Want to improve your company's bottom line? Put more women at the top. According to a study by Theresa Welbourne, a professor in Cornell University's School of Industrial and Labor Relations, the stocks of companies that went public that had more women on their top management teams performed better in both the short and long run than those with few or no women at the top.

The first thing Welbourne discovered when she began her studies of initial public offering (IPO) firms was that the presence of women in top management posts, in general, has increased significantly during this decade. In 1988 when she surveyed 136 companies that went public, she found no women in upper-echelon positions. But by 1993 when she surveyed 535 IPO companies, Welbourne found that women were included on 27 percent of the companies' top management teams. And in a later study, she found that women were in key executive positions at a full 41 percent of the companies that went public in 1996.

To determine whether company performance was effected by the presence of more women at the top, Welbourne tracked over time the performance of the 535 IPO companies that she initially surveyed in 1993. Four hundred and seventy-six of them were included in her final analysis; the remaining 59 had merged, were acquired, filed for bankruptcy or stopped filing with the Securities and Exchange Commission (SEC) for other reasons.

Her study found that firms with more women on the top management team did better at the initial public offering than companies with fewer or no women at the top, obtaining higher values on Tobin's Q -- a measure of IPO performance that compares the market value of a firm's stock with its book value. "I chose Tobin's Q, rather than absolute stock price," said Welbourne, "because it takes into account the opinions of expert investors on the real value of a stock." In obtaining her results, she controlled for such variables as company size, age, risk factors and financial performance at the IPO stage, all of which may affect overall firm performance.

Welbourne then assessed the effect of women executives' presence on the performance of the 476 companies over three years, from initial public offering in 1993 through year-end 1996. There she also found that having more women on the top executive teams had a positive and significant effect on both stock-price growth and earnings-per-share growth, although her results were not quite as impressive as those in her earlier IPO assessment.

"Theresa's findings are exciting," said Murem Sharpe, an executive with a Detroit-based major global supplier of business and technology services. "I've long believed that women bring business savvy and a balanced perspective to the corporate mix. Now here's proof positive that they do. Companies, especially those just going public, would be well advised to take these results into account when assembling their top management teams."

Welbourne said that her findings are particularly interesting in light of earlier studies by others concluding that businesses headed by women don't prosper. For example, a study by R. Chaganti and S. Parasuraman published in Entrepreneurship Theory and Practice in winter 1996 suggested that companies owned by women don't perform as well as those owned by men.

"There may be many reasons for that finding," said Welbourne, "none of them having to do with women's acuity for business." To prove the point that women make good business leaders, she cited a leadership study reported on in USA Today that showed women managers taking top honors in 28 of the 31 categories surveyed, including ability to meet deadlines, generate ideas and be productive.

Welbourne speculated that the reason for lower performance of some women-owned firms may be due to something suggested in her work. In the paper on her study, she asserts that it is the mix of women and men at the top levels, not the presence of women alone, that made the IPO companies' stock values climb higher. She noted that at nearly all the companies she surveyed, women held less than 50 percent of the leadership positions, and at the very most they held 86 percent of the top posts.

Welbourne observed, interestingly, that there was little or no correlation between companies with more women in top management and companies traditionally viewed as female-oriented. Of the 73 companies surveyed with 20 percent or more women in top management, only five were in so-called female businesses, specifically the marketing of clothing to women and children, while the remainder were in such non-gendered industries as telecommunications, banking and finance, software, manufacturing and hospitality.

Welbourne suggested that the proliferation of skilled women in top posts at IPO companies may be related to the fact that many such companies are start-ups with entrepreneurial structures and lower pay scales than the corporate giants that tend to attract more men at the top. She was cautious about her study's findings and called for more research

to determine the effect of women as top managers on a company's financial performance. Nevertheless, she believes that their positive influence has already been noted by the investment community.

The study was part of an overall research project in which Welbourne and her team of researchers looked at what determines success among firms making initial public offerings. Her main source of information for identifying top-level managers and obtaining data on firm financial performance was the company prospectus, which had the advantage of being as accurate as possible and consistent from company to company, in keeping with guidelines set by the SEC.

Welbourne's paper on her study, "Wall Street Likes Its Women: An Examination of Women in the Top Management Teams of Initial Public Offerings," is part of the ILR School's Center for Advanced Human Resource Studies working paper series. Copies may be ordered from the CAHRS office at (607) 255-5347 or downloaded from the web site listed below.