Investors don't trust women, WUSTL study finds

Male-owned firms attract more investment dollars, despite proven success of female CEOs
By Shula Neuman

The evidence of women's success in the corporate world is plentiful: 40 percent of businesses in the U.S. are female owned; 20 million people are employed by female-owned businesses; firms with women in top management positions often out-perform companies that have few or no women in top level jobs.

But two professors from the Olin School of Business at Washington University in St. Louis wondered whether women's evident prowess in business is something that most people generally recognize when making investment decisions. Their conclusion: perceptions of female business leaders aren't keeping up with reality.

Lyda Bigelow, assistant professor of organization and strategy, and Judi McLean Parks, the Reuben C. and Anne Carpenter Taylor Professor of Organizational Behavior, found that investors were overwhelmingly inclined to favor firms run by males over female-run firms.

After constructing a prospectus for a company that was purported to be going public, Bigelow and McLean Parks distributed the document along with the CEO's bio to people educated in business finance, and asked them if they would consider investing in the company.

The company outlined in the prospectus, as well as the qualifications of the CEO, were nearly identical except half the participants received a bio of a female CEO and the other half of a male CEO.

"What we found is that the CEO's sex affected just about everything," said McLean Parks. "We asked what percent of their investment money they'd put into the firm. It was astonishing. Participants were willing to invest 300 percent more in a firm run by a male than in a firm run by a female."

When asked about compensation, respondents said they would pay the female CEO only 86 percent of the amount they would pay the male doppelganger.

Judi McLean Parks

Judi McLean Parks

"The thing that surprised me about these findings is that the participants were given identical materials. The only thing that changed were the name and gender of the CEO and with that, you get astonishingly different reactions," said Bigelow.

The response to female CEOs was reflected in more than just fiscal decisions, the researchers found. Overall, the female CEOs were evaluated more harshly in a variety of ways. Despite identical resumes, participants indicated that the female CEO in the fabricated company:

• Had significantly less leadership experience.

• Would be less able to resolve a deadlock on the board of directors.

• Would be less able to handle a crisis.

• Was less competent.

• Would be a less favorable representative of the company in the eyes of the public.

Latent biases

Participants also indicated that firms run by a female would be riskier investments than firms run by a male and that the top management team would have more conflict under a female CEO.

"What the basic model showed was that the CEO's sex had a direct effect on the attractiveness of the IPO," said McLean Parks. "By making stereotypical assumptions about her capabilities, the IPO became less attractive. Which means that female-led firms hoping to go public will have a much harder time finding backers, even though research indicates that the chances for success are just as likely — if not more likely — than a company run by a male."

Bigelow and McLean Parks found that both male and female participants held a less favorable view of women CEOs, but women judged the female CEO less harshly than men did. Both men and women had a kinder opinion of the CEOs of their own sex, yet women CEOs still fared worse than men.

"The questions we asked revealed some latent biases," Bigelow said. "I'm sure people don't consciously say, 'Oh, she's a woman therefore she's not a good leader.' But people did reveal biases they might not have known they had. When we compared the biases to see if they were based on reality, we found that they weren't. Research suggests that when there are many women in senior management, firms tend to do better."

There's no way to prove that women-run firms perform better expressly because they are run by a woman, Bigelow and McLean Parks said. However, firms that are open to non-traditional models of leadership probably make better use of their human resources, enhancing all employees' performance as well as the success of the company.

The findings may appear bleak at first blush, said McLean Parks, "but the good news is that women are continuing to work in organizations and pursue entrepreneurial ventures. They just may have a hard time getting the financing they need to launch new ventures or make capital improvements. But women are out there, and sooner or later the evidence of their success may start changing people's latent biases."

Judi McLean Parks
Reuben C. and Anne Carpenter Taylor Professor of Organizational Behavior, Olin Business School
(314) 935-7451