Financial constraints and the executive gender gap

February 1, 2022

This paper investigates how financing constraints following the 2008-9 financial crisis affected executive pay and the gender pay-gap of executives, as well as the share of females in executive positions. The paper uses employer-employee data for Portugal, and exploits pre-crisis variation in external finance dependence across industries to estimate the differential effect of the crisis for more exposed firms - which relied more on external finance - relative to other firms.

The paper finds that female executives’ short-term compensation (salary and bonus) increased after the crisis in firms with higher pre-crisis dependence on external finance relative to less financially constrained ones, contributing to a reduction of the gender pay-gap. The reduction in the gender pay-gap is observed mainly for top executives, who are responsible for the firms’ general policy and strategy.

In addition, the paper finds that the share of females in executive positions increased after the crisis in financially more vulnerable firms, after controlling for firms’ characteristics and global trends. Females in exposed industries are more likely to be promoted to executive and less likely to be demoted. These findings show that the crisis also contributed to increase female representation in executive positions.

Finally, firms with a larger share of female managers were less negatively affected by the crisis, consistent with evidence that female leadership is positively correlated with firm performance.

Executive compensation structure, and excessive risk-taking during the financial crisis, is frequently cited as having contributed to the crisis. The findings in this paper suggest that firms in more financially vulnerable industries, which needed to perform better, valued more highly female executive characteristics, perhaps their attitudes towards risk, for handling the post-crisis environment. A reduction in costly discrimination induced by the challenging economic environment cannot be discounted.

Click here to go to the paper by Ana P. Fernandes and Priscila Ferreira.


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