Gender Differences in Executives’ Access to Information

H. Nejat Seyhun is Professor of Finance at University of Michigan Ross School of Business. This post is based on a forthcoming article authored by Professor Seyhun; A. Can Inci, Professor of Finance at Bryant University; and M.P. Narayanan, Robert Morrison Hoffer Professor of Business Administration at University of Michigan Ross School of Business.

As more women enter the upper echelons of large corporations (according to Catalyst, the proportion of CEOs in Fortune 500 firms has increased from 0.4% in 1998 to 4.6% in 2015 and the proportion of board members has increased from 9.6% to 19.9%), the natural question that arises is whether women executives have equal access to material and relevant information as their male counterparts. Clearly, establishing and comparing men’s and women’s access to relevant corporate information is difficult. We use a novel approach to explore this question. Our proxy for executives’ corporation-specific knowledge is the profitability of insider trading. To the extent executives have access to material, non-public information about their own corporation, they will be able to trade profitably.

Our article is the first to study gender differences in access to information by investigating insider trading behavior by top executives. The established fact that senior executives earn abnormal profits when trading in their own firm’s stock (Seyhun (1986), (1992), (1998)) implies they possess material information. They may have access to the information through formal (in the course of their normal responsibilities) or informal (by being part of networks within or outside the firm) means. We can, therefore, establish whether women executives in similar roles have equal access to formal and informal channels of information as male executives by examining the gender differences in profitability of insider trades.

Using insider trading data of top executives, board members, and other senior officers from 1975 to 2012, we find that male executives earn almost double the profit of female executives. Over the 50 days after a trade male executives earn 3.2% more than the market return while the corresponding figure for female executives is only 1.6%. We also find that on average male executives trade more (as measured by number of shares traded, dollar value of trades, or number of trades) in their firm’s shares than females. Significantly, the gender differences in trading activity and profitability hold regardless of the title of the executive.

The significant gender differences in the extent and profitability of insider trading could be due to dispositional factors (e.g., confidence, risk-aversion) or situational factors such as limited access to information arising from the dynamics created by structural issues, particularly the predominance of males in top corporate jobs. The literature on gender differences suggests that there are systematic dispositional differences between males and females: males are more overconfident and less risk-averse than females. The literature on trading behavior suggests that the more overconfident and the less risk-averse investors are, the more they will trade and the greater will be their expected profits. The implication, therefore, is that males will trade more and hence earn greater expected profits due to differences in dispositional factors. Using a theoretical model, we show that traders with superior information ought to earn greater profits once we adjust for trade size regardless of dispositional factors. We find evidence consistent with this implication thus ruling out the possibility that gender differences in trading and profitability are driven solely by dispositional factors and provide evidence of male executives’ informational advantage.

The conclusion that there are gender differences in access to information can be reconciled with the empirical finding that gender differences exist even within similar title categories only if formal titles are not accurate proxies of access to information. There is the view among researchers that female executives do not have the same access to information as males regardless of their titles and ranks, especially in firms where they are underrepresented (see Kanter (1977a), (1977b)) and Lyness and Thompson (2000), for example). These researchers argue that the difference in access to information by female executives of equivalent titles is driven by largely by their exclusion from informal networks of their male peers (Davies-Netzley (1988), Moore (1988), Kanter (1977b)) and in male-dominated work environments, females are excluded from informational networks. Since males are significantly over-represented in senior positions in general, this is a likely explanation for our results. To verify, we check if the gender difference is lower in firms in which males as are not as dominant in numbers, by using the proportion of trades by males as a measure of gender dominance. In firms in which the proportion of female trades is greater than the 90th percentile of the distribution of female trade proportions in all firms, gender differences in profitability are not significant, controlling for position. Thus we conclude that female executives suffer an informational disadvantage despite their titles in firms where they form a small minority, but that disadvantage is attenuated when their representation increases.

There are several implications of these results. First, we provide compelling evidence to support the need for a critical mass of females in decision making roles at the senior level in firms. Our evidence that the information gap is greatest at the board director level implies that token representation will not allow female directors to be very effective as corporate board members. Countries such as Norway, Spain, France, Iceland, Belgium, and Germany seem to recognize this and have instituted quotas ranging from 30 to 40% for female directors on corporate boards.

Second, our article suggests that lack of equal access to information combined with the informal network effect makes it difficult for even qualified female executives to vie with males when it comes to promotion, which in turn results in skewed representation of females in position of greater responsibility and power. This creates a vicious cycle by exacerbating the network effect. Our results suggest that the problem is greatest at the lowest title in our database, at the senior officer level, which is possibly why female representation is so low at the top executive level.

Finally, our results raise issues regarding another contentious topic, namely gender differences in compensation. If one views insider trading profits and direct compensation (salary and incentive compensation) as substitutes (Roulstone (2003), Denis and Xu (2013)), one might argue that it is not merely sufficient that there be gender parity in direct compensation, but that female executive of equivalent rank and responsibilities ought to be paid more. From this point of view female executives are at double disadvantage: the weaker informal networks not only prevent them from accessing material information to benefit from insider trading information, but also compromises their power to negotiate for higher direct compensation.

The full article is available for download here.


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Denis, D., and J. Xu. “Insider Trading Restrictions and Top Executive Compensation.” Journal of Accounting and Economics, 56 (2013), 91–112.

Kanter, R. M. Men and Women of the Corporation. New York, NY: Basic Books (1977a).

Kanter, R. M. “Some Effects of Proportions on Group Life: Skewed Sex Ratios and Responses to Token Women.’ American Journal of Sociology, 82 (1977b), 965–990.

Lyness, K. S., and D. E. Thompson. “Climbing the Corporate Ladder: Do Female and Male Executives Follow the Same Route?” Journal of Applied Psychology, 85 (2000), 86–101.

Moore, G. “Women in Elite Positions: Insiders or Outsiders?” Sociological Forum, 3 (1988), 566–585.

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Seyhun, H. N. “Insiders’ Profits, Cost of Trading, and Market Efficiency.” Journal of Financial Economics, 16 (1986), 189–212.

Seyhun, H. N. “The Effectiveness of the Insider Trading Sanctions.” Journal of Law and Economics, 35 (1992), 149–182.

Seyhun, H. N. Investment Intelligence from Insider Trading, Cambridge, MA: MIT Press (1998).

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