Risky Business

Risky Business

Female board directors hedge their bets before going all in

By Robin Roberts

 

Female contestants on game show Wheel of Fortune have no qualms about risking their loot to take the 50/50 chance they’ll win big if they land on the “Bankrupt or $10,000” wedge, but they’re not so hasty wheeling and dealing in business. They demand better odds of a higher return on investment, and that makes them worthy competitors in the world of finance, according to a new study out of UBC’s Sauder School of Business.

“The prudence exhibited by women directors in negotiating mergers and acquisitions has had a substantially positive effect on maintaining firm value,” stated Sauder finance professor Kai Li, who co-authored the study. “Female board members play a significant role in mitigating the empire–building tendency of CEOs through the acquisition of other companies.”

In fact, the more women on board the less a company pays for its acquisitions – as much as 15.4 percent less. Not only that, the number of a company’s takeover bids dips by 7.6 percent with each additional female director at the table.

Care to solve the puzzle, Professor Li? “Our argument is that women are less overconfident than men,” Li tells Connected. “As such, when assessing a firm to pursue, women will under–estimate the future cash flows and/or put a higher discount rate leading to a lower valuation of the firm.”

Some analysts suggest another reason they’re good at the game is because women, usually a family’s primary caregiver and decision-maker in household matters, are more cognizant of the repercussions of risky business on those around them.

“This finding adds fire and force to recent calls to mandate a minimum number of women on the boards of publicly traded companies,” said Professor Li. Sounds like a winning proposition.