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The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation

66 Pages Posted: 21 Mar 2009 Last revised: 16 Jun 2012

Kenneth R. Ahern

University of Southern California - Marshall School of Business; National Bureau of Economic Research (NBER)

Amy K. Dittmar

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business

Date Written: May 20, 2011

Abstract

In 2003, a new law required that 40 percent of Norwegian firms’ directors be women – at the time only nine percent of directors were women. We use the pre-quota cross-sectional variation in female board representation to instrument for exogenous changes to corporate boards following the quota. We find that the constraint imposed by the quota caused a significant drop in the stock price at the announcement of the law and a large decline in Tobin’s Q over the following years, consistent with the idea that firms choose boards to maximize value. The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance, consistent with less capable boards.

Keywords: Board of directors, Natural experiment, Tobin's Q, Gender

JEL Classification: G34, G38, J48, J20

Suggested Citation

Ahern, Kenneth R. and Dittmar, Amy K., The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation (May 20, 2011). Quarterly Journal of Economics, 2012, vol. 127(1): 137-197.. Available at SSRN: https://ssrn.com/abstract=1364470 or http://dx.doi.org/10.2139/ssrn.1364470

Kenneth Robinson Ahern

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~kahern/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Amy Dittmar (Contact Author)

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-3108 (Phone)

HOME PAGE: http://webuser.bus.umich.edu/adittmar/

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