Research: When firm performance is revealed, women executives advance

  • November 22, 2023
  • By Jill Young Miller
  • 3 minute read

It’s no secret. Women are underrepresented in the upper ranks of management.

In the corporate world, 60% of junior managers are women. The numbers drop from there. At the CEO level, 5% are women.

“Despite ample evidence highlighting women’s managerial prowess and their positive impact on firms, the glaring question emerges: Why do firms consistently overlook such a significant pool of managerial talent?” says Ulya Tsolmon, assistant professor of strategy at WashU Olin Business School.

Tsolmon’s recent research is cracking that nut. She found that women executives are more likely to advance when their firm’s performance is disclosed—thereby catching the attention of others in the labor market.

“Other firms and executive headhunters pay particular attention to top management teams of visible, high-performing firms,” Tsolmon said. As firms gain visibility and disclose performance information, members of their top management team—men and women—are likely to be poached.

Ulya Tsolmon

“And if women executives have been systematically undervalued, underpaid and hidden due to informational frictions, then greater visibility and information about managerial quality should increase the likelihood that they will be hired away,” she said.

Undervalued women executives will be more likely than men to respond to headhunters’ calls and, because they’ve been underpaid, will be more economically attractive to hiring firms, she said. “Increased disclosure of reliable information about firm performance should improve the career advancement of women executives.”

The impact of increased information is stronger in regions with favorable views on women in the workplace. The study suggests that solely addressing informational voids isn't enough where cultural biases persist against women. Such biases might necessitate much more stringent measures such as quotas.

“The role of information in the gender gap in the market for top managers: Evidence from a quasi-experiment” is forthcoming in Strategic Management Journal.

'Inefficient use of existing talent'

“Firms today cannot afford to overlook significant pools of managerial talent,” Tsolmon said. “Everyone is competing for talent. In this war for talent, it is important to understand how and why we observe seemingly inefficient use of existing talent.”

Tsolmon used a comprehensive dataset and studied variations in the availability of information. Specifically, she used a dataset of 303,778 public and private firms in nine European countries to document the extent of the gender gap in external promotions of women executives.

The European Union’s 2005 change in regulations—the International Financial Reporting Standards (IFRS)—required all companies listed on the main European stock exchanges to disclose financial information in a standardized way.

A key outcome: The increase in disclosure and comparability of firm-level information led more financial analysts to follow firms that adopted IFRS and improved the accuracy of their forecasts.

After the regulation took effect, the probability of a woman moving to an external firm with a promotion increased by 60.5%, according to the research.

“Executive search firms rely on analyst reports and recommendations to narrow their lists of target firms from which to poach,” Tsolmon said. “Firms followed by many financial analysts are more likely to be targeted by executive headhunters, especially when the firms are high performing.”

When a firm discloses more objective, reliable information, its women executives have more external career opportunities.

Both men and women managers in firms that adopted IFRS were more likely than those who were not in such firms to be hired and promoted by another firm. And women managers were more likely to be hired away than men.

After the regulation took effect, the probability of a woman moving to an external firm with a promotion increased by 60.5%, according to the research.

The study also showed that the impact of more available company information is strongest in regions with favorable views on women in the workplace.

“However, this study also underscores entrenched societal stereotypes, suggesting that solely addressing informational voids isn’t enough where cultural biases persist,” Tsolmon said.

About the Author

Jill Young Miller

Jill Young Miller

As research translator for WashU Olin Business School, my job is to highlight professors’ research by “translating” their work into stories. Before coming to Olin, I was a communications specialist at WashU’s Brown School. My background is mostly in newspapers including as a journalist for Missouri Lawyers Media, the Atlanta Journal-Constitution, The Washington Post and the Sun-Sentinel in South Florida.

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