Accounting Research Report: Women Executives and Litigation Risks

This accounting research report investigates the correlation between the presence of women executives and the number of lawsuits faced by corporations. The study examines the risk preferences of executives, considering gender as a key determinant, and analyzes how these preferences influence corporate policies and litigation risks. The research uses data from S&P 1500 firms to explore whether companies with female executives experience fewer lawsuits compared to those with predominantly male leadership. Findings suggest that firms with women in executive positions tend to adopt less risky business strategies, leading to a reduction in litigation. The report also delves into the mechanisms behind this reduction, such as cautious decision-making and adherence to regulations. Furthermore, it discusses the measurement of women's influence within organizations and provides an empirical analysis of the relationship between female executives and lawsuit occurrences, highlighting the importance of gender diversity in corporate governance and its impact on risk management and financial outcomes. The study uses data analysis techniques and statistical methods to support its findings.

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Abstract:
A detailed research on firms and entities operating around the globe have thrown some
interesting facts about the participation of women executives and managers in the day to day
affairs of firms and its impact on the law suits and other trouble issues faced by entities in
general. Firms where women have more powers and are in executive positions have relatively
less number of litigation pending against them as compared to firms where women are not in
power. As per the study it is not that the female executives show greater willingness to settle law
suits and litigations against the firms but rather the cautious approach of female executives in
avoiding risky but valuable business policies. Entities with female executives at the top of the
hierarchies have avoid aggressive R&D, aggressive marketing campaign and other such policies
with significant risks.

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Contents
Abstract:...........................................................................................................................................1
1. Introduction:.............................................................................................................................3
2. Risk preferences of executives and its affects:.........................................................................5
2.1. Testing of the hypothesis:.................................................................................................5
2.2. Characteristics of executives on the basis of gender:.......................................................6
2.3. Expected to be faced with much less trouble in case the top executives are female:.......7
2.4. Measurement of women powers:......................................................................................7
2.5. Lawsuits filed against S&P 1500 firms between 2002 and 2011:....................................8
2.6. Findings from the study are consistent with the hypothesis:............................................9
2.7. Mechanisms at work in reduction of law suits:...............................................................10
2.8. Uncovering the underlying policies that affect the law suits:.........................................11
3. Firms hiring women executives:............................................................................................12
4. Data analysis along with variables:........................................................................................13
4.1. Sample and data:.............................................................................................................13
4.2. Variables in the base line analysis:.................................................................................14
5. Empirical analysis:.................................................................................................................15
5.1. Descriptive statistics:......................................................................................................15
5.2. Whether firms with women managers face less law suits:.............................................18
5.3. Relationship between female executives and law suits:.................................................18

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5.4. Women executives on settling in an organization:.........................................................18
6. Conclusion:.............................................................................................................................19
References..................................................................................................................................19

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1. Introduction:
The concept of women working within the four walls of the house has come to its decline due to
a rapid increase in the westernization and modernization of the third world nations. Due to the
drastic changes in the family type and bonding with the affinal kins, society has come across a
major change related to the concept of roles played by the women. Increase in the percentage of
females completing higher education and earning a living has pushed the society to rethink on
the abilities of the women regarding their roles played in the corporate world (Abbott, Mugisha
& Sapsford, 2018). There have been a lot of evidences of change in traditional ideas about
masculine and feminine gender identities. Females often have better communication skills than
males, and these are the skills which are required for success in the new service economy. Over
the years the growth of the women in the workplace has strengthened. It is observed that women
are taking more prominent roles in the business market and making major breakthrough in the
corporate world. Qualities like self- awareness, emotional atonement, humility and authenticity
are seemed to be the major strengths of the women that contribute to their leadership abilities
which have created room for them to excel in their workplaces (Asemi, Safari & Asemi Zavareh,
2011).
Over the recent year’s research that has been conducted on the gender diversity in the
workplaces shows that company with more women at the top make more net margins. The
Peterson Institute for International Economics, a Washington DC- based think tank completed a
survey of 21,980 firms from 91 countries found that having women at the C-Suite level
significantly increases net margins. It is also found that in the 63- year history of Fortune 500,
there are more women running Fortune 500 business today. Of course not all women have the

