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The University of Mannheim finance professor has found that managers’ genders meaningfully impact their investment flows—but not their performance. Based on a preliminary study, Niessen-Ruenzi believes she can gather the evidence to prove women managers deserve equal pay and equal work.
“Investors tend to shy away from female fund managers. If you look at US equities funds, you find that investors put in about 10% less if a fund is run by a woman. This has nothing to do with skill. We can compare the returns and alphas of each fund, and have not found any differences between the performance of men and women. Rather than gender being a proxy for skill in this industry, we think it’s some type of taste-based discrimination.
The motivation for these studies came from the observation there are very few women in top management positions—particularly in the finance industry. The bottom line of all of this is that there is no reason to believe that female fund managers do a worse job.
There is a very famous study of online brokerage data, and they find that women are indeed more risk-averse. But this is the case for retail investors; we looked at professional money managers. It does not translate to professional setting like a mutual fund industry. What we do find is that male managers are more likely to end up on the extreme performance ranges—either extremely good or extremely bad. But this levels out in the averages. Men also tend to trade more, which hurts their performance. Generally, investors prefer consistent managers, in both performance and investment style. We find women managers are much more stable and persistent than male managers. If you buy a growth fund, for example, you can be more confident that it will still be a growth fund in a year if it’s managed by a woman rather than a man.
Index funds are perfect substitutes: You should always pick the cheaper index. Our study found that people still prefer to invest with a male investor, and they are willing to pay more to do so. Then you’re in a situation when you can argue that gender bias hurts investors. But this is experimental evidence. We need more research from the field to show that gender bias is real and is costly to investors.
How about board diversity? Does it really enhance corporate governance? It’s a hot topic right now. We have to see what we find in the long term, but current research does not suggest that adding women to a board will have a positive impact on performance. Interestingly, we do see some improvements in meeting attendance. If you have female board members, women themselves are more likely to attend. Male board members are also more likely to show up for meetings if there are women present, but this doesn’t seem to translate into better performance.
Executive compensation and the impact of public perception is another area I’m working on. Do firms react to negative coverage? Stock options, for example, were crucified over the past year. We found that corporations do react to public criticism—but in a way that you might not want them to. The level of pay remains unaffected, but the components of pay change. They decrease the kind of pay that was criticized in the media, but increase other kinds of compensation and it levels out. Media and public outrage might overshoot the mark. We might not achieve what we want by covering these stories in the media, because firms adapt.
I’m always surprised that shareholder proposals on remuneration policies rarely pass. The majority of shareholders still seem to think that the compensation contract that’s in place is the best one—otherwise they wouldn’t vote for it. Institutional investors have more power over corporate governance than they’re actually using. But you also have free-ridership problem: If you’re monitoring a firm, it benefits other shareholders who aren’t paying for it. I think this whole reputational channel—the threat of branding a firm in the media—is much stronger than most investors might think.”