investment, supporting the view that female executives curb empire-building incentives. During the 2012 crisis the presence of women in top management is linked to higher inefficiency, suggesting crisis-specific constraints may offset their normally positive influence. All results remain robust to alternative samples, equity-ownership splits and gender-turnover tests. Research limitations/implications The relatively small proportion of female top managers (approximately 3%–6%) limits statistical power and external validity. Results cover European Union (EU) firms in 2012–2018; effects may differ in other regions or regulatory settings. Practical implications Regulators and boards aiming for better capital allocation may achieve more by promoting gender diversity in executive, rather than purely supervisory, posts. Quotas that focus only on-board seats risk unintended efficiency losses if women are channelled mainly into non-executive roles. Social implications Demonstrating performance benefits from female executives reinforces the business case for dismantling barriers to women’s career progression and supports EU policy initiatives to widen the talent pool. Originality/value To the best of the authors’ knowledge, this is the first large-scale European evidence that distinguishes between executive and non-executive female leadership when linking gender diversity to investment efficiency and that separately analyses over- versus under-investment and crisis periods.