A revised finance theory study, “Age, Gender, and Risk-Taking: Evidence From the S&P 1500 Executives and Market-Based Measures of Firm Risk,” reappeared in the new issue of the Journal of Business Finance and Accounting last month. The revised version (updating a 2020 original) jumps into the risky debate about whether younger men, apparently influenced by their daily habit of slaying beasts for dinner, are more prone to corporate risk-taking than older men and/or women. (Nonbinary leaders are not considered here—leaving one to assume that there aren’t any within the S&P in large-company senior leadership.)
Undeterred by cancel culture, Jarkko Peltomäki, Jukka Sihvonen, Steve Swidler, and Sami Vähämaa document that chief executive officer (CEO) and chief financial officer (CFO) age and gender have a direct effect on market-based firm risk measures “in addition to the indirect influence they may have through corporate policy choices.” How did the authors prove this? They examined stock returns and company-specific risk indicators. Firms run by older men in this elite and small sample have slightly less volatile stock returns and lower specific company risk. Hiring a woman, they conclude, doesn’t really reduce your stock volatility (corporate boards, take note!), but it may reduce firm-specific risk tendencies—a little.
Perhaps the most important conclusion to be drawn is that most business valuation experts cannot depend on finance theory to reach defensible conclusions. Imagine presenting this evidence before a contentious tribunal or as part of a fiscal business valuation.
Anecdotal evidence supported by a slew of scholars: Beginning with the “upper echelons theory” advanced by Hambrick and Mason, fittingly in 1984, the authors cite “abundant empirical evidence” that the characteristics, personalities, and experiences of individual CEOs and CFOs are reflected in firms’ business strategies, performance, financial and investment policies, and other corporate outcomes.
Some might have stopped there or tipped off a few investor friends that they might outperform the FTSE by investing only in large-cap stocks managed by a pair of older (white?) men. Having then profited by investments in enterprises with big cash reserves and no volatility, those same now-wealthy investors should put all their cash in woman-owned banks.
No business valuer can support their conclusions by introducing new unknown variables. The courts, regulators, and your clients don’t want finance theory. They want documentation to support the risks and rewards of the unique business being valued.