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same leadership qualities but generally women seem to bring in strong work ethic and motivate
the team. They carry out the company standards and goals and make sure colleagues follow the
same values. According to the Peterson Institute, the impact of putting women in charge like
having female senior leaders creates less gender discrimination in the process of recruitment,
promotion and retention (Bhatia, 2012).
In a world which is largely dominated by men women are often neglected in different sphere of
lives despite having necessary qualifications and skills to compete with its opposite gender.
However, the times are changing rather quickly with women now conquering different fields
with equal rate of success as men. In fact in many cases the women have showed that they are at-
least equal if not more talented to do certain jobs than men. Corporate and business entities are
quickest in realizing the ability of women in running business operations with significant ease
and calm. As a result corporate entities have started appointing female executives in the boards
to ensure smooth and effective functioning of such entities. Companies are frequently faced with
number of troubles including law suits and litigation cases against them which are filed by
various different parties including their stakeholder in some cases (Doran & Gunn, 2015).
Companies such Walmart, Amazon, Facebook, Apple, Samsung and other such multinational
companies often face more than 1000 law suits on an average in each year. In fact Walmart on an
average faces 5000 small and large lawsuits each year by different parties including customers,
employees, suppliers, competitors, government agencies and social groups in some cases.
Similarly Apple and Samsung face more than 1000 cases on average in every year on issues
related to infringement of technology. The lawsuits mainly arises due to the policies and
strategies used by these firms to maximize their revenue and profits from business operations. In
order to pursue these profitable policies and strategies firms have to assume certain amount of

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risks including the risk of litigation. Thus, the main reason for such law suits is the pursuit of
firms to maximize the wealth of the shareholders by following policies and strategies that might
not be to the likings of shareholders, employees and workers, vendors, competitors, customers,
society and environment at large and government agencies (Duan, Ong, Xu & Mathews, 2012).
2. Risk preferences of executives and its affects:
The way a firm operates in assuming different risks is often the reflection of its executives’ risk
preferences. Thus, the decision making process of the executives is often reflected in the risk
assumption capabilities of a firm. This subsequently affects the number of lawsuits and other
troubles an organization faces in the future. Thus, it would be safe to assume that risk averse
executives will end up taking less risky routes in business operations and will reduce the risk of
litigation and law suits against a particular firm. A firm if uses less risky and aggressive policies
will obviously have fewer lawsuits against it in the future as against a firm that assumes greater
amount of risk in running and operating its businesses. However, it would not be correct to
assume that less amount of lawsuits will end up enhancing the value of a firm. This is because
often the projects that requires higher amount of risk to be assumed on the part of the firm ends
up increasing the value of the firm significantly if such projects are successfully completed
(Elkrunz, 2013).
2.1. Testing of the hypothesis:
The hypothesis that executives that assumes less risks in running an organization will help in
reducing the lawsuits in the future is based on the concept that the risky and aggressive policies
are the main reason behind law suits and litigations against a firm. However, it is extremely
difficult to test this hypothesis as the risk preferences of executives are part of the personality
traits of the executives. It is almost impossible to observe the personality traits of individual

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executives thus, making it difficult to test the hypothesis and its validity. However, this study
shows that the gender is one of the determinant factors in the risk preferences of executives. A
major finding in most the studies conducted on business executives have showed that female
executives are comparatively more averse to the concept of assuming risks than the male
executives (Jahan, 2015).
2.2. Characteristics of executives on the basis of gender:
Female executives are significantly more risk averse than the male executives meaning that the
organization with more women executives is least likely to involve in risky business operations
and strategies as opposed to organizations where male executives are at the helm of affairs and
authorized to make important business decisions. In fact studies have also shown that female in
general are risk averse and less likely to take risky option than their male counter parts. Thus,
even female investors tend to invest much cautiously and conservatively as opposed to male
investors. Thus, in general female are less likely to take risk than their male counter parts. In
corporate policies also it has been studied that male executives are more likely to choose safer
policies and strategies to manage the business operations in an organization. Studies in the past
have also shown that unlike male women exudes lack of over confidence in their decision
making process thus, they are more likely to be cautious and much more careful before taking
any decision including decisions of operating a firm and deciding its corporate strategies. Most
of the studies have shown that how women are more likely to observe rules and regulations than
men. Thus, women in general are more trustworthy as they are more likely to obey and comply
with standard norms in different facets of life including business organizations (Khan, 2018).
From the above findings it is quite clear that the hypothesis indicate that the women executives
are least likely to use high risk policies and strategies to run the affairs of an organization. As a

