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Balancing finance: the diversity dividend

Markets cannot be efficient if they do not incorporate ideas from half the world’s population.

‘What happens when women run the economy? We’re about to find out.’ ‘A female-led economy is coming - and it will be better.’ ‘Women empowering change.’   

 These were just a few of the headlines in 2021 sparked by the appointment of Janet  Yellen, as US Treasury Secretary and Ngozi Okonjo-Iweala as the Director-General of the World Trade Organisation. Lining up alongside others such as Christine Lagarde, President of the European Central Bank and Kristalina Georgieva, Managing Director of the International Monetary Fund, it seemed like the male dominated world of finance and economics was finally changing. 

But tackling gender inequality involves more than changing a few faces at the top, it involves a rethink of finance itself. Public and private financial institutions need to change, yes. But the academic institutions that teach, influence, inspire, and mould the future bankers, fund managers, brokers, traders, economists, policy makers and finance and economics professors also need to change.

In the field of finance only 35 out of 340 top finance scientists are women.

Given the importance of finance academia my colleague, Jing Xu, and I felt it was time to assess the state of gender equality in our field. In our research, The Inequality of Finance, we determined that finance ranks a lowly 132 out of 175 fields in terms of the representation of women among its top scientists. In the field of finance only 35 out of 340 top finance scientists are women. While it is no secret that men dominate the finance industry, our paper exposes for the first time that men also dominate finance thought leadership.

Despite being a young field (the field of academic finance was carved out of economics in the early 1940s, making it only 80 years old) finance thought leadership, as measured by academic citations, is less gender diverse than fields that are comparably or more math-intensive. 

An additional cause for concern is that this lack of gender diversity in my field is exacerbated even further by geographic imbalances. Our evidence also shows that only 20% of those 340 top scientists in finance are located outside of the USA and UK. 

So why are we seeing such a low level of female representation in finance? Here it is useful to compare the field of finance with economics and STEM to understand the dynamics driving the inequality. My research, and related studies by my colleagues, show that women’s lower representation in finance is unlikely to be driven by any obvious societal barriers to entry.   

To understand potential barriers to women’s advancement we examined the role of scientists’ beliefs about the importance of hard work as opposed to innate talent for success in their fields. Perhaps not surprisingly, scientists in finance, especially men, place more emphasis on the importance of innate talent than scientists in other fields. These beliefs by men in finance seem to explain much of the underrepresentation of women in finance.  Thus, our results suggest that the specific culture in the field of finance is a higher barrier to women’s advancement in finance than it is in other fields.  

Finance is critical for economic growth and tackling income inequality. Despite the ongoing debate about the importance of financial inclusion we know that members of the population do not always embrace finance. This is a concern because trust is central to the stability of the financial system as it is being transformed by a fintech revolution and recovers from the fallout of the global financial crisis of 2008. In other research (Trust in finance: Values matter) I show that trust in finance may be higher when finance professionals are more similar to members of the general population. Thus, making finance more diverse is not a diversity box ticking exercise but is an economic imperative.    

Since academics are loath to act without data, another colleague, Michelle Lowry, and I felt it was important to document the factors that could help to explain women’s low representation in finance academia. For our research paper, What's Good for Women is Good For Science, we conducted a survey of the American Finance Association and asked 5 questions:   

  1. Are there gender differences in job satisfaction among finance academics?  

  2. Do female academics have different characteristics that would lead them to be less successful; for example, do they shy away from competition?   

  3. Does the structure of academic work prevent women from advancing because childbearing years typically overlap with the career stage when one is working to obtain tenure and work demands are particularly high?   

  4. What is the importance of discrimination in academia? To the extent that potential gender bias contributes to smaller networks and less feedback for women, it can lead to gender gaps in job satisfaction.  

  5. Does lower job satisfaction matter for science? If women face barriers that prevent them from participating in science, does science suffer?  

In contrast to much of the literature on job satisfaction, we show that women in finance academia are less satisfied than men. Experiences of discrimination explain most of the gender gap in satisfaction. We also show that job satisfaction is linked to academic discourse, and if the very way that we debate, discuss, research and teach finance in academic circles is not inclusive then that suggests that low job satisfaction will come at the cost of the field of finance.  

But we also show that university policies can help reduce the gender gap in satisfaction. Simply hiring more women does not seem to help. Instead, addressing the source of dissatisfaction, such as taking steps to address discrimination and fostering a culture of collegiality, improves job satisfaction.   

As a professor of finance, I recognise that simply having more female MBA students will not lead to greater representation of women in finance. Indeed, it is almost paternalistic to argue that exposing women to the ideas and beliefs of men, primarily through men, will attract them to finance. To increase diversity in finance, we have to try to treat the disease, not the symptom. We need to start questioning existing power structures to open the field to new ideas and implementing institutional and professional policies to encourage the exchange of ideas. It is difficult to change culture, but as in investing, as the renowned financier, Robert Arnott, tells us 'what is comfortable is rarely profitable'.


This article is based on 3 research papers authored by Renée Adams and fellow finance professors:

The Inequality of Finance by Renée Adams and Jing Xu

Trust in finance: Values matter by Renée Adams

What’s Good for Women Is Good for Science: Evidence from the American Finance Association Renée Adams and Michelle Lowry