Are female CFOs more ethical than men?

Warwick Business School
6 min readApr 20, 2021


When financial firms adopt a reckless attitude to risk-taking this behaviour can, at worst, lead to a systemic crisis that threatens to destabilise regional and global economies, as we discovered in the 2008 financial crisis.

Even if systemic contagion is averted, such risk-taking can lead to fraud, firm failure, investor loss and wreak substantial economic damage.

Understandably then, a raft of regulatory and legislative measures have been imposed in the hope of preventing this type of behaviour. The costs of creating, implementing, monitoring and enforcing these measures, both at the firm and industry level, are considerable.

Yet, when it comes to encouraging firm financial decision-making that is more prudent, risk averse and, in terms of outcome, more ethical, our research shows that there is a relatively simple, overlooked and underappreciated step that firms can take — appointing a woman to the Chief Financial Officer role.

According to social psychology research, women’s and men’s attitudes to risk tend to differ; women are more risk-averse. This difference could have important implications for firms with female financial managers if it translates into practice.

However, while accounting and finance literature associates women with less overconfident financial decision-making and lower firm risk (as indicated by leverage, earnings volatility and firm survival), evidence from the banking sector is more mixed.

Together with my colleagues, Mohamed Janahi and Georgios Voulgaris, we set out to investigate gender difference in financial decision-making at a senior level in banks.

As the CFO tends to have the most influence over the organisation’s financial decision-making, we focused on the CFO role. In the US, for example, they are responsible for preventing the manipulation of financial reports and are accountable for financial reporting quality.

At the same time we chose the reporting of the loan loss provision (LLP) item, the amount set aside by lenders to cover future credit losses, to gauge different attitudes to decision-making. The LLP, the largest single item of accrued liabilities (expenses that have been incurred but not billed for yet) is an important reporting item in the sense that it affects bank performance and is an indicator of a bank’s risk level.

It is also one of the biggest discretionary items on a bank’s balance sheet. Most financial reporting, at least from the outside, is very rule driven. But when there is a reasonable degree of discretion involved, as with the LLP, it provides an insight into the decision-making behaviour. How risk-averse or risk-seeking a manager is, for example.

By looking at the ‘timeliness’ of the LLP reporting we can assess how CFOs exercise their discretion. To what extent does the LLP foreshadow bad news or just reflect what is happening right now?

Reporting that is ‘timely’ adopts a broader, more conservative, transparent and forward-looking approach to stating a bank’s LLP position by incorporating bad loans before they become non-performing (a non-performing loan is one where interest and principal payments are at least 90 days late or there is good reason to think they will not be repaid).

It is a better reflection of a bank’s potential risks in terms of future losses compared with a more aggressive accounting approach that only incorporates current non-performing loans. Indeed, banks that failed to report LLP in a timely manner prior to the financial crisis were more likely to fail.

Using data on US banks, covering the period 2007 to 2016, we were able to examine any potential correlation between the approach to LLP reporting and CFO gender. In total, we looked at 2,760 reporting events from 119 banks with an average size of $107 billion.

Our findings show that women CFOs are associated with timelier LLP reporting. We also found a similar but smaller effect linked to gender diverse boards which, combined with a female CFO, amplifies the overall effect.

In addition, given the low numbers of female CFOs in our dataset, we applied a more practical test for causality. We did this by looking for changes in the timeliness of LLP reporting when a male CFO was replaced by a female (versus a male CFO being replaced by another male). The results supported our original findings — appointing a female CFO following a male led to greater timeliness of LLP reporting.

Overall, therefore, women CFOs tend to report the LLP in a way that more accurately reflects the riskiness of the loan portfolios. In this regard they adopt a more conservative, risk-averse and, given the greater transparency, more ethical approach to major financial decision-making than their male counterparts. An approach that suggests they are less likely to engage in managerial opportunism and accounting fraud, for example.

We believe that these results are extendable to banks outside the US, firms in the financial sector and, most likely, organisations more generally in the context of major financial decision-making. And they are increasingly relevant in situations where accounting provisions allow for greater discretion.

The potential implications are wide ranging. Some are quite speculative, some less so. For a start, having a female CFO may offer both reputational and cost advantages. Take, for example, legal regimes where there are onerous obligations relating to directors’ accountability for the accuracy of financial statements, as with the Sarbanes-Oxley Act in the US.

It is not difficult to see a situation where directors’ and officers’ liability insurance premiums are discounted for female CFOs, in much the same way as motor insurance is often less expensive for women drivers, especially in a world where algorithms and AI enable highly customised risk pricing.

Similarly, in the investing sphere, the risk-averse and ethical approach associated with female CFOs could be factored into environmental social and governance reporting and assessment.

And, in environments or firms where there is low external regulatory control, the presence of a female CFO may help build and maintain a reputation for financial prudence and stability. It is even possible to imagine a time when regulatory and legislative measures are applied differentially, depending on the gender diversity of the board.

The findings also lend weight to arguments in favour of quotas for women executive directors or, at a minimum, a greater proportion of women in CFO roles.

In 2019, according to the US Department of Labor, Women’s Bureau, 58.6 per cent of accountants and auditors and 55.8 per cent of financial managers were female. While the Association of Chartered Certified Accountants, a global professional accounting body, some five years ago, reported that women made up about half of its students and more than 40 per cent of its members.

Yet very few women become CFOs of major corporations. According to a recent study by executive recruitment firm Crist Kolder of the CFO and CEO landscape in US quoted companies, just 12.6 per cent of CFOs from the S&P and Fortune 500 firms studied were women (down from 13.2 per cent the previous year) or 85 from 675 positions.

Our findings strongly suggest that those firms that do hire women CFOs are likely to benefit from a more prudent and ethical approach to managing the firm’s finances. While, at the same time, increasing the number of women top executives could drive broader change in the financial sector, improve transparency in corporate decision-making, preserve value for investors and reduce the likelihood of reckless risk-taking induced crises.

Further reading:

Janahi, M., Millo, Y. and Voulgaris, G. (2020) “ CFO gender and financial reporting transparency in banks”, The European Journal of Finance, 1–23.

Yuval Millo is Professor of Accounting and teaches Financial Markets: Organisations and Technology on the Undergraduate programme.

Follow Yuval Millon on Twitter @yuvalmillo.

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Originally published at on April 20, 2021.



Warwick Business School

Warwick Business School, located in central England, is part of the University of Warwick and one of the world’s leading business schools