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result firms and entities where top managers and executives are women are expected to have
significantly less number of law suits compared to firms where the top management team mainly
includes men.
2.3. Expected to be faced with much less trouble in case the top executives are
female:
As mentioned earlier that studies in the past have clearly indicated that female executives are not
only less likely to assume risks in running a business organization but also more likely to comply
and follow the standard rules and regulations of business operations. Thus, the possibility of
error and fraud in an organization where executives are mainly female is much less as compared
to the firms dominated by male executives (Kinicki & Fugate, 2016). Thus, not only there would
be less law suits against such firms but in general there would be much less trouble as the firm is
more likely to comply with the rules and regulations stated in different legislations governing the
corporate, tax and other laws in the country where the firm mainly operates. The expected
troubles to an entity is much less with female executives as per the hypothesis is quite reasonable
from the findings of different study regarding the nature and characteristics of people on the
basis of their gender. Impact of gender on the decision making process and overall functioning of
an organization is very much visible in this discussion (Parker, 2014).
2.4. Measurement of women powers:
In order to measure the women executives’ powers generally two variables are used. Firstly, the
number of women executives that have been appointed in the Board of directors of an
organization to consolidate their views and pursue their risk preference in decision making
process within an organization (Patel, 2011). For example suppose in a Board of a company
where there are five directors in total the lone presence of a women director will not expected to

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influence the overall decision making process and risk presence of such organization unless until
the women director is majority shareholder of the company. Thus, the presence of women
executives should not be symbolic only as in that case the result would not be in line with the
findings of the study. Thus, the ability to form alliance is key to the overall functioning of an
organization and determination of its risk preference in general (Schnusenberg, 2017).
Secondly, the pay packages of female executives are also important to the overall influence of
women managers in an organization. The higher the pay package of women directors the more
the expected influence on the overall functioning of an organization. The consolidated pay
package of all female executives in the top five managerial position within an organization
would determine the impact and influence of these female executives in the decision making
process of an organization. The risk preference and the operation style of a firm thus, to a large
extent is dependent on the overall participation of female executives along with their pay
packages.
2.5. Lawsuits filed against S&P 1500 firms between 2002 and 2011:
In the research specific questions are asked on the firms and their increasing problems with
litigations and law suits. The following questions must be answered first in order to understand
the implications of women executives on the overall functioning of business entities.
I. The reasons for the companies to continuously being sued by different stakeholders,
i.e. what the companies do to attract law suits after law suits from different
stakeholders.
II. Why these law suits are filed, i.e. the objective behind filing law suits against an
entity (Soares, 2016).

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III. Who are the persons that bring most law suits and cases against the firm?
IV. What are the characteristics of the law suits, i.e. whether the law suits are in respect
of securities or are these non-securities?
The study shows that most of the law suits are brought in by the customers and competitors of a
firm and the reasons for such law suits are mainly non-satisfactory performance of products or
services from a firm and technological or other infringement by a firm. The law suits are both
securities and non-securities law suits and the research is specifically directed to analyze the
contributions of non-securities law suits (Valentine & Rittenburg, 2018). The study has
separately focused on the effects of securities and non-securities law suits. The law suits on
securities have mostly registered by the shareholders of different firms and these are mainly in
relation to the financial decisions and disclosure requirements in financial statements. Thus,
shareholders have felt that management decisions on certain matters regarding the operating
decisions of the company are not commensurate to the objective of shareholders and have not
contributed to the objective of shareholders’ wealth maximization (Adamson & Kelan, 2018). In
fact where the shareholders have reasons to believe that decisions have been made are not going
to contribute to the shareholders’ objectives they have registered litigation cases against the
respective firms. Also cases have been registered by the shareholders in a court of law regarding
non-disclosure of necessary facts in the financial statements of the. These are all securities law
suits brought in by the shareholders of different firms (Asakiewicz, 2011). Non-securities law
suits on the other hand have been mainly registered by the competitors, customers and other
stakeholders. These are also referred to as operating law suits as mostly these are associated with
the operating decisions within an organization and its functions.

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2.6. Findings from the study are consistent with the hypothesis:
The base line regression of the research here has showed that the firms with female executives
and with more women in the top managerial decision making positions have faced much less
number of operating law suits as compared to firms with male executives. In fact firms around
the globe have also experienced significant drop in operating lawsuits in following years after
appointing female executives at the top decision making bodies within the firms. The women
power in management is crucial to the reduction in operating law suits filed by the customers,
competitors and other stakeholders (Baran, 2013).
The study shows that an entity without any changes to its operational structure have faced far
less troubles and reduced amount of operating law suits in t+1 year as compared to the trouble
and law suits faced in year t only by appointing female executives at the tope decision making
bodies. Thus, keeping other factors constant the only change in managerial position by inclusion
of female executives have resulted in much less trouble and reduced cases against a firm. This is
again mainly because women have tendency to avoid risky proportions even if these are valuable
propositions from organizational point of view shows the justification of the hypothesis that
women attract less controversy and risk as compared to men executives. A clear negative impact
on the operating law suits against a particular company is experienced subsequent to
appointment of female executives in management and administrations within an organization
("Female Executives in Healthcare Management in the context of the Upper Echelon Theory",
2018).
2.7. Mechanisms at work in reduction of law suits: