Data shows that women remain underrepresented at the top of corporate hierarchies. But what happens inside a company when a woman takes the helm? Does it matter — for other women, for the bottom line, for everyone? These are surprisingly hard questions to answer with evidence. That's exactly what a study published in The Economic Journal set out to do.
In a conversation with FLS, Professor Luca Flabbi, full professor in the Department of Economics at the University of North Carolina and one of the paper's lead authors, walked us through what they found and why it matters.
Most research on female leadership has focused on boards of directors, partly because several countries — Norway first, then much of Europe — have introduced mandatory gender quotas for listed companies' boards. But boards set strategy at a high level. They don't run the day-to-day.
The people that are really running the firms are the executives. So, the first contribution is to look at the executives.
Flabbi and his co-authors, Mario Macis, Andrea Moro, and Fabiano Schivardi, built their study on a uniquely rich dataset: matched employer-employee records covering a representative sample of Italian manufacturing firms, observed over more than a decade. With wage and job information for every single worker, plus balance-sheet data to measure firm performance, the team could track what happened to real companies when a female CEO stepped in.
Two discoveries that surprised the field
1. Female CEOs boost productivity, but only under the right conditions
Previous studies had generally found no significant link between female leadership and firm performance, once you properly account for the fact that female-led firms may already differ from male-led ones in systematic ways. Flabbi's team found something different.
We find a positive effect — under some condition — and the condition is if there are enough women working at the firm. If that proportion is high enough and a female CEO steps in, then the productivity of the firm increases.
How many women is “enough”? The paper's estimates suggest the threshold is around 20%. When at least roughly a fifth of the workforce is female, a female CEO taking over a male-managed firm is associated with a meaningful jump in sales per employee — the paper's estimates put it at around 3.2% at average female workforce levels, and as high as 14% in firms with at least half female workers.
2. Female CEOs reshape the wage distribution
The second finding is perhaps even more striking, and harder to see unless you look at the whole picture. When a female CEO takes over, women's wages don't simply rise across the board. Instead, something more nuanced happens.
Women that are in relatively high positions, their wage is going up. But women with relatively low wages, those wages are going down. At the mean it doesn't change very much, but you have this change at the top and the bottom.
More specifically, the paper finds that women in the top quartile of wages at female-led firms earn around 10 percentage points more than their counterparts at male-led firms. Women at the bottom of the distribution earn roughly 3 percentage points less. The pattern for men moves in the opposite direction.
The explanation: statistical discrimination
To explain these findings, the researchers draw on a concept called statistical discrimination. The idea is this: employers never have perfect information about a new hire's productivity. They rely on signals — CVs, interviews, gut instinct — combined with assumptions about the average productivity of the group a worker belongs to.
When I see a worker, I never see perfectly what their productivity is going to be. I have a rough idea. And when I see men and women, I add some additional information: I use a combination of the signal this specific worker is giving me and the average I expect a worker from that group to be.
The problem arises when those signals are less precise for one group. If a male CEO, consciously or not, has a harder time accurately reading female workers' potential — perhaps because he's had fewer of them in his orbit, or because communication styles differ — then highly productive women get underpaid and underplaced.
Enter the female CEO. She reads female workers more accurately. She corrects the misallocation. The women who were genuinely high performers get recognised and rewarded. Those who were carried along by the imprecision of the old system get a more honest assessment too, which can mean lower wages for those at the bottom. And crucially, by placing women in the right roles, the firm as a whole becomes more productive.
By assigning women better in my firm, my firm will be more productive. I'm correcting the misallocation of women. But if there are very few women in my firm, I have very little reallocation to do. If I have a good number of women, there will be a gain in productivity.
The effect on men's wages moves in the opposite direction: slightly higher at the bottom, slightly lower at the top, though the estimates for men are somewhat less precisely measured. One reason is simply that female CEOs represent only around 2–5% of the sample, making fully symmetric comparisons difficult.
What this means in practice
The research has pointed implications for gender quota policies. Blanket quotas — simply mandating that a certain percentage of leadership positions go to women — may not move the productivity needle much if women are randomly assigned to companies without many female employees. But targeted placement, directing female leadership toward firms where women already make up a meaningful share of the workforce, could generate substantial gains.
Prof. Flabbi and his colleagues are now turning their attention to career dynamics over time, something this study — focused on wages and firm-level outcomes — couldn't fully explore.
Careers of men and women start very similar and then the divergence comes later, typically linked to fertility events. Male careers pick up more, and female careers remain flat. That's the next crucial step in the literature.
For now, the message from this research is both encouraging and conditional: female leadership can make a measurable difference — to pay equity, to firm performance, and to how talent is recognised. But it works best when it isn't tokenistic, when women are genuinely present throughout the organisation, and when companies are willing to look honestly at who they've been overlooking.
The paper: “Do Female Executives Make a Difference? The Impact of Female Leadership on Gender Gaps and Firm Performance,” Flabbi, Macis, Moro & Schivardi, The Economic Journal, 2019.