Investment – cash flow sensitivity: From capital to environmental projects and the role of female CEOs

Aiming to achieve financial returns while promoting long-term environmental and social value, sustainable investment has become an increasingly prevalent trend in recent decades. This study investigates the impacts of female CEOs on investment–cash flow sensitivity (ICFS), extending beyond traditional capital ICFS to include ICFS derived from environmentally friendly projects. The study utilizes a data sample comprising 4571 publicly listed firms from G7 countries between 2006 and 2020, featuring 83,012 firm-year observations. The results reveal that female CEOs depend more (less) on the availability of internal cash flow when making capital (environmental) investment decisions compared to their male counterparts. In other words, less (more) efficient capital (environmental) investment decisions are taken by female CEOs. Concerning environmental investment, the mitigating effect of female CEOs on environmental ICFS is strengthened when firms have robust sustainability governance, such as a sustainability committee, sustainability management incentives, and the publication of sustainability reports. The findings are reinforced by various robustness checks, and their implications can be conveyed to companies, investors, policymakers, and society.