Carrying large amounts of debt can be bad for companies for many reasons besides having big loans to repay. Research has shown that customers can be reluctant to do business with highly leveraged firms due to worries about slipping quality and damage to the company’s reputation. 

The result can be a loss of market share as well as aggressive attacks from competitors who see the company as being vulnerable.

Bryant University researchers Sonal Kumar, Ph.D., and Cathy Zheng, Ph.D., say that having a female chief financial officer (CFO) might be one of the best ways for highly leveraged companies to avoid these problems.

In a new study conducted with international finance expert Omrane Guedhami, Ph.D., of the University of South Carolina, Kumar and Zheng of Bryant’s Department of Finance found that firms with female CFOs experienced fewer repercussions associated with being highly leveraged when compared to companies with male CFOs.

“Our findings highlight the role of managerial characteristics, such as CFO gender, in enhancing financial resilience and building trust among non-financial stakeholders,”  Guedhami, Kumar and Zheng wrote in the paper, which was presented at the Financial Management Association’s 2024 annual meeting and is currently under editorial review in anticipation of journal publication later this year.

The study is believed to be the first to explore the managerial characteristics (such as executive gender) that influence high leverage costs.

CFOs, who act as companies’ financial stewards, exert direct influence over leverage decisions. Compared to other parts of the “C Suite,” women have recently made significant inroads in occupying CFO positions. While just 8 percent of CEOs of Fortune 500 companies were women in 2023, for example, 16 percent of those companies had female CFOs.

“The presence of a female CFO could reduce losses in sales growth for highly leveraged firms by an average of 4.3%."

“Economically speaking, the presence of a female CFO could reduce losses in sales growth for highly leveraged firms by an average of 4.3 percent," the researchers concluded from their review of CFOs and leverage at U.S. firms during the period 1992 to 2019. 

“Our study finds that women CFOs are most likely considered more trustworthy in the eyes of shareholders and in the eyes of creditors, which helps them mitigate high leverage costs,” says Zheng.

Some gender differences of executive leadership have previously been noted in research. For instance, women are generally more conservative, more risk averse, and less likely to enter mergers and acquisitions. Additionally, female CFOs are less likely to be involved in corporate fraud and are associated with lower level of “earnings management” — attempting to put a more positive spin on earnings reports, for example.

“The reasoning behind our hypothesis is basically that female leadership is different from male leadership,” says Kumar. “Females are generally associated with more trust. They are associated with more ethical behavior. When a firm is taking on a high level of debt, which is very risky, a female CFO can draw upon the trust that she has built over time. By virtue of her leadership style, shareholders may trust her more, relative to male counterparts.”

Zheng sees a connection between the study findings and the slow but significant growth in women taking financial charge in the corporate world, where women represented just 0.05 percent of CFOs in 1992.

“Companies run on money, so if women weren't bringing any value, we wouldn't have seen an increase in women in boardrooms and at the CFO level,” she says. “I think it's connected with our findings because we think women are better at dealing with crises, and they draw more trust. The 2008 financial crisis probably highlighted that."

At a time where the claim of “diversity hires” is under the public microscope, the research from Guedhami, Kumar and Zheng is a reminder that there can be very good, strategic reasons for looking at job candidates in ways that go beyond the resume — and beyond traditional gender roles.

“If more women sit on boards and become CFOs or CEOs, they will ultimately provide an educational ground for all of the 17- and 18-year-old girls who are scared of finance just because someone told them that finance is for men."

“If the presence of female CFOs can help address financial challenges, which is a big thing for companies and for the whole market, then we definitely need more female candidates to serve in these executive roles,” says Kumar. “I do get a lot of female students saying, ‘I'm scared of finance, because someone told me finance is very hard. So, I want to take management or marketing as my major.’ Then they take my introduction to finance class and find that it’s really interesting.”

Kumar adds that studies highlighting the positive behavioral characteristics of female leaders and their capability to shape a company can be inspiring for young women.

“If more women sit on boards and become CFOs or CEOs, that will ultimately empower all 17- and 18-year-old girls who are scared of finance just because someone told them that finance is for men," she says.