'Having women on the board results better acquisition and investment decisions and in less aggressive risk-taking, yielding benefits for shareholders.' Via HarvardBiz
than male directors because they do not belong to old-boy networks. So a board with female directors might be more likely to challenge the CEO and push him to consider a wider range of options, as well as pros and cons, when making strategic firm decisions. This could then attenuate CEO overconfidence and correct for potentially biased beliefs.
To assess overconfidence, we looked at CEOs’ option-exercise behavior. Unlike corporate decisions that reflect top management’s collective beliefs , the personal choice of holding or exercising vested options is likely to reveal a CEO’s individual beliefs and confidence about the company. We estimated CEOs’ level of overconfidence by calculating the “moneyness” of their stock option portfolios, or how much the stock price exceeds the exercise price for each year.
To further examine how female board members affect firm performance, we looked at differences in accounting and stock performance for 516 firms during the financial crisis of 2007 to 2009. We expected CEO overconfidence to, as it might have led CEOs to pursue aggressive strategies that made their firms more vulnerable. But because female directors might be more likely to temper these CEOs’ behavior, we expected to see better performance during the crisis for firms with female directors.
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