When does a female leadership advantage exist? Evidence from SOEs in China

• Published date: 01 November 2023
• Author: Hanchen Li,Xiaochuan Tong
• Date: 01 November 2023
• DOI: http://doi.org/10.1111/corg.12510

ORIGINAL ARTICLE

When does a female leadership advantage exist? Evidence

from SOEs in China

Hanchen Li

1

|Xiaochuan Tong

2

1

HKU Business School, The University of

Hong Kong, Hong Kong

2

College of Business, Lehigh University,

Bethlehem, Pennsylvania, USA

Correspondence

Xiaochuan Tong, Perella Department of

Finance, College of Business, Lehigh

University, Bethlehem, PA 18015, USA.

Email: xit222@lehigh.edu

Funding information

University of Massachusetts Boston; American

Accounting Association

Abstract

Research Question/Issue: We approach the ongoing debate in the literature on

when and why a female leadership advantage exists in the context of China. In partic-

ular, we examine whether female CEOs outperform male CEOs in state-owned enter-

prises (SOEs).

Research Findings/Insights: We show that a female leadership advantage exists in

SOEs. We find that the female leadership increased performance is attributed to

improved profitability, capital structure, and operating efficiency. The magnitude of

this gender effect is bigger in central state-owned enterprises (CSOEs) than that in

local state-owned enterprises (LSOEs). The results are robust to additional tests that

mitigate the sample selection and other endogeneity concerns.

Theoretical/Academic Implications: We use the role congruity theory to motivate

and develop the hypotheses drawing insights upon the literature in psychology and

leadership. Female CEOs are perceived as less congruent with their leadership roles

given the gender role stereotypes. Thus, they face more challenges and difficulties

than male CEOs. These obstacles take at least two forms which are significant in

SOEs: shareholder activism and sex discrimination. Female CEOs have to outperform

their male counterparts to alleviate the pressure from shareholder activism and

showcase their managerial skills and abilities.

Practitioner/Policy Implications: For the state shareholders, the extra scrutiny in

selecting female CEOs should be lifted given this outperformance. The evidence is

also relevant for CEOs to choose their career paths among different types of firms,

for boards of directors on their strategic decisions on CEO hiring, and for policy

makers to promote the female leadership advantage.

KEYWORDS

corporate governance, female leadership advantage, government ownership, firm performance,

China

1|INTRODUCTION

There is growing interest in the idea that women are better

managers (Paustian-Underdahl et al., 2014). For instance, an article

in the New York Times argued that “no doubts: women are better

managers”(Smith, 2009). The Daily Mail reported women in top jobs

are viewed as “better leaders”than men (2010). The theoretical rea-

sonings are well-embedded in female leadership advantage studies

in psychology and leadership (Cowen & Montgomery, 2019;

Eagly & Carli, 2003a; Paustian-Underdahl et al., 2014). Evidence

Received: 30 December 2021Revised: 4 October 2022Accepted: 8 December 2022

DOI: 10.1111/corg.12510

Corp Govern Int Rev. 2023;31:945–970. wileyonlinelibrary.com/journal/corg © 2023 John Wiley & Sons Ltd.945

suggests a female advantage in terms of effectiveness stemming

from leadership styles, such as transformational, transactional, and

laissez-faire leadership styles (Eagly & Carli, 2003a).

However, recent statistics show that women hold a mere 5.8% of

the S&P 500 companies' chief executive officer (CEO) positions as of

December 2019 (Women CEOs of the S&P 500,2020). One reason is

that “male directors are simply afraid to take an unnecessary risk by

selecting a woman,”as stated in a Wall Street Journal article

(Dobrzynski,2006). Such scrutiny is also reflected in theongoing public

and academic debateover the existence of the female leadership advan-

tage. Paustian-Underdahl et al. (2014) conclude that after all leadership

contexts are considered, the perceived leadership effectiveness does

not differ between men and women (on-average effectiveness view).

Given the simplicity of this view, the psychology and leadership litera-

ture further suggests that it would make better sense to investigate

when and why there is a gender difference in the leadership effective-

ness (Eagly & Carli, 2003a,2003b; Vecchio, 2002) rather than whether

there exists a genderdifference in the leadership effectiveness.

