Testing the Lehman Sisters' Hypothesis: Gender, Professionals, and Risk in the Finance Sector

• In Event: 2350 - Fields and Identities

Abstract

After the 2008 global financial collapse, scholars and industry leaders alike hypothesized that had the Lehman Brothers instead been the Lehman Sisters, the crash might have been avoided. The “Lehman Sisters’ Hypothesis”, as it has since been coined, suggests that employing more women in the sex-segregated finance sector would create not just greater gender equity, but could reduce the number of reckless risks taken, resulting in more stable economic markets. At the heart of this hypothesis is the belief that women handle risk differently than men. Certainly, there is empirical support for this. Research that has looked at individual behaviours around risk-taking suggests that, on average, women make better decisions and have better outcomes around risk, and are more likely than men to invest in sustainable ways. While it is tempting to conclude that hiring more women into finance firms will be a silver-bullet solution to reducing a firm’s negative risk exposure, more factors must be considered. In this paper, I investigate the effect of sex composition on negative risk outcomes, drawing on 10 years of data from 245 finance firms and their subsidiary establishments. I find support for the Lehman Sisters’ Hypothesis, but rather than the presence of women overall, it is their occupation that seems to matter. I find an increase of women in professional positions is associated with a decrease in negative risk outcomes. Conversely, an increase of women in management might increase negative outcomes. I make sense of these findings by suggesting professionals’ higher levels of strategic and operational autonomy insulate them from the dominant gendered cultural pressures found in many finance firms.

Author

• Hazel Hollingdale, University of British Columbia