Academic journal article Academy of Accounting and Financial Studies Journal

Female Leadership in Banking and Bank Risk

Academic journal article Academy of Accounting and Financial Studies Journal

Female Leadership in Banking and Bank Risk

Article excerpt

INTRODUCTION

Does gender matter in banking? In a 2014 article in American Banker magazine, Editor in Chief Heather Landy lamented the decline in female CEOs of banks with assets of more than $10 billion. Of the nearly 100 bank holding companies of this size, there were only five female CEOs in 2011 and the article projected that this number would decline to two female CEOs by the end of 2014. Data from Catalyst, a non-profit organization dedicated to expanding opportunities for women and business, shows that the percentage of female directors and female executive officers in the finance and insurance industry among the Fortune 500 companies has recently decreased after initially increasing in the aftermath of the financial crisis. The percentage of female directors increased from 16.1% in 2007 to 19% in 2012and then decreased to 17.9% in 2013. The percentage of female executive officers increased from 16.6% in 2007 to 19.1% in 2010and then decreased to 17.6% by 2013. Data from the Bureau of Labour Statistics show that the percentage of women employed in the banking industry has fallen from 68.4% in 2004 to 61.9% in 2015.

The purpose of this research is to examine the impact that female bank executives and female board members have on bank risk, as measured by the variability of the bank's monthly stock return. On the one hand, shareholders want managers to maximize the value of their equity. On the other hand, managers are given incentives and hence have motivation to take risks. However, committees of all publicly-traded companies are required to follow strict regulations as a result of the Sarbanes-Oxley Act (SOX) of 2002 (U.S. House of Representatives 2002). The SOX legislation includes specific requirements for corporate governance, such as the independence of board members and financial expertise on the audit committee. As a result, high quality boards are tasked with constraining excessive risk-taking that benefits management at the expense of shareholders (Sun and Liu 2014). In the aftermath of the global financial crisis, there were calls for greater representation of women in the upper echelons of banking and finance since it is perceived that women would not have made the risky gambles that led to the crisis (Sunderland 2009).

Given the reported challenges of women leaders in the banking industry and the possibility of their untapped potential in managing bank risk, we need to examine the impact of women leaders on the banking industry as it moves forward. Our study analyses the impact of gender in executive and board positions over the time period 2003 to 2011. We selected this time period because any specific committee memberships would reflect the rules defined under the Sarbanes-Oxley legislation and also to be able to consider the effect of the global financial crisis. If the board committees have an important role in monitoring firm performance in order to reduce risk, especially after the SOX legislation, then how do women contribute to the management of risk?

Our research makes two major contributions to the literature on women and bank risk. First, we examine women's roles in executive and board positions separately. Our findings provide empirical evidence that highlights contradictions on women's risk aversion in prior studies (Byrnes et al. 1999; Croson and Gneezy 2009; Adams and Funk 2012). Specifically, we look at the percentage of women leaders, in executive positions and as board members and the percentage of women directors on the audit and the corporate governance committees for our sample of banks during this time period. We chose to examine the audit and corporate governance committees because they are key committees for boards to have and because they have a monitoring role over bank risk. Second, we examine the impact of female directors who are members of the board of directors during the financial crisis.

The remainder of the paper proceeds as follows. Section 2 provides a literature review and hypotheses. …

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