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E-MailHenrik Cronqvist is Professor of Finance at University of Miami and Frank Yu is Associate Professor of Finance at China Europe International Business School (CEIBS). This post is based on their recent article, forthcoming in the Journal of Financial Economics.
“You’ve already given us a reason to reflect on the world we hope you live in.”
—Facebook’s CEO Mark Zuckerberg in “A letter to our daughter.”
Research in social science has recently demonstrated the importance of the family environment for an individual’s behavior. For example, parents may impact their children by instilling certain values in them. Some emerging work has suggested that the opposite may also be important: Children may shape their parents. In this article, we examine whether one category of top decision-makers, namely corporate executives managing some of the largest public companies in the U.S., is systematically affected by their family environment, in particular by parenting a daughter. Evidence for such a female socialization hypothesis has recently been reported for other categories of top decision-makers, including congress members and federal judges in the U.S., so our study expands this hypothesis into research in financial economics related to corporate executives.
A natural domain to study such a CEO-daughter effect is decision-making related to corporate social responsibility (CSR), i.e., the ways firms make decisions with regard to society at large and stakeholders other than their shareholders. We argue that a simple theoretical framework involving a utility-maximizing CEO with social preferences may generate empirical predictions of a CEO-daughter effect in the context of pro-CSR corporate practices. First, women may exhibit stronger other-regarding preferences compared to men. Second, parents may internalize the preferences of their children. As a result, CEOs parenting daughters may have preferences more similar to those of females. This may involve a CEO’s increased concerns about diversity, but also the environment, employee relations, as well as other aspects of corporate social responsibility.
This study focuses on the largest public firms in the U.S., i.e., S&P 500 index constituents, during the period 1992 to 2012, and involves matching two different data sets. First, data on CEO children, and in particular whether these corporate executives have a daughter. Because a database with such information does not exist, we compile a new and comprehensive data set from a diverse set of available public sources. Specifically, we collect information regarding the gender of each CEO child, the gender of the first-born child, and the number of CEO children. The data set comprises 416 different CEOs, and 1,084 different CEO children. Second, we use the Social Ratings Data compiled by Kinder, Lydenberg, and Domini Research & Analytics (KLD) as a standard measure of firm-level corporate social responsibility.
Our results can be straightforwardly summarized. We find evidence of an economically sizable and statistically significant CEO-daughter effect in the context of corporate social responsibility policies, controlling for industry as well as firm and CEO characteristics, including family size (i.e., the number of CEO children). Specifically, the CSR rating of a firm is about 9.1% higher, compared to a median firm, when a firm’s CEO has a daughter. Another way of quantifying the size of the effect is to emphasize that it is about one quarter of the effect of a CEO herself being female. This is consistent with a male CEO with a daughter identifying himself more with women’s preferences. An alternative way to quantify the effect is that the median firm with a CEO who has a daughter spends an extra 10.4% per year of the firm’s net income on corporate social responsibility programs. The economic effect is similar if estimated from within-firm changes of CEOs.
This study is not immune to endogeneity concerns. We therefore use several approaches to confront such problems. First, we analyze first-born daughters, for which gender is arguably more exogenous, at least if parents follow a fertility stopping rule to affect the gender composition of their family. Second, we attempt to account for the so-called Trivers-Willard hypothesis in evolutionary biology, which predicts that the sex composition ratio may be different for wealthy individuals. Finally, we study the period before the Roe v. Wade U.S. Supreme Court case, i.e., a period with relatively stricter abortion laws, to address concerns about the selection of a child’s gender through abortions, although it seems unlikely to be important in a sample of CEOs in the U.S.
We also report several additional results. Our CSR measure aggregates several categories related to different aspects of corporate decision-making with respect to social responsibility. A decomposition reveals that the largest contributors to the overall effect on CSR of parenting a daughter are diversity, the environment, and employee relations. In addition, we address the fact that an increasing number of studies in financial economics analyze the political preferences of CEOs. Using a propensity score matching approach, we match a CEO who has a daughter with another CEO with the same political preference and comparable personal characteristics, but does not have a daughter. Our analysis shows that the CEO-daughter effect is separate from a CEO political preference effect. In addition, we find that our results are robust to a number of other concerns, e.g., look-ahead and sample selection biases, arising from the fact that we are not able to find CEO children data for all CEOs.
We contribute to several active research areas. First, we show that for some of the largest companies in the U.S., their top decision-makers’ family environment has a real impact on the firms they manage. In particular, those companies’ policies regarding stakeholders other than their shareholders are shaped by whether or not the CEO has a daughter. That is, female socialization effects are pervasive and affect not only top decision-makers in politics and law, but also corporate executives. Fundamentally, female socialization affects not only individuals, but also entire organizations. Second, different corporate executives may have different styles. In principle, CEO styles may be shaped by both innate predispositions as well as past (i) professional experiences or (ii) personal experiences. Our study contributes a novel personal experience, i.e., parenting a daughter, to this literature. One benefit is that this is not a choice variable for the executive, which means that our results may be less sensitive to endogeneity concerns.
The complete article is available here.
