The study analysed the stock market response to male and female directors’ purchases of their own company shares, examining both the short-run and long-run stock market reaction response to directors’ trades.
Results suggest that the price reaction to male directors’ share activity is initially faster and larger than that for female directors, showing that the short-term market reaction retains a gender bias reflecting the prevalence of negative stereotypes; where the market reacts to beliefs rather than performance.
Researchers at the Universities of Bath and Exeter found that in the first 20 days after a director’s trade, stock prices rise by 1.57 per cent in the case of a male director’s purchase of shares, but by only 0.88 per cent following a female director’s purchase.
However in the longer term there is no difference in the stock market reaction to male and female directors’ trades. By twelve months after the initial trade, the stock market has risen by an average of 0.33 per cent per month following a male director’s purchase; but rises by an average of 0.44 per cent per month after a female director’s purchase (although these gender differences are not statistically significant).
Ian Tonks, Professor of Finance at the University of Bath’s School of Management, said: “Differences between the short and long-run responses provide an insight into whether there is evidence to suggest that females are systematically initially undervalued by the stock market with reference to their senior position in the organisation.
“Critically, examining both long-term and short-term market reaction allows us to compare short-run perceptions of how informed female directors are thought to be, with longer horizon returns that provide us with an indication of how the market may have re-evaluated such initial perceptions when more information on performance became available.”
Alan Gregory, Professor of Corporate Finance at the University of Exeter said: “Directors’ trades form an interesting test of stock market reaction to gender differences in corporations. This issue has previously been analysed using data relating to directors’ appointments, but trades by female directors occur far more frequently than female board appointments, allowing for more powerful tests of gender differences.
“Our results from this study have interesting implications for those researchers who have found markets react less favourably to the appointment of female directors than male directors, as we provide evidence that shows markets initially under-react to information in female directors’ trades. It seems perfectly possible that markets may similarly under-react to news about the appointment of female directors.”
The researchers also believe their study, published in the British Journal of Management, is relevant for policy makers assessing the value of having females on corporate boards, as they deliberate over policy options for increasing the representation of women.
The study used a dataset of more than 80,000 directors’ trades in FTSE All Share and AIM-listed companies from 1994 to 2006.