Risk Aversion and Social Preferences: The Effects of CEO Gender and Conservatism on Lending Decisions

Abstract

In this study, I draw on upper echelons theory to empirically examine whether a credit union CEO’s gender and political ideology influence their firm’s lending decisions. Interestingly, credit unions led by female CEOs are not necessarily more risk averse than a male CEO, as gender’s effect on risk aversion is shown to be conditional on one’s political ideology. This reflects the similar ways the two characteristics (gender and conservatism) relate to one’s risk preferences. However, these characteristics are not interchangeable, as CEOs’ social preferences differ along these dimensions. Credit unions led by conservative CEOs are shown to place less emphasis on lending to historically disadvantaged applicants than their liberal counterparts, however, there is little difference observed based on a CEO’s gender. Together, these findings suggest that a CEO’s revealed preferences based on their ideology are important to understanding variation in lenders’ decision-making.

Keywords

CEO gender and ideology credit culture risk aversion social preferences upper echelons theory

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