Do Women in Powerful Positions Influence Firm Cash Holdings? Evidence from the United Kingdom

The Research Problem Women lead 17% of small and medium-sized enterprises, which comprise over 99% of U.K. firms. However, existing studies, particularly those exploring gender dynamics, predominantly focus on listed firms, leaving a gap in direct applicability to the realm of private firms. Our study addresses this gap by capturing the presence of women in powerful positions as a percentage of the highest-paid women within a company. We investigated the relationship between women in powerful positions and firms' cash holdings using data on private firms in the United Kingdom. Our study offers important insights for investors, managers, and policymakers into the role of female leaders in private firms. Motivation or Theoretical Reasoning Existing studies implicitly assume that once women reach the upper echelons of firms' top management, they possess equal power to influence firms' decisions, and researchers have thus far failed to recognize intragroup differences. However, tokenism theory explains that even when holding top corporate positions, women could be treated as tokens when they do not achieve a certain ("critical") mass. To address this gap, we measure women's presence in powerful positions - captured as the share of women in the top-paid quartile - and examine its effect on firm cash holdings. The Test Hypotheses This study proposed that women in powerful positions are associated with cash holdings and that an inverted U-shaped relationship exists between women in powerful positions and cash holdings. Target Population Privately held companies in the United Kingdom were targeted for investigation by this study. Adopted Methodology Sample companies were sourced from the Orbis Bureau van Dijk database, while data provided on U.K. government websites in response to the 2017 gender pay gap regulations were used for the analysis. The final sample included 21,806 firm-year observations from 6,688 private firms over 2017-2021. We tested our hypotheses using ordinary least squares regression. We also conducted additional analyses, including to address endogeneity concerns. Analyses After defining the variables used to measure cash holdings and women in powerful positions as well as the control variables, regression models were run. Descriptive statistics, correlations, multivariate analyses, and endogeneity tests were analyzed to obtain the results and draw conclusions. Findings This study provides evidence that U.K. private firms with more women in powerful positions show increased cash holdings. We also found that as the number of women in powerful positions increases, firms are more likely to invest their cash reserves in R&D than in capital expenditure.