Value-Enhancing Effects of Female Independent Directors in Companies with Overconfident CEOs

Little research exists on matching CEOs and directors. We find female independent directors (IDs) strengthen the benefits of overconfident (OC) CEOs. Female IDs reduce excess capital expenditures and less profitable acquisitions, increase R&D, and mitigate excessive risk taking. They impose greater accountability on overconfident CEOs and lead to stronger valuation-multiples and operating performance. Exogenous female ID departures from OC CEO led firms trigger negative stock returns and firm performance declines. Female ID appointment announcements at firms with overconfident CEOs and independent nominating committees generate positive CARs. Our results suggest that female IDs can effectively mitigate OC CEOs’ negative behavioral biases.