• Female CEOs are more debt averse than male CEOs, reveals new research from Durham University Business School
• Nowadays, debt is rampant and is becoming more expensive and more dangerous for companies
• In that case, should companies hire more female CEOs?

Debt can be a bosom pal to business. Companies can use it to supercharge production, buy resources that facilitate growth, and overtake competitors. It can be an aid to companies, but it can also sink them. From mom-and-pop stores to big banks, many have fallen, overburdened by debt. In the UK alone, almost 50,000 companies are thought to be in “critical” financial distress right now. If the majority of these very-in-danger companies fail, then the UK could see double the usual yearly number of insolvencies. On top of this, 539,900 UK businesses are now in “significant” financial distress. The Bank of England’s base interest rates remain high at 5.25pc. It is a dire picture, debt-wise.

And the 2008 crash? That was debt (all those subprime mortgages), which grew into a debt crisis and then a full-blown financial crisis. Debt took out the Lehman Brothers, the fourth-largest investment bank in the USA, which had been operational for 158 years.

Most of us are in debt all of the time: to banks, companies, the government, each other. Protesters have decried the modern condition of constant indebtedness. The Occupy protests of the 2010s raged against generalised unhappiness caused by sky-high consumer debt in the form of mortgages, student loans, and credit card charges.

During the past decade and change, though, business has enjoyed cheap money and ultra-low interest rates, and there was a lot of borrowing. The recent rapid rise in global interest rates has turned this debt into a liability. Many companies are now deathly – and rightly – worried about ruinous interest rate repayments and defaulting on high debt loads.

Female CEOs are debt-averse

With so many “paper promises” underwriting companies, and the end of the era of cheap money, it may be heartening to hear that half of the population is rather suspicious of debt.

New research conducted by Dr Yeqin Zeng, Professor of Economics at Durham University Business School, has found that female CEOs are more debt averse than male CEOs.

Dr Zeng, alongside a team of researchers, utilised data from S&P 1500 companies during the period 1993-2021, dynamic years encompassing the bursting of the dotcom bubble (2000-2002), the global financial crisis (2007-2008), and the COVID-19 pandemic (2020-2021).

The Durham University Business School research argues that women are often more risk-averse than their male counterparts and are less likely to get the company into financial difficulty.

This significant finding, that female CEOs issue less company debt than male CEOs, has great relevance and importance in our era of historically high debt, and presents a strong argument for more female CEOs at a time when the costs of servicing that debt are skyrocketing.

CEOs: younger vs older?

Younger CEOs, the research suggests, are more likely to accrue more extreme debts when compared to older CEOs because the potential rewards for risk-taking are higher. Male CEOs are more likely to take dicey chances due to the potential for a higher reward, while female CEOs are less likely to take the chances.

High debt loads are a risk a number of male CEOs took in the era of cheap money, and their decisions will wreck companies in the coming months and years.

Could we see an increase in female CEOs?

The results of the study are great news for companies with female CEOs. Debt-averse female CEOs can ensure that a company gets the most bang for its buck and keeps its debt burden low. If companies, finding themselves overexposed to debt repayments, switched to female CEOs, they may not be looking at a company ailing with debt servicing, failure, and bankruptcy, and instead at a healthy amount of debt, and a healthy company.

“Over the past 20 years we’ve seen an increase from just 0.5% of CEOs in the S&P 1500 being women, to 7% in 2021,” says Dr Zeng. “Clearly it is a positive that the gender split of CEOs is on the up, but it makes for interesting new challenges for firms when they look at how their company is structured and performs. Our findings show that typically, female CEOs are less likely to get the company in debt, whilst men are more likely to be riskier CEOs”.

The findings build on research suggesting that CEOs can evince gender-specific differences in their risk, social, and competitive preferences. A corollary finding is that gender differences continue to exist in CEOs even though both male and female CEOs tend to be very well-educated and have substantial work experience.

The research suggests that a CEO’s gender affects the behaviour of a company regarding decision-making on corporate debt borrowing in a non-trivial manner. These findings should give pause to any company that is looking to hire a CEO. As the era of cheap and easy money comes to a close and the costs of debt spiral out, we may ­- and, of course, should – see more female CEOs appointed to helm companies.

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