The Changing of the Boards: The Impact on Firm Valuation of Mandated Female Board Representation
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
May 20, 2011
Quarterly Journal of Economics, 2012, vol. 127(1): 137-197.
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.
Number of Pages in PDF File: 66
Keywords: Board of directors, Natural experiment, Tobin's Q, Gender
JEL Classification: G34, G38, J48, J20
Date posted: March 21, 2009 ; Last revised: June 16, 2012