The purpose of this paper is to shed light on when and why a

female leadership advantage exists in the context of corporate gover-

nance. Particularly, we examine whether female CEOs outperform

male CEOs in state-owned enterprises (SOEs) in China. We show that

female CEOs have a significantly positive impact on SOE performance

compared with male CEOs. We use instrumental variables to address

endogenous selection concerns regarding female CEO leadership (Ho

et al., 2015; Huang & Kisgen, 2013; Khan & Vieito, 2013; Palvia

et al., 2014). We also perform a battery of robustness tests to further

examine the empirical results.

Such an investigation is economically meaningful and has impor-

tant implications. Female leaders face more challenges than male

leaders to be promoted into male-dominated leadership roles, such as

CEO (Eagly, 2007). While the presence of women in leadership

positions has been regarded as one of the clearest indicators of the

transformation toward gender equality since the 20th century

(Eagly, 2007; Jackson, 1998), it is particularly important to establish

sufficient empirical evidence in the literature which explores and

strengthens the linkages between the female leadership advantage

and its associated contexts and conditions. Knowing this, boards of

directors would be better informed and less concerned when making

decisions to promote female leaders.

We investigate this question through the role congruity theory

(Eagly & Karau, 2002) leveraging the interaction between female

CEOs and SOEs in the context of China. Female CEOs are faced with

more challenges compared with their male counterparts, such as

shareholder activism, given the fact that female CEOs are considered

less congruent with their leadership roles (Gupta et al., 2017). For

instance, female CEOs face a higher likelihood of dismissal than their

male counterparts in China (Gao et al., 2016). Given these challenges,

female CEOs will have to better align the interests between the man-

agement and the shareholders and thus outperform their male coun-

terparts, even though they have broken the “glass ceiling”and

reached the top leadership roles (Ryan et al., 2016). The SOEs in

China provide a context to observe this outperformance as agency

problems are more severe in SOEs than non-SOEs. SOEs in China are

associated with less operating efficiency and significant agency costs

(Lin et al., 2020). For example, the CEO turnover-to-performance

sensitivity is low among SOEs, meaning that CEOs do not have to

optimize their firm profitability to stay in leadership roles (Kato &

Long, 2006). Therefore, the alleviation of agency problems through

female CEOs is expected to be more significant among SOEs than

non-SOEs.

2|RELATED LITERATURE

2.1 |Gender difference in firms

Gender issues are an important topic in corporate governance

(Adams & Ferreira, 2009; Byron & Post, 2016; Erhard et al., 2003;

Nielsen & Huse, 2010; Vieito, 2012). Particularly, promoting women

into executive positions is highly associated with the profitability of

Fortune 500 firms (Adler, 2001). In addition, CEO gender appears to

affect various aspects of firm performance and firm behavior, includ-

ing risk-taking, survival, capital allocation, and cash holding, among

others.

For instance, evidence shows that firms run by female CEOs tend

to have lower risk-taking, better chances of survival, and less efficient

capital allocation (Dohmen & Falk, 2011; Faccio et al., 2016; Perryman

et al., 2016). Firms run by female CEOs have a lower propensity for

corruption compared with male CEOs (Hanousek et al., 2016). Firms

run by female CEOs have a higher level of cash holdings (Zeng &

Wang, 2015) and a more stable investment (Huang & Kisgen, 2013).

In addition, firms run by female CEOs tend to improve their CSR rat-

ings (McGuinness et al., 2017).

However, the impact of CEO gender on firm performance may

vary under different conditions (e.g., ownership structures), which is

less explored in the existing literature. There has been a heated

debate over the existence of a female leadership advantage within the

literature in psychology and leadership (Cowen & Montgomery, 2019;

Eagly & Carli, 2003a; Paustian-Underdahl et al., 2014). A review paper

using a meta-analysis shows that after controlling all leadership con-

texts, the perceived gender difference in leadership effectiveness is

nonsignificant (Paustian-Underdahl et al., 2014). However, other aca-

demic discussions suggest that it is of vital importance to investigate

when and why there is a gender difference in leadership effectiveness

(Eagly & Carli, 2003a,2003b; Vecchio, 2002), compared with examin-

ing the overall gender effect on leadership effectiveness.

2.2 |Government ownership

Ownership is widely considered to be the foundation of corporate

governance (Zattoni, 2011). This is because “no firm exists without

owners and the property rights allocated to these owners”(Aguilera &

Crespi-Cladera, 2016). In addition, it is argued that resource allocation,

operation and cooperation, and other problems of governance depend

946 LI AND